CS (OS) No.1363/2005 Page 1 of Page 23 * IN THE HIGH COURT OF DELHI AT NEW DELHI Date of Reserve : 19.09.2008 Pronounced on : 16.01.2009 + IA Nos.2803/2006, 14366/2006 & 14367/2006 in CS (OS) No. 1363/2005 W.P.I.L. ..... Plaintiff Through : . Mr.T.K. Ganju, Sr.Adv. with Ms.Ekta Kapil and Mr.Sindhu Sinha, Advocates versus NTPC Ltd. & Ors. ..... Defendants Through : Mr.Valmiki Mehta, Sr.Adv. with Ms.Ayushya Kumar and Ms.Akansha Sharma, Advocates for D-1. Mr.Rajeev Nayyar, Sr.Adv. with Mr.Sanjay Kumar Mr.Abhinav Mukerji, Advocates for D- 2 & 3. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT 1. Whether the Reporters of local papers may be allowed to see the judgment? Yes 2. To be referred to Reporter or not? Yes 3. Whether the judgment should be Yes reported in the Digest? S.RAVINDRA BHAT, J. *1. The present common order will disposed off several applications by the parties, viz I.A. 2803/2006 , under Section 8 of the Arbitration and Conciliation Act (hereafter „the Act‟); I.A. 14366/06 under Order I, Rule 10 and I.A. 14367/06, under Section 45 of the Act. 2. The brief facts necessary to dispose of the applications are summarized as follows. Pursuant to the first defendant‟s (hereafter “the NTPC”) invitation for bids for CS (OS) No.1363/2005 Page 2 of Page 23 supply of a cooling water system package, for its SIPAT Thermal Power Project, Stage 1, Bilaspur at Chahatisgarh, the plaintiff submitted its bid. In terms of Clauses 7.1 and 7.3, of the instruction for Bidders (“IFB”, which, together with the terms of the bid, general terms and conditions, etc, formed the tender documents) a bidder could club the experience of associates, to enable fulfillment of eligibility conditions as regards previous experience in constructing similar works (and specified works, under the tender documents). One condition was that in such cases, if another concern was involved as an associate, it had to submit a Joint Deed of Undertaking (JDU) to the NTPC. 3. The second defendant (hereafter „Alstom‟) entered into an agreement with the plaintiff on 19.08.2004 (hereafter “the Project Agreement”). Clause 2.1 of that agreement spelt out the purpose, i.e. preparation and submission of tender to the NTPC: Clause 7.3 of the IFB, to enable the plaintiff to qualify for the bid, was spelt out in this agreement with Alstom. Clause 4.7 recorded Alstom‟s obligation to sign a joint deed of undertaking, with the plaintiff, to be furnished to the NTPC. A bank guarantee to the extent of 1% of the total value of the contract, was to be furnished to NTPC. Clauses 9 and 10 read as follows: “9.0 Disputes: 9.1 Any dispute arising in connection with the interpretation or performance of the Agreement shall be settled through Arbitration. 9.2 The arbitration shall take place at Paris (France) under the Rules of Conciliation and Arbitration of the International Chamber of Commerce, Paris by one or more Arbitrators appointed in accordance with the said rules. 10.0 Applicable Law: 10.1 The Agreement shall be governed by construed in accordance with the substantive law of France.” 4. A JDU, in terms of the IFB, had been executed by the plaintiff and Alstom. In terms of the JDU, Alstom declared and undertook its joint and several responsibility to the CS (OS) No.1363/2005 Page 3 of Page 23 NTPC (described as “the owner”) for the successful performance of the Pumps, under the plaintiff‟s contract with NTPC and also technically guaranteed the equipment. By clause 6 of the JDU, Alstom undertook to furnish a bank guarantee equal to 1% of the total value of the contract between NTPC and the plaintiff. Clause 8 of JDU stated that the undertaking was „‟irrevocable” and formed “an integral part of the contract”. “Contract” was defined as the bid, furnished by the Plaintiff, being accepted by NTPC. 5. The plaintiff furnished its bid to the NTPC on 25.09.2004, along with a bank guarantee for Rs.2,35,05000/- favoring it, valid till 03.09.2005. It further alleges that NTPC‟s officers visited Alstom‟s offices in France in April 2005, to satisfy themselves about feasibility of its equipment after which the plaintiff‟s bid was accepted on 31.05.2005. Clause 6 of the General Condition of Contract, (hereafter “GCC”) awarded by the NTPC to the plaintiff, reads as follows: “6. (A). Adjudicator: i. If any dispute of any kind whatsoever shall arise between the Employer and the Contractor in connection with or arising out of the Contract, including without prejudice to the generality of the foregoing, any question regarding its existence, validity or termination, or the execution of the Facilities or after their completion and whether progress of the Facilities or after their completion and whether before or after the termination, abandonment or breach of the Contract- the parties shall seek to resolve any such dispute or difference by mutual