INDEX OF AUTHORITIES ARTICLES Lew, “The Law Applicable to the Form and Substance of the Clause”, ICCA Congress Series No.14, 1998, Paris BOOKS Commercial Arbitration, 1982 Edition Halsbury's Laws of England, Fourth Edition, Volume 2 DICTIONARY Black’s Law Dictionary, (Brian A. Garner ed., 7 th ed., West Group, 1991) Judicial Dictionary 14 th edition; Lexis Nexis ; (Butterworths) STATUTES CIAC Rules Arbitration and Conciliation Act, 1996 General clauses act,1897 FOREIGN STATUTES AND INTERNATIONAL INSTRUMENTS UNCITRAL Convention of International Sale of Goods,1980 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 10 June 1958 WEBSITES www.manupatra.com www.legalpundits.com www.helplinelaw.com www.indlaw.com www.judis.com www.supremecourtonline.com
Transcript
INDEX OF AUTHORITIES
ARTICLES
Lew, “The Law Applicable to the Form and Substance of the Clause”,
ICCA Congress Series No.14, 1998, Paris
BOOKS
Commercial Arbitration, 1982 Edition
Halsbury's Laws of England, Fourth Edition, Volume 2
DICTIONARY
Black’s Law Dictionary, (Brian A. Garner ed., 7th ed., West Group,
Deewan Singh and Ors. v. Rajendra Pd. Ardevi and Ors, AIR 2007 SC 767
Secretary to the Government, Transport Department Mashas Vs.
Munuswamy AIR 1988 SC 2232
British Sugar Plc v NEI Power Projects Ltd ([1998] 87 BLR 42)
Hotel Services Ltd v Hilton International Hotels (UK) Ltd. [2004] 3 Lloyd’s
Rep 35
Chiemgauer Membran Und Zeltbau Gmbh v New Millennium Experience
Company Limited, [2000] 56 BLR 31.
Hadley v Baxendale ([1854] 9 Exch 341)
Ferris v. Plaister (1994) SC NSW
Tan Poh Leng Stanely v Tang Boon Jek Jeffrey. HC (Singapore), Nov 30,
2000
Air India Ltd. v. Cochin International Airport Ltd.
STATEMENT OF FACTS
1. Delhi is and has been in anticipation of the Commonwealth Games whichis to be held in the city in 2010. Government of Delhi invited tenders forthe construction of a bridge over the Yamuna River connecting thecommonwealth village to main city on a public private participation. Afterthe evaluation of the bids, a consortium led by RMC & Co, a reputedIndian construction company and KUTSCO, a large Korean Chaebolhaving offices all over the world including Singapore won the tender. RMC& Co, though it had vast expertise in the area did not have theinfrastructural support to complete such a large project on its own.KUTSCO had all the necessary expertise and technology for the job. RMC& Co and KUTSCO formed a company BEHEMOTH INTERNATIONAL(PVT) LTD (hereinafter BEHEMOTH) for the purpose of entering intoconcession agreement. Some of the political parties raised the objectionthat project work was in effect being allotted to a foreign company i.e.KUTSCO and the Indian company was merely an observer. TheGovernment allayed their fears by releasing a press statement that thoughKUTSCO had a 60 % investment/stake in BEHEMOTH both the RMCGroup as well as the Chaebol had equal say when it came to issues ofmanagement of the Company and running its activities.2. Govt. of Delhi(hereinafter GOD) issued the letter of acceptance dated 9 thDecember 2005 (LOA) to the consortium requiring, inter alia, theirexecution of this concession Agreement within 45 days of the date thereof.3. The Concession Agreement was entered into and signed in Singaporebetween GOD and BEHEMOTH on 24 th of January, 2006. As per theagreement, the construction of the bridge was to be undertaken by theconcessionaire in conformity with the project milestone set forth inSchedule “A”4. The Scope of work included performance and execution of all design,engineering, financing, procurement, construction, completion, operationand maintenance of the project bridge. It also included construction ofapproach roads on either side of the bridge in accordance withspecification and standard and operation and maintenance thereof inaccordance with this agreement.5. One Mr. K Chatjee was appointed as Independent Engineer by GOD on4 th of March 2006. The concessionaire was informed of the said appointment. Mr. Chatjee was earlier employed with KUTSCO. Hisemployment had been terminated on various grounds of misconduct andhence BEHEMOTH wrote a letter to GOD questioning his ‘independence’.GOD argued that it was difficult to find someone as qualified andexperienced as Mr. Chatjee for the job. The same was true. After a backand forth volley of letters on this issue, GOD prevailed over BEHEMOTH
