Case: WAPCOS LTD Vs. SALMA DAM JOINT VENTURE

2. Briefly stated, the Ministry of External Affairs (for short, MEA) and the appellant in the leading appeal, Water and Power Consultancy Services (India) Limited (for short, WAPCOSL), a Public Sector Undertaking, entered into an agreement, dated 29.11.2004, for the implementation of the worke Reconstruction, Rehabilitation and completion of Salma Dam Project (3x14 MW), Afghanistan, Package III: Main Civil and Hydro-Mechanical(for short, project). The appellant (WAPCOSL), was given the responsibility to provide financial, administrative and contractual management services for the MEA. Even though MEA was to provide the finances, the same was to be channeled through WAPCOSL to the successful awardee of the tender3. The respondent No.1 in both the appeals, Salma Dam Joint Venture (for short, SDJV) was formed by the M/s SSJV Projects Private Limited (for short, SSPPL) and M/s Angelique International Ltd. (for short, AIL) under a Joint Venture Agreement (for short, JVA) dated 09.09.2005 to submit its bid for the said project. In accordance with the terms and clauses of the JVA, SSPPL was nominated to be the Lead Partner of SDJV with ninety-five percent (95%) share as compared to five percent (5%) share of AIL. SSPPL was also authorized to invoke arbitration by appointing an arbitrator, make claims, et cetera, on behalf of AIL, by executing a Power of Attorney (for short, PoA) dated 09.09.2005 in favour of SSPPL, in accordance with Clause 3.3 of the JVA4. SDJV was successful being the highest bidder and was awarded tender for the said project on 17.01.2006. That was followed by a Contract Agreement dated 09.03.2006 (for short, Contract Agreement) for executing the stated contract between the WAPCOSL and SDJV. Along with the said agreement, WAPCOSL and SDJV signed certain documents to be read with the Contract Agreement and to form part and parcel thereof. Out of several such documents, Conditions of Particular Applications (for short CoPA) is the relevant one for the purpose of this case. Clause 20.1 thereof deals with Contractors claim and Clause 20.6 deals with Arbitration and it is under these clauses, the respondent No. 1 has rested its case, that is, arbitrability and the power to invoke arbitration5. Be that as it may, the consideration of the Contract Agreement was Rs. 253.84 Crores. However, the same was raised to Rs. 470.40 Crores, on a representation made by SDJV. Once again, there was further change by way of revised rates, after a meeting between SDJV and a High-Power Committee (for short, HPC). In the said meeting, SDJV cited reasons which were beyond its control for initiating timely construction of the project. That justification found favour with the HPC for which it had recommended revised rates with regard to eight items. A letter was sent by WAPCOSL, informing about the acceptance of revised rates of eight items and raising the total consideration to Rs. 872.67 Crores. Subsequent to this, SDJV and WAPCOSL signed a revised agreement for the rates, referred to as the Amendment of Agreement (for short, AoA), dated 09.06.20156. Despite signing of AoA, SDJV raised certain claims before the Engineer of WAPCOSL. After rejection of said representation, SDJV preferred six appeals to the Technical Committee constituted in terms of clause 2.1 of Section – 02 of AoA. Five of these appeals were rejected/disposed of vide report of the Technical Committee dated 28.10.20167. In the meantime, on 04.06.2016, the Dam was inaugurated by the Honble Prime Minister of India and Honble President of Afghanistan. Subsequent to which, a letter dated 02.08.2016 was issued by AIL addressed to WAPCOSL, informing that SDJV has started the process of dismantling the machinery and the work force from the project site with full awareness of WAPCOSL8. Subsequent to the execution of AoA, dispute arose between the JV partners which resulted in AIL filing a petition (bearing number O.M.P. (I) (COMM.) 70/2016) under Section 9 of the Arbitration Act, wherein the High Court of Delhi, vide order dated 05.09.2016, directed WAPCOSL to deposit the amount payable to SDJV with the Registrar of the High Court in order to secure the interests of both the JV entities. The High Court in a separate petition (bearing number Arb. P. 442/2016), filed by AIL against SSPPL, also appointed a sole arbitrator for their (AIL and SSPPL) inter se disputes9. On 21.09.2016, the Board of Directors of AIL resolved to revoke the PoA executed in favour of SSPPL and in furtherance of the same, AIL, vide letters dated 19.10.2016 and 11.11.2016, wrote to the respective Banks and also to WAPCOSL informing them about the revocation of the authority of SSPPL. Thus, it was duly notified through these letters that in future, only those letters