consultation. It the parties fail to resolve such a dispute or difference by mutual consultation, then the dispute shall be referred in writing by either party to the Adjudicator, with a copy to the other party. ii. The Adjudicator shall give its decision in writing to both parties within twenty-eight (28) days of a dispute being referred to it. If the Adjudicator has done so, and no notice of intention to commence arbitration has been given by either the Employer or the Contractor within fifty-six (56) days of such reference, the decision shall become final and binding upon the Employer and the Contractor. Any decision that has become final and binding shall be implemented by the parties forthwith. iii. Should the Adjudicator resign or die, or should the Employer and the Contractor agree that the Adjudicator is not fulfilling its functions in accordance CS (OS) No.1363/2005 Page 4 of Page 23 with the provisions of the Contract, a new Adjudicator shall be jointly appointed by the Employer and the Contractor. Failing agreement between the two, within twenty eight (28) days, the new Adjudicator shall be appointed at the request of either party by the Appointing Authority specified in the SCC. (B). Arbitration: i. It either the Employer of the Contractor is dissatisfied with the Adjudicator‟s decision, or if the Adjudicator fails to give a decision within twenty- eight (28) days of a dispute being referred to it, then either the Employer or the Contractor may, within fifty-six (56) days of such reference, give notice to the other party, with a copy for information to the Adjudicator, of its intention to commence arbitration, as hereinafter provided, as to the matter in dispute, and no arbitration in respect of this matter may be commenced unless such notice is given. ii. Any dispute in respect of which a notice of intention to commence arbitration has been given, in accordance with GCC Sub-Clause 6.2.1, shall be finally settled by arbitration. Arbitration may be commenced prior to or after completion of the Facilities. iii. Any dispute submitted by a party to arbitration shall be heard by an arbitration panel composed of three arbitrators, in accordance with the provisions set forth below. iv. The Employer and the Contractor shall each appoint one arbitrator, and these two arbitrators shall jointly appoint a third arbitrator, who shall chair the arbitration panel. F the two arbitrators do not succeed in appointing a third arbitrator within twenty-eight (28) days after the latter of the two arbitrators has been appointed, the third arbitrator shall, at the request of either party, be appointed by the Appointing Authority for arbitrator designated in the SCC. v. If one party fails to appoint its arbitrator within forty-two (42) days after the other party has named its arbitrator, the party which has named an arbitrator may request the Appointing Authority to appoint the second arbitrator. vi. If for any reason an arbitrator is unable to perform its function, the mandate of the Arbitrator shall terminate in accordance with the provisions of applicable laws as mentioned in GCC Clause 5 (Governing Law) and a substitute shall be appointed in the same manner as the original arbitrator. vii. Arbitration proceedings shall be conducted (i) in accordance with the rules of procedure designated in the SCC, (ii) in the place designated in the SCC, and (iii) in the language in which this Contract has been executed. viii. The decision of a majority of the arbitrators (or of the third arbitrator chairing the arbitration panel, if there is no such majority) shall be final and CS (OS) No.1363/2005 Page 5 of Page 23 binding and shall be enforceable in any court of competent jurisdiction as decree of the court. The parties thereby waive any objections to or claims of immunity from such enforcement. ix. The Arbitrator(s) shall give reasoned award. (C) Notwithstanding any reference to the Adjudicator or arbitration herein. i. The parties shall continue to perform their respective obligations under the Contract unless they otherwise agree ii. The Employer shall pay the Contractor any monies due to the Contractor.” 