and Mr. Chatjee came to be the ‘Independent Engineer’ for the project.6. The agreement granted the claimants a concession to design,engineering, financing, procurement, construction, completion, operationand maintenance of the project bridge for a term of 9 years (constructionof project is to be completed within 5 years). As per the agreement, theconstruction of the bridge was to be undertaken by the concessionaire inconformity with project milestones (Schedule “A”) set forth in theagreement. Milestone-I was to be completed within the 6 months from thedate of the appointment (ending 24 July 2006)7. GOD was unable to give the physical possession of the Project Site freefrom Encumbrance within 30 days from the date of this Agreement. Onaccount of the delay on the part of Govt. of Delhi in providing certain tractof land admeasuring 60,000 sq mts, constituting the core of the projectsite, work on the project could not be started. Under these circumstances,BEHEMOTH sought extension of 3 months ending 24 th October 2006. ButGovt. upon consideration granted only 2 months extension of time ending24 th September 2006.8. However, Govt. of Delhi acquired and provided the site to theconcessionaire on 20 th March 2006. The concessionaire started the workin accordance with milestone 1 set forth in Schedule “A” viz. Constructionof temporary approaches, site inspection, building of godowns, laboratoryto check quality of material, preparation of design and drawing of bridge.9. Meanwhile the “ECO Friendly” NGO filed a PIL in the Delhi High Court on13 th August 2006 against the said project on the basis that it will haveadverse effect on water bodies and will deplete the resources of river. Thehigh court asked the Geological survey of India to submit its report withintwo months ending on 15 th October 2006 and meanwhile passed a stayorder on further construction. The High Court on 25 th October 2006allowed the construction on the report of the Geological Survey of India,which recommended the construction subject to few restrictions, whichrequired change in scope of work.10.The GOD issued notice, through the Independent Engineer, toconcessionaire regarding Changes in accordance with the order of HighCourt on 2 nd November 2006 (Article 10.1). The impact and the cost to theConcessionaire of complying with such Change of Scope Notice were intimated by the Concessionaire to the Independent Engineer as perArticle 10.2 (b) and extension of 5 months was sought. Further, on thereport of Independent Engineer, GOD issued the Change of Scope Orderon 10 December 2006 granted the 3 months extension ending 10 th March,2007 for completion of milestone 1.11. The concessionaire was not able to work on the site from 14 th August2006 to 10 th December 2006 on account of the stay order passed by theHigh Court of Delhi and the change of scope notice issued by the GOD.12. BEHEMOTH was able to achieve the target of milestone-I on 10 th April2007 and cited “continued hindrance and obstruction from the
environment group” and said that the time extended under change ofscope order was insufficient as the reason of delay.13. The concessionaire submitted a copy each of all Drawings of the project tothe Independent Engineer and the Steering Group for their approval on25 th March 2007. The report of Independent Engineer dated 14 th April2007 indicated that the Drawings are not in conformity with theSpecifications and Standards, and such Drawings shall be revised by theConcessionaire to the extent necessary and resubmitted to IndependentEngineer for further review. The concessionaire complained to the GODregarding the independence of the Independent Engineer and accusedMr. Chatjee of being vengeful. The said complaint was again ignored byGOD.14. The concessionaire resubmitted the drawings for approval on 22 nd April2007. The same was approved by the Independent Engineer on 18 th May2007.15.The concessionaire proceeded with the work on the basis of drawings andcompleted the 30% of foundation work in milestone 2 as against stipulatedwork in schedule A ending on 10 th April 2008. The concessionaire askedfor an extension of 3 months ending on 10 th July 2008 and cited thereason as delay in getting approval of drawings by the IndependentEngineer. However, GOD denied any extension to the concessionaire inaccordance with the provision of Article 7.2 (f).16.BEHEMOTH was unable to achieve the project target of Milestone II on10 th April 2008. Thus, Govt. of Delhi by the preliminary notice dated 12 thApril 2008 addressed to BEHEMOTH, stated that;i. BEHEMOTH had breached the contract by “Failing andneglecting to duly and faithfully perform their obligation”under the agreement; ii. The intention to issue the Termination Notice and askedBEHEMOTH