or communications which are signed or acknowledged by both the parties (AIL and SSPPL) shall be valid and be entertained by WAPCOSL10. Notwithstanding the abovementioned letters sent by AIL, upon rejection of the claims of SDJV by the Technical Committee, on 28.10.2016, SSPPL, unilaterally, espousing claims of SDJV proceeded to invoke the arbitration process, under clause 20.6 of CoPA and also appointed a nominee arbitrator, vide letter dated 12.11.2016. WAPCOSL, in response, vide letter dated 05.12.2016, recorded that since SDJV is a joint venture entity and the authority of SSPPL to represent AIL has been revoked, the appointment of arbitrator by SSPPL, unilaterally, is illegal in terms of clause 4.2 of the Contract Agreement and clause 3.2 of the JVA11. Resultantly, SSPPL filed a petition on behalf of SDJV against WAPCOSL under Section 11(6) of the Arbitration Act (bearing number Arb. P. 810/2016) before the High Court of Delhi, wherein it has been asserted that the PoA dated 15.07.2005 given by AIL in its favour is still in force and forms part of the Contract Agreement dated 09.03.2006. This assertion is factually incorrect. In that, the PoA was executed as a follow up document alongwith JVA on 09.09.2005 itself. Whereas, the Board of Directors of AIL vide resolution dated 15.07.2005 had authorised its officer to execute the JVA and PoA, which were so executed on 09.09.200512. The said arbitration petition was contested by the appellant (WAPCOSL). However, the High Court allowed the same vide order dated 15.03.2017 and appointed an arbitrator for WAPCOSL13. Feeling aggrieved, WAPCOSL preferred a Special Leave Petition (bearing number SLP (Civil) 26555/2017) before this Court. This Court, vide order dated 03.11.2017, directed impleadment of AIL as a party and also stayed the arbitral proceedings. AIL appeared before this Court and asserted that it did not give consent to SSPPL for appointment of an arbitrator or for filing petition under Section 11(6) of the Arbitration Act. Thus, it had urged that SSPPL had no authority to unilaterally appoint an arbitrator for SDJV or to file the subject petition on behalf of SDJV. Further, the petition filed in the name of SDJV through SSPPL was not as per Delhi High Court Rules. This Court, vide order dated 11.12.2017, deemed it proper to set aside the order passed by the High Court of Delhi dated 15.03.2017 and to relegate the parties before the High Court for reconsideration of all aspects, as would be raised by the parties including regarding the locus and competence of SSPPL to unilaterally appoint an arbitrator or file arbitration petition under Section 11 of the Act14. The High Court of Delhi, vide judgment dated 25.01.2019 (for short, impugned judgment), once again allowed the said arbitration petition and appointed a sole arbitrator, instead of three arbitrators envisaged in CoPA15. The High Court opined that the arbitration agreement between SDJV and WAPCOSL was still in force on the date of filing of the arbitration petition and the same would operate between the parties. That finding has been reached despite the AoA having been executed between the parties on 09.06.2015. The High Court also opined that SSPPL had authority under the JVA as well as the Contract Agreement to represent SDJV, as a leading partner thereof. It held that SSPPL derived authority from clause 20.6 of CoPA read with the other enabling terms in the JVA and FIDIC Conditions of Contract for Construction (for short, FIDIC). The High Court was also impressed by the fact that SSPPL had 95 per cent shareholding in SDJV as against only 5 per cent shareholding of AIL, the other partner. For that reason, it went on to observe that AIL cannot be permitted to derail the arbitration process commenced for and on behalf of SDJV through SSPPL. The High Court was also impressed by the fact that despite the execution of AoA, the Technical Committee entertained the appeals filed by SDJV in respect of certain items. That goes to show that even the Technical Committee was of the view that the dispensation regarding settlement of further claims of SDJV could be pursued and the arrangement arrived under AoA between the parties cannot be treated as full and final settlement. Resultantly, SDJV was well within its rights to take recourse to arbitration for resolution of the disputes in that regard. Further, the fact as to whether SDJV was entitled for the relief, regarding the claims raised, was a matter within the exclusive domain of the Arbitral Tribunal. The High Court, therefore, allowed the Arbitration Petition and appointed a sole Arbitrator for resolution of the disputes between the parties16. Feeling aggrieved, WAPCOSL as well as AIL have assailed the decision of the High Court by filing separate Special Leave Petition(s).