6. The plaintiff alleges having signed the contract with NTPC on 30.06.2005 in anticipation of Alstom fulfilling its obligations. It further alleges that at after that, Alstom started entertaining doubts about its terms. After a series of letters and correspondence were exchanged, on 22.07.2005 and 09.08.2005, the plaintiff was informed that Alstom would not be furnishing the bank guarantee for an amount equivalent to one percent of the contract value (with NTPC), in terms of the JDU. It is claimed that the plaintiff has performed and is ready to and willing to perform all obligations, including those mentioned under clauses 31 and 32.1 of ITB and is ready to furnish 10% of the performance security to NTPC. 7. The plaintiff avers having sought to submit a bank guarantee in lieu of the one to be submitted by Alstom, since it had fulfilled all other obligations. However, on 23.08.2005, the NTPC refused that request. The plaintiff adverts to a letter dated 07.09.2005 and a meeting held between itself and the first three defendants on 08.09.2005 and 09.09.2005 whereby Alstom refused to submit the bank guarantee in terms of IFB. According to the plaintiff, Alstom and the third defendant also presented the plaintiff with a new draft sub- contract, in terms drastically different from the agreed conditions. One instance cited is the term containing the plaintiff‟s liability to furnish bank guarantee for 6 million Euros, not CS (OS) No.1363/2005 Page 6 of Page 23 contracted or agreed upon earlier. The plaintiff avers to further correspondence with NTPC on 15.09.2005 and 19.09.2005 whereby the latter were asked to accept its (i.e. the plaintiffs‟) substituted bank guarantee instead of Alstom; the pleadings also refer to meetings held between 21.09.2005 to 23.09.2005. 8. It is alleged that the plaintiffs were threatened by NTPC that the bank guarantee furnished to it would be en-cashed. The plaintiff alleges without prejudice to its other contentions that the refusal by Alstom to furnish a bank guarantee, equivalent to one percent of the contract value is a circumstance beyond its control and is “Force Majeure” within the meaning of clause 37 of the General Conditions agreed upon with NTPC. 9. The plaintiff, therefore, seeks permanent injunction against NTPC from encashing the bank guarantee issued by the fourth defendant bank (hereafter “the bank”) as also a consequential injunction restraining the bank from paying money under bank guarantee dated 22.09.2004; similarly a mandatory injunction directing the first defendant to return the bank guarantee, is also sought. The relief sought against Atstom is mandatory injunction to submit bank guarantee to the extent of one percent of the contractual amount in terms of the tender and JDU, or, in the alternative, a direction to it and the Defendant no. 3 to secure NTPC and the plaintiff for the bid security, being the bank guarantee issued by the fourth defendant. A declaration that clause 32.4 is invalid, has been sought; finally, the plaintiff seeks mandatory injunction against NTPC to permit it to substitute another bank guarantee to the extent of one percent to perform of the value of its contract, along with its obligations under the tender along with the fifth defendant. 10. Alstom has applied under Section 45 of the Act for an appropriate order, being I.A. No. 14367/2006. It relies upon clauses 9 and 10 of the Project Agreement entered into CS (OS) No.1363/2005 Page 7 of Page 23 with the plaintiff on 19.08.2004 and alleges that the plaintiff has disregarded it, contrary to the agreed terms. It also contends that this Court is a judicial authority within the meaning of Section 45 and is seized of actions brought by the plaintiff and, therefore, has an obligation to refer the dispute in respect of Alstom, contained in the suit, in terms of clauses 9 and 10. 11. The NTPC, by its application, I.A. No. 2803/2006 relies on Section 8 (which appears in Part-I of the Act), and submits that the disputes, that are subject matter of the suit cannot be proceeded with by the Court in view of the clause-6 of the GCC. This Court had issued an interim order against NTPC from encashing the bank guarantee, on 28.09.2005. However, even before the said order could be served upon NTPC, the bank had released payment under the bank guarantee. It is contended that the plaintiff‟s averments with regard to existence of Force Majeure conditions on account of alleged violation of the JDU by Alstom and alleged loss occasioned to the NTPC due to the plaintiff‟s actions and omissions squarely fall within clause 6. Therefore, the plaintiff, if aggrieved, has to seek recourse to the arbitration clause and cannot maintain the present suit. 12. The applicant NTPC further avers in its rejoinder filed on 31.08.2006 that the plaintiff‟s inability and failure to comply with the terms of the contract and the demand made to it, to furnish the bank guarantee of its associates resulted in termination of the contract. It refers to a letter, dated 21.12.2005 granting 14 days‟ time to enable it to furnish the bank guarantee and the subsequent termination letter, dated 10.01.2006 in line with clause 42.2 of Section IV of the General Conditions of Contract. 