as to why Govt. of Delhi should not forfeit thebank guarantee provided as performances security.17. The concessionaire in its reply dated 20 th April 2008 to the "PreliminaryNotice" stated that the delay was due to late approval of design by theindependent engineer and assured that the delay will be cured within twomonths from the date of this reply.18. On 25 th April 2008 Mr. Ramu B, the Chairman of the Board of Directors ofRMC & Co came out with a disclosure of widespread financialirregularities and mal practices in the Company. He admitted that theaccounts and registers of the company were fudged. Its credit worthinesscame under the scanner of regulatory bodies.19. In the meanwhile BEHEMOTH had won the tender to build a large mall in
South Delhi worth 5000 USD and had to take out some of its machineryfrom the project site for the construction of the mall. GOD objected and didnot permit the concessionaire to take out the machinery. The reasonattributed was that the machinery could not be taken out till “contractualformalities were completed”. As a result the concessionaire had to foregothe mall project since it did not want to fall foul of contractual stipulationsassociated with that project and be subject to legal liabilities.20. Further, GOD encashed the Performance Security with a notice to theConcessionaire (Encashment Notice), dated 12 th May 2008.21. The concessionaire was not able to cure the delay or furnish freshPerformance Security in accordance with Article 3.2, within the stipulatedtime mentioned in Article 11.2 (A)(1).22. GOD, further, on 12 th August 2008 issued a termination notice on theground interalia that the inability of BEHEMOTH to achieve project targetof Milestone II even within the cure period, failure to furnish freshPerformance Security and also submitted that BEHEMOTH defaulted onits work schedules right from the outset, entitling Govt. of Delhi toterminate the agreement. GOD also affirmed in the notice of terminationthat owing to the newly disclosed malpractices and financial instability ofRMC & Co, BEHEMOTH was in no position to complete the project as perthe Schedule.23. The contract was further given to another contractor namely AVARAMCompany.24. BEHEMOTH contended that agreement was wrongfully terminated andtermination notice was improper and there was a violation of procedurestated in the agreement. Further, there was no reply from GOD withrespect to grant of 2 months cure period as requested in the reply to thePreliminary Notice (dated 20 th April 2008). Further, GOD straightawayencashed the Performance Security and no time was given to theconcessionaire to make its representation. It also contended that theproblems associated with RMC & Co could in no way be linked toBEHEMOTH which is a separate entity. Thus, termination was said to beinvalid and award of contract to AVARAM Company was also said to beinvalid.25. Without prejudice to above position, BEHEMOTH also submitted that asper the agreement provisions, Govt. of Delhi had failed to pay thecontractually stipulated termination payment. It was also claimed thatsince GOD terminated the contract unilaterally, BEHEMOTH should beentitled for damages on account of loss of profit.26. BEHEMOTH issued a notice of Arbitration on 25 th January 2009 to Govt.of Delhi with a copy to registrar of CIAC in which they had nominated Mr.X as the arbitrator from the panel of arbitrators maintained by the CIAC.As per the arbitration clause, any disputes arising out of the contract shallbe referred to an arbitral tribunal consisting of three arbitrators of whichone shall be an official of the local authority. Accordingly on 15 thFebruary, the GOD appointed Mr. Y, Chief Engineer, Public Works
Department, Govt. of Delhi who is also a member in the panel ofarbitrators maintained by CIAC as the nominated arbitrator. The Chairmanof the CIAC appointed Mr. Z as the presiding arbitrator. Notice was sent tothe parties on 20 th February 2009.27. The arbitration proceedings were started on 20 th March 2009 in Delhi asper CIAC Rules. BEHEMOTH also raised some preliminary objections asto the competency and jurisdiction of arbitrators on the following grounds:a. The tribunal is not constituted as per the agreementof the parties.b. Mr. Y’s association with the Govt. would invariablybring in the element of bias in the decision makingprocess.c. The constitution of the tribunal is not in accordancewith the Indian Law on arbitration.d. The arbitral tribunal does not have jurisdiction todecide the issue of damages for loss of profit.