Reasoning: Going by the Contract Agreement read with relevant clauses of CoPA and FIDIC, it is obvious that the parties had agreed for resolution of all their differences or disputes arising from the Contract Agreement by process of settlement of disputes and arbitration23. It is pertinent to note that the execution of stated AoA has not been disputed by SDJV or for that matter by SSPPL. More so, these entities have not even challenged the implementation of AoA. On the other hand, it has come on record that all concerned gave effect to the terms set out in AoA by offering revised rates to SDJV in conformity with the agreed rates referred to in AoA and which payment was received and availed of by SDJV/SSPPL without any demur. We may hasten to add that even the subject Arbitration Petition does not question the execution of AoA or the applicability thereof. Indeed, the asseveration in the Arbitration Petition is that the claim set up by SDJV is in reference to items and bills raised subsequent to the execution of AoA26. Despite such peremptory agreement and declaration by the parties, SDJV proceeded on an erroneous basis that the arbitration agreement in Contract Agreement still subsists and can be enforced by it. As aforesaid, neither SDJV nor SSPPL have disputed the execution of AoA nor it is even remotely suggested in the Arbitration Petition that the AoA was executed by them under duress or coercion. From the indisputable circumstances, it becomes amply clear that the stated terms and conditions set out in the AoA were agreed upon by all concerned primarily due to revision of cost of the project upto Rs. 872.67 crores which is 3.44 times the original project cost, (i.e. Rs. 253.84 crores) as the same was subject to clauses 1.2 and 1.3 of Section-01 See – Clause 1.0 of Section-01 of AoA (in paragraph 22 above) . Notably, this AoA was executed at a stage when substantial part of the works (around 97%) had already been completed. In our opinion, the terms and conditions specified in AoA leave no manner of doubt that the arbitration agreement has been done away with – as is manifest from the unambiguous declaration that balance pending claims of Contractor stand buried and that there will be no arbitration for the settlement of claimsThat may be so, however, in our view, it will be of no avail. We will deal with this aspect a little later. Suffice it to observe that the terms and conditions of AoA make it amply clear that the arbitration agreement stands overridden in view of the express declaration in AoA in that regard referred to earlier28. As noticed earlier, AoA was executed on 09.06.2015 by which date, substantial part of the works (around 97 per cent) of the Dam and Spillway had been completed. The water filling in dam commenced on 26.07.2015 by closing diversion tunnel gate. That presupposes that the Dam and Spillway work was fully completed before that date. It is also not disputed that the project was inaugurated by the Prime Minister of India and the President of Afghanistan on 04.06.2016. The terms agreed upon between the parties and as recorded in AoA dated 09.06.2015 was the outcome of steep revision of rates. These circumstances are germane whilst answering the question under consideration. We have no manner of doubt that the purport of the terms and conditions incorporated in the AoA dated 09.06.2015 are unambiguous expression of intent to supersede the arbitration agreement incorporated in Contract Agreement dated 09.03.2006 and to resolve all the contentious issues regarding the claims of SDJV, in the manner specified therein30. As regards the first reason weighed with the High Court that the Technical Committee entertained the five appeals filed on behalf of the SDJV, that in our view cannot undo the effect of terms and conditions of AoA which had annulled the arbitration clause in the Contract Agreement. There are at least two other tangible reasons to overturn the stated opinion of the High Court. First, the Technical Committee was, as a matter of fact, constituted under clause 2.1 of Section – 02 of AoA by the CMD of WAPCOSL, as is evident from the communication dated 21.10.2015 sent by WAPCOSL to SDJV. That fact has been restated in the subsequent