13. The third defendant has preferred I.A. No. 14366/2006 for deleting it from the arena of parties. It alleges not being a necessary nor a proper party to the dispute between the plaintiff on the one hand and the NTPC and Alstom on the other. According to this applicant, CS (OS) No.1363/2005 Page 8 of Page 23 the plaintiff has merely adverted to it as belonging to the same group as Alstom and having participated in dealings with it. It is not a party to JDU or Project Agreement or even the agreement with NTPC, out of which the alleged causes of action have arisen. It, therefore, claims that the suit is not maintainable as far as it is concerned. 14. Mr. T.S. Ganju, learned senior counsel for the plaintiff contended that Alstom‟s application as well as that of NTPC, are not maintainable because the averments in the suit and the reliefs claimed, are not arbitrable in terms of clause 9 of the Project Agreement. He submitted that notwithstanding the arbitration agreement, if the suit contains averments which cannot be the subject matter of arbitration, has involved third parties to the arbitration agreement, the Act has no application. Learned counsel referred to the decisions reported as Haryana Telecom vs. Teralite Industries 1999 (99) CC 675 and Sukanya Holdings v. Jayesh. H. Pandya & Another 2003 (5) SCC 531. It is further contended that the suit has been filed against the parties such as third, fourth and fifth defendants who were not parties to the arbitration agreement contained in the tender dated 20.06.2004, or the Project Agreement. Therefore, such non-parties cannot be referred to arbitration under clause 6.2 of the general terms and conditions. According to the plaintiff, the fifth defendant is a necessary party for the full adjudication of this case as it is its associate. Yet, it is not a party to the arbitration agreement and cannot be compelled to participate in such proceedings. 15. The plaintiff contends that though there are two separate agreements between it and NTPC and between it and Alstom, yet they are part of the same transaction and are intertwined. It was emphasized that the bid leading to the contract between NTPC and plaintiff was finalized in consultation with Alstom whose offices were visited by NTPC; the latter had full knowledge that Alstom was involved in the contract and even accepted the CS (OS) No.1363/2005 Page 9 of Page 23 JDU. Reference is made to clause 4.7 of the Project Agreement and clause 6 of the JDU, furnished by Alstom. 16. It was contended that the NTPC cannot insist upon arbitration of the dispute forming subject matter of the suit because the clause 6.1 of the General Conditions of the Contract consists of a pre-arbitration mechanism without recourse to which there can be no reference to arbitration. It was submitted that if NTPC wanted reference to arbitration in terms of the agreement, it had to compulsorily follow the procedure outlined in clause 6.1. It did not do so; therefore, the application under Section 8 of the Act is not maintainable. It was lastly contended that in any event, since the suit concerns one transaction and outlines the grievance against different parties arising out of a series of transactions intertwined with each other, though it comprehends two different arbitration clauses, referring parties to such arbitration proceedings would be unworkable. Counsel emphasized that the arbitration proceedings arising out of such agreements would be entirely different; the arbitration with Alstom would have to be in Paris (France) in terms of foreign law whereas arbitration with NTPC would be under domestic law. Though common questions of fact and law would arise, there would be a real possibility of conflicting awards prejudicing the plaintiff. In the circumstances, the Court should decline the request and dismiss the applications. 17. Mr. Rajiv Nayyar and Mr. Valmiki Mehta appearing on behalf of NTPC and Alstom submitted that the decision in Sukanya Holdings (supra) has no application to the facts of this case. According to the counsel, the plaintiff has clubbed two unrelated causes of action and the suit is bad for mis-joinder of causes of action. It is submitted that the allegations in the suit indicate that when it was presented, the plaintiff‟s main grievance was against encashment of bank guarantee by NTPC. This is evident from the first three reliefs CS (OS) No.1363/2005 Page 10 of Page 23 sought. Such disputes with the NTPC are squarely covered by clause 6 of the general conditions of contract and the Court necessarily has to relegate the plaintiff to arbitration. In this context, Mr. Nayyar contended that the mandate of Section 8 cannot be ignored by the Court merely because the plaintiff artificially roped in other parties in order to confuse the real dispute. 