NOTICE OF ARBITRATION
25-1-2009
Name of Claimant: BEHEMOTH INTERNATIONAL (PVT) LTD
AND
Name of Respondent: GOVERNMENT OF DELHI
In accordance with the requirements of Rule 4.1 of the arbitration rules of the CONSTRUCTION INDUSTRY ARBITRATION COUNCIL (CIAC ARBITRATION RULES), Claimant hereby notifies the Respondent through this notice of arbitration which shall witnesseth all of which is being referred below:
PURSUANT to Rule 4.1.a, demand is hereby made that the dispute between Behemoth International Pvt. Ltd. and Government of Delhi be referred to arbitration.
PURSUANT to Rule 4.1.c, a copy of the arbitration clause contained in the attached concessionaire agreement located at page 25, paragraph 3 is referenced as follows:
“14.2. Arbitration
a) All and any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in New Delhi in accordance with the Arbitration Rules of the Construction Industry Arbitration Council ("CIAC Arbitration Rules") for the time being in
force at the commencement of the arbitration, which rules are deemed to be incorporated by reference in this clause.”
PURSUANT to Rule 4.1.d., a copy of the relevant concessionaire agreement entered into between Behemoth International (PVT) Ltd and Government of Delhi on 24th day of January is also attached hereto.
PURSUANT to Rule 4.1.e., Behemoth International (PVT) Ltd sets forth a statement of the nature of the dispute and the amount involved, as follows:
1. Delhi is and has been in anticipation of the Commonwealth Games whichis to be held in the city in 2010. Government of Delhi invited tenders forthe construction of a bridge over the Yamuna River connecting thecommonwealth village to main city on a public private participation. Afterthe evaluation of the bids, a consortium led by RMC & Co, a reputedIndian construction company and KUTSCO, a large Korean Chaebolhaving offices all over the world including Singapore won the tender. RMC& Co, though it had vast expertise in the area did not have theinfrastructural support to complete such a large project on its own.KUTSCO had all the necessary expertise and technology for the job. RMC& Co and KUTSCO formed a company BEHEMOTH INTERNATIONAL(PVT) LTD (hereinafter BEHEMOTH) for the purpose of entering intoconcession agreement. 2. Govt. of Delhi(hereinafter GOD) issued the letter of acceptance dated 9 thDecember 2005 (LOA) to the consortium requiring, inter alia, theirexecution of this concession Agreement within 45 days of the date thereof.3. The Concession Agreement was entered into and signed in Singaporebetween GOD and BEHEMOTH on 24 th of January, 2006. 4. The Scope of work included performance and execution of all design,engineering, financing, procurement, construction, completion, operationand maintenance of the project bridge. It also included construction ofapproach roads on either side of the bridge in accordance withspecification and standard and operation and maintenance thereof inaccordance with this agreement.5. One Mr. K Chatjee was appointed as Independent Engineer by GOD on4 th of March 2006. The concessionaire was informed of the said appointment. Mr. Chatjee was earlier employed with KUTSCO. Hisemployment had been terminated on various grounds of misconduct andhence BEHEMOTH wrote a letter to GOD questioning his ‘independence’.GOD argued that it was difficult to find someone as qualified andexperienced as Mr. Chatjee for the job. After a backand forth volley of letters on this issue, GOD prevailed over BEHEMOTHand Mr. Chatjee came to be the ‘Independent Engineer’ for the project.6. The agreement granted the claimants a concession to design,engineering, financing, procurement, construction, completion, operationand maintenance of the project bridge for a term of 9 years (constructionof project is to be completed within 5 years). As per the agreement, theconstruction of the bridge was to be undertaken by the concessionaire in