correspondence. The Technical Committee was, therefore, not constituted in terms of Clause 20.1 of CoPA as has been erroneously assumed by the High Court. Second, the fact that the Technical Committee processed the appeals instituted by SDJV does not mean that WAPCOSL had waived the terms and conditions of AoA, in particular clauses 1.2 and 1.3 of Section-01 thereof. No averment is found in the Arbitration Petition to even remotely suggest that it was a case of waiver express or tacit, by WAPCOSL qua the stipulation specified in clauses 1.2 and 1.3 of Section-01 of AoA. Hence, this reason weighed with the High Court is manifestly wrong and cannot stand the test of judicial scrutiny31. The second reason weighed with the High Court is again founded on incorrect assumption about the date of AoA. The High Court in paragraph 10.7 proceeds on the basis that AoA was executed as back as on 09.06.2005 and having noted that date, the High Court then observed that the project was inaugurated only in 2016. On this erroneous assumption, the High Court rejected the claim of the appellant(s) herein. As a matter of fact, the AoA was executed on 09.06.2015, at which point of time, 97 per cent of the project was completed and the same was rolled out by filling of the Dam from 26.07.2015 in less than one month, by closing diversion tunnel gate. Not only that, the project was dedicated to the people of Afghanistan soon thereafter on 04.06.2016. Thus understood, it becomes clear that the parties had agreed to give quietus to all the claims and adopt revised rates recommended by High Power Committee, as recorded in AoA executed on 09.06.2015. Suffice it to note that the basis for rejecting the argument of the appellant(s) is founded on erroneous assumption that AoA was executed on 09.06.2005. That is an error apparent on the face of the record32. The third reason weighed with the High Court is that clause 20.6 of CoPA, providing for resolution of disputes by arbitration has not been modified by AoA. Indeed, clause 4 of the Contract Agreement makes reference to clause 20 of CoPA. However, on a fair reading of clause 4 of the Contract Agreement and in particular 4.1 as reproduced hitherto, it would be crystal clear that the substance of the provision is to provide for process of settlement of disputes and arbitration. Reference to clause 20 of CoPA is only to indicate that the procedure specified therein may have to be followed whilst taking recourse to that process. However, as the substantive provision regarding remedy of arbitration itself has been done away with in terms of clauses 1.2 and 1.3 of Section-01 of AoA, there was no need to modify clause 20 in CoPA dealing with machinery provision. Thus, the remedy of arbitration cannot be resurrected merely because clause 20 of CoPA has not been expressly modified in the AoA. Hence, even this reason does not commend us33. As these are the only reasons which had weighed with the High Court to reject the argument of the appellant(s) regarding non-existence of arbitration agreement and the same being untenable in law, it must necessarily follow that the Arbitration Petition filed for and on behalf of SDJV through SSPPL was not maintainable. In other words, the Arbitration Petition should have been rejected for lack of subsisting or existing arbitration agreement between the parties on the date of filing of Arbitration Petition34. It is not unknown in commercial world that the parties amend original contract and even give up their claims under the subsisting agreement. The case on hand is one such case where the parties consciously and with full understanding executed AoA whereby the contractor gave up all his claims and consented to the new arrangement specified in AoA including that there will be no arbitration for the settlement of any claims by the contractor in future. Having chosen to adopt that path, it is not open to the contractor to now take recourse to arbitration process or to resurrect the claim which has been resolved in terms of the amended agreement, after availing of steep revision of rates being condition precedent35. Having said this, no other issue need be addressed in these appeals. As a result, these appeals must succeed.