18. Mr. Valmiki Mehta appearing on behalf of Alstom contended that clause 9 of the Project Agreement casts an absolute duty on the parties, which has to be given effect to by the Court under Section 45. He relied upon the decision reported as Swenska Handels Banken & ors. v. M/s. Indian Charge Chrome Limited 1994 (2) SCC 155 and submitted that merely by entering into other contracts, the plaintiff cannot defeat the parties‟ intention under clause 9 and 10 to have a foreign arbitration for resolution of their disputes. It was also argued that having regard to Order 1 Rule 3 and Order 2 Rule 3 of the Code of Civil Procedure, the plaintiff has indulged in mis-joinder of parties as well as causes of action. The counsel urged that the dispute with Alstom had no bearing with NTPC or the bank; any claim raised by the plaintiff in this regard could not legitimately involve a response by any other party. Alstom submitted that it was constrained to withdraw from the understanding because the plaintiff had changed material particulars in the documents furnished after the Project Agreement was entered into with it. The basis of the understanding whereby Alstom agreed to collaborate and become the plaintiff‟s associate had been changed; consequently it did not want to commit itself. These facts and disputes were exclusive to the plaintiff and Alstom. Similarly, so far as the third defendant was concerned, it was unnecessarily roped without any rhyme or reason. Learned counsel relied upon the decision of this Court Bank of Baroda v. M/s. Prakash Warehouse & ors. ILR 1980 (2) Del 962. It was, therefore, contended that the suit cannot be CS (OS) No.1363/2005 Page 11 of Page 23 proceeded with and if the plaintiff wishes to adjudication of any disputes he should seek recourse to the arbitration clause in question. 19. Before discussing the merits of the parties‟ contentions, it would be necessary to notice the relevant conditions. The invitation for bids by clause 7 states as follows: “7.0 QUALIFYING REQUIREMENTS FOR BIDDERS In addition to qualifying requirements stipulated under Instruction to Bidders (ITB), the following shall also apply: 7.1A) The Bidder should have executed in the preceding seven (7) years reckoned as on date of bid opening, civil & structural works of cooling water pump house/intake pump house, fore-bay, pump sumps involving deep excavation, de-watering, back-filling, concreting etc. and should have achieved at least the following: (a) Concreting of 30,000 cubic meters in any one (1) one year in one (1) or cumulative of two (2) concurrently running contracts and, (b) (i) Fabrication of 3000 MT mild steel pipes/ducts carrying fluids in any one (1) year in one (1) or cumulative of two (2) concurrently running contracts and, (ii) Erection of 3000 MT mild steel pipes/ducts carrying fluids in any one (1) year in one (1) or cumulative of two (2) currently running contracts. (iii) The average annual turnover of the bidder, in the preceding three (3) financial years as on the date of bid opening, shall not be less than INR 600 million or equivalent in foreign currency. 7.1B) Bidder should have designed, manufactured, supplied, erected/supervised erection, tested and commissioned/supervised commissioning of at least two (2) nos. of vertical wet pit pumps or two (2) nos. of concrete volute pumps or metallic volute pumps with concrete encasement for condenser cooling water application/comparable duty, of capacity 40,000 cu. m/hr or more having specific speed in the range of 4000-7000 (US units) which are in successful operation for at least two (2) years as on date of bid opening. The reference pumps should be of the same type i.e. vertical wet pit type pumps or concrete volute type pumps or metallic volute pumps with concrete encasement as is being offered by the Bidder. 7.2) Bidder who meets the requirements specified in 7.1(A) above, can also participate provided he associates with a firm who meets the requirement of 7.1(B) above which the bidder himself is unable to meet. CS (OS) No.1363/2005 Page 12 of Page 23 In such a case bidder shall furnish undertaking jointly executed by him and his associate for the satisfactory performance of the equipment under the contract, as per the format enclosed in the bid document. This joint deed of undertaking shall be submitted alongwith the bid, failing which the bidder shall be disqualified and his bid shall be rejected. Further, in case of award, the Bidder‟s associate will be required to furnish an on demand bank guarantee for 1.0% (one percent) of the contract price in addition to the contract performance security by the Bidder. 7.2B) Bidder who meets the requirements specified in 7.1(B) above, can also participate provided he associates with a firm who meets requirement of 7.1(A) above which the bidder himself is unable to meet. In such a case bidder shall furnish undertaking jointly executed by him and his associate for the satisfactory performance of the civil works under the contract, as per the format enclosed in the bid document. This joint deed of undertaking shall be submitted alongwith the bid, failing which the bidder shall be disqualified and his bid shall be