conformity with project milestones (Schedule “A”) set forth in theagreement. Milestone-I was to be completed within the 6 months from thedate of the appointment (ending 24 July 2006)7. GOD was unable to give the physical possession of the Project Site freefrom Encumbrance within 30 days from the date of this Agreement. Onaccount of the delay on the part of Govt. of Delhi in providing certain tractof land admeasuring 60,000 sq mts, constituting the core of the projectsite, work on the project could not be started. Under these circumstances,BEHEMOTH sought extension of 3 months ending 24 th October 2006. ButGovt. upon consideration granted only 2 months extension of time ending24 th September 2006.8. However, Govt. of Delhi acquired and provided the site to theconcessionaire on 20 th March 2006. The concessionaire started the workin accordance with milestone 1 set forth in Schedule “A” viz. Constructionof temporary approaches, site inspection, building of godowns, laboratoryto check quality of material, preparation of design and drawing of bridge.9. Meanwhile the “ECO Friendly” NGO filed a PIL in the Delhi High Court on13 th August 2006 against the said project on the basis that it will haveadverse effect on water bodies and will deplete the resources of river. Thehigh court asked the Geological survey of India to submit its report withintwo months ending on 15 th October 2006 and meanwhile passed a stayorder on further construction. The High Court on 25 th October 2006allowed the construction on the report of the Geological Survey of India,which recommended the construction subject to few restrictions, whichrequired change in scope of work.10.The GOD issued notice, through the Independent Engineer, toconcessionaire regarding Changes in accordance with the order of HighCourt on 2 nd November 2006 (Article 10.1). The impact and the cost to theConcessionaire of complying with such Change of Scope Notice wereintimated by the Concessionaire to the Independent Engineer as perArticle 10.2 (b) and extension of 5 months was sought. Further, on thereport of Independent Engineer, GOD issued the Change of Scope Orderon 10 December 2006 granted the 3 months extension ending 10 th March,2007 for completion of milestone 1.11. The concessionaire was not able to work on the site from 14 th August2006 to 10 th December 2006 on account of the stay order passed by theHigh Court of Delhi and the change of scope notice issued by the GOD.12. BEHEMOTH was able to achieve the target of milestone-I on 10 th April2007 and cited “continued hindrance and obstruction from theenvironment group” and said that the time extended under change ofscope order was insufficient as the reason of delay.13. The concessionaire submitted a copy each of all Drawings of the project tothe Independent Engineer and the Steering Group for their approval on25 th March 2007. The report of Independent Engineer dated 14 th April2007 indicated that the Drawings are not in conformity with theSpecifications and Standards, and such Drawings shall be revised by theConcessionaire to the extent necessary and resubmitted to IndependentEngineer for further review. The concessionaire complained to the GODregarding the independence of the Independent Engineer and accusedMr. Chatjee of being vengeful. The said complaint was again ignored by
GOD.14. The concessionaire resubmitted the drawings for approval on 22 nd April2007. The same was approved by the Independent Engineer on 18 th May2007.15.The concessionaire proceeded with the work on the basis of drawings andcompleted the 30% of foundation work in milestone 2 as against stipulatedwork in schedule A ending on 10 th April 2008. The concessionaire askedfor an extension of 3 months ending on 10 th July 2008 and cited thereason as delay in getting approval of drawings by the IndependentEngineer. However, GOD denied any extension to the concessionaire inaccordance with the provision of Article 7.2 (f).16.BEHEMOTH was unable to achieve the project target of Milestone II on10 th April 2008. Thus, Govt. of Delhi sent a preliminary notice dated 12 th
April 2008 addressed to BEHEMOTH17. The concessionaire in its reply dated 20 th April 2008 to the "PreliminaryNotice" stated that the delay was due to late approval of design by theindependent engineer and assured that the delay will be cured within twomonths from the date of this reply.18. On 25 th April 2008 Mr. Ramu B, the Chairman of the Board of Directors ofRMC & Co came out with a disclosure of widespread financialirregularities and mal practices in the Company. 19. GOD encashed the Performance Security with a notice to theConcessionaire (Encashment Notice), dated 12 th May 2008.20. GOD, further, on 12 th August 2008 issued a termination notice on theground interalia that the inability of BEHEMOTH to achieve project targetof Milestone II even within the cure period, failure to furnish freshPerformance Security. 21. The contract was further given to another contractor namely AVARAMCompany.22. BEHEMOTH contended that agreement was wrongfully terminated andtermination notice was improper and there was a violation of procedure stated in the agreement. Further, there was no reply from GOD withrespect to grant of 2 months cure period as requested in the reply to thePreliminary Notice (dated 20 th April 2008). Further, GOD straightawayencashed the Performance Security and no time was given to theconcessionaire to make its representation. It also contended that theproblems associated with RMC & Co could in no way be linked toBEHEMOTH which is a separate entity. Thus, termination was said to beinvalid and award of contract to AVARAM Company was also said to beinvalid.23. BEHEMOTH also submitted that asper the agreement provisions, Govt. of Delhi had failed to pay thecontractually stipulated termination payment. It was also claimed thatsince GOD terminated the contract unilaterally, BEHEMOTH should beentitled for damages on account of loss of profit.24. BEHEMOTH issued a notice of Arbitration on 25 th January 2009 to Govt.of Delhi with a copy to registrar of CIAC in which they had nominated Mr.X as the arbitrator from the panel of arbitrators maintained by the CIAC.As per the arbitration clause, any disputes arising out of the contract shallbe referred to an arbitral tribunal consisting of three arbitrators of which
one shall be an official of the local authority. Accordingly on 15 th
February, the GOD appointed Mr. Y, Chief Engineer, Public WorksDepartment, Govt. of Delhi who is also a member in the panel ofarbitrators maintained by CIAC as the nominated arbitrator. The Chairmanof the CIAC appointed Mr. Z as the presiding arbitrator. Notice was sent tothe parties on 20 th February 2009.25. The arbitration proceedings were started on 20 th March 2009 in Delhi asper CIAC Rules. BEHEMOTH also raised some preliminary objections asto the competency and jurisdiction of arbitrators on the following grounds:a. The tribunal is not constituted as per the agreementof the parties.b. Mr. Y’s association with the Govt. would invariablybring in the element of bias in the decision makingprocess.c. The constitution of the tribunal is not in accordancewith the Indian Law on arbitration.d. The arbitral tribunal does not have jurisdiction to decide the issue of damages for loss of profit.
PURSUANT to Rule 4.1.f., the reliefs sought by Behemoth International (PVT) Ltd are as follows:
THE ARBITRAL TRIBUNAL IS NOT COMPETENT FOR ARBITRATING THE CURRENT DISPUTE
THE TERMINATION OF THE CONCESSION AGREEMENT
WAS INVALID.
PURSUANT to Rule 4.1.g., the total number of arbitrators shall be three which shall be appointed and constituted in consonance with Article 14.2.(b) which is as affirmed below:
“The Tribunal shall consist of three arbitrators of which at least one arbitrator shall be an official of the local authority. One arbitrator each shall be appointed by each of the parties and the Chairman of the CIAC shall nominate the third arbitrator.”
PURSUANT to Rule 4.1.h., the claimant, Behemoth International (PVT) Ltd hereby nominates Mr. X as an arbitrator; the same being selected
from the panel of arbitrators so prepared by CIAC which is in compliance with Rule 11.5.
The foregoing is not intended nor shall it be construed as a complete recitation of the facts and events concerning the above-referenced matter, nor shall it be construed as a waiver of any rights, remedies or claims, legal or equitable, which Behemoth International (PVT) Ltd may have.
Sincerely,
BEHEMOTH INTERNATIONAL (PVT) LTD
QUESTIONS PRESENTED
A. WHETHER THE ARBITRAL TRIBUNAL IS NOT COMPETENT FOR ARBITRATING THE CURRENT DISPUTE?
B.WHETHER THE TERMINATION OF THE CONCESSION AGREEMENT IS
VALID?
SUMMARY OF ARGUMENTS
A. THE ARBITRAL TRIBUNAL IS NOT COMPETENT FOR ARBITRATING THE CURRENT DISPUTE.
A1. The Tribunal is not constituted as per the Agreement of the
parties.
A2. Mr. Y’s association with the Government would invariably bring in
the element of bias in the decision making process.
A3. The constitution of the Tribunal is not in accordance with the
Indian Law on Arbitration.
B.THE TERMINATION OF THE CONCESSION AGREEMENT IS INVALID.
B1. The Agreement was wrongfully terminated, the Termination was
not proper and there was a violation of procedure for Termination
stated in the Agreement.
B2. Problems associated with RMC & Co. could in no way be linked to
BEHEMOTH as RMC & Co. is a separate entity.
B3. Award of contract to Avaram Company is invalid.
ARGUMENTS ADVANCED
A. THE ARBITRAL TRIBUNAL IS NOT COMPETENT FOR ARBITRATING THE CURRENT DISPUTE.
The contention here is that (A1) the Tribunal is not constituted as per
the Agreement of the parties; (A2) Mr. Y’s association with the
Government would invariably bring in the element of bias in the
decision making process; (A3) the constitution of the Tribunal is not
in accordance with the Indian Law on Arbitration; and (A4) the
Arbitral Tribunal does not have jurisdiction to decide the issue of
damages for loss of profit.
A1. The Tribunal is not constituted as per the agreement of
the parties.
An arbitration clause in a commercial contract is an Agreement
subsumed within an Agreement.1 Disputes pertaining to the
Agreement to arbitrate need not necessarily be subject to the same
laws as those applicable to the commercial bargain itself or those
governing the arbitral proceedings.2 Thus, an express stipulation by
the parties that a particular provision shall apply to the appointment
of arbitrators shall reign supreme.3
1 Union of India v. McDonnell Douglas Corp. [1993] 2 Lloyd’s Rep 482 X.L. Insurance Ltd. v. Owens Corning [2000] 2 Lloyd’s Rep 5003 Lew, “The Law Applicable to the Form and Substance of the Clause”, ICCA Congress Series No.14, 1998, Paris
The appointment of arbitrators is the primary parameter to be
adhered to, to ensure judicious and unbiased arbitration. The
appointment of arbitrators as agreed to in the Concession
Agreement between the parties ensure proper deliverance of
justice. The Claimant and Respondent had formerly agreed upon to
resolve any dispute by way of arbitration and the Concession
Agreement had express mentioning about the appointment of
arbitrators which was agreed upon by the parties.
Article 14.2(b) of the Concession Agreement requires that one of
the Arbitrators should be a member of the local authority and each
party shall nominate one arbitrator each and the presiding
arbitrator shall be nominated by the Chairman of CIAC. The
Arbitrators nominated by BEHEMOTH, Mr. X, and the Chairman of
CIAC, Mr. Z, are not members of a local authority. The Arbitrator
nominated by GOD, Mr. Y, happens to be the Chief Engineer of the
Public Works Department, Delhi. As per the General Clauses Act,
1897 Section 3(31) “local authority” means a municipal
committee, district or board, board of port commissioners or other
authority legally entitled, or entrusted by the Government with the
control or management of a municipal or local fund.4 The distinctive
attributes and characteristics of a municipal committee district
board or body of port commissioners are:
1. The authorities must have separate legal existence as corporate
bodies.
2. They must function in a defined area and must be elected by the
inhabitants of the area.
3. The authority may not be complete and the degree of dependence
may vary considerably but an appreciable measure of authority must
be there.
4 Deewan Singh and Ors. v. Rajendra Pd. Ardevi and Ors, AIR 2007 SC 767
4. They must have power to raise funds for the furtherance of their
activities and the fulfillment of their projects by levying taxes, rates,
charges or fees.
Public works department is a mere government agency which
cannot be attributed the qualities of a local authority. It
does not satisfy any of the conditions necessary for a local
authority.
The Claimants were the first to nominate their arbitrator, Mr. X, to the
arbitral tribunal5. For the constitution of the arbitral tribunal to be in
conformity with the Concession Agreement it was the responsibility of
GOD to have nominated an arbitrator who is a member of the local
authority, which they have failed to accomplish. Thus evidently the
constitution of the arbitral tribunal is inconsistent with the Concession
Agreement.
A2. Mr. Y’s association with the Government would invariably
bring in the element of bias in the decision making process.
Reasonable apprehension of bias in the mind of a reasonable man
can be a ground for removal of the arbitrator. A predisposition to
decide for or against one party, without proper regard to the true
merits of the dispute is bias. There must be reasonable apprehension
of that predisposition. The reasonable apprehension must be based
on cogent materials6. The observations of Mustill and Boyd describe
that the test for bias is whether a reasonable intelligent man, fully
appraised of all the circumstances, would feel a serious apprehension
of bias7.
5 Statement of Facts6 Secretary to the Government, Transport Department Mashas Vs. Munuswamy AIR 1988 SC 22327 Commercial Arbitration, 1982 Edition, page 214. Halsbury's Laws of England, Fourth Edition, Volume 2, para 551, page 282
CIAC is a body of arbitrators which maintains a panel of selected
arbitrators for attending cases requiring arbitration in matters
pertaining to the construction industry. The very purpose of
maintaining a selected panel of arbitrators is to ensure unbiased
arbitration and further assure to both parties of the dispute that
justice shall be done. In spite of this the respondents have managed
to find an arbitrator, Mr. Y, Chief Engineer of PWD, Delhi, having very
close association with them. This invariably affects the independence
of the arbitrator. There is enough reasons for the claimants to
legitimately doubt the independence of Mr.Y. Independence in the
present context implies to a person capable of thinking independently
without fear or favour. It is this very condition that is not fulfilled in
the case of Mr.Y. He being a mere employee of GOD shall obviously
have reasonable apprehension of possible repercussions and this
shall deeply influence his capacity of independent decision making.
Moreover there is also the possibility of Mr.Y being considerate and
lenient towards his employer, GOD. Thus it is very important to
question Mr.Y’s independence.
As mentioned above, the Hon’ble Supreme Court has itself justified
“reasonable apprehension of bias.” Thus Mr.Y would invariably bring
in the element of bias in the decision making process, by virtue of his
non independence. Thus disqualifying him from constituting the
arbitral tribunal.
A3. The constitution of the Tribunal is not in accordance with
the Indian Law on Arbitration.
The Concession Agreement under Article 1.1 defines ‘Arbitration act’
as the Arbitration and Conciliation act,1996 which shall include
modifications to or any re enactment thereof as in force from time to
time. The Arbitration and Conciliation act,1996 is one of the
governing legislations in matters pertaining to arbitration in India.
The fact that Behemoth and GOD have chosen the place of arbitration
as India makes the arbitration and conciliation act yet more
important. There are express provision in the act wherein the issue of
appointment of arbitrators are dealt with.
The Concession Agreement under the title ‘Dispute resolution’ in
Article 14.2 provides for an alternate mode of appointment of
arbitrators in conformity with the CIAC rules. The alternate procedure
agreed upon by the parties mandates that one of the arbitrators
should be a member of the local authority. Unfortunately in the
instant case the respondents have failed to fulfill this requirement.
Thus evidently the alternate procedure agreed upon by the parties
have failed. It is in this context that Section 11 of the Arbitration
and Conciliation Act, 1996 comes to the limelight.
Section 11(2) states that-
“Subject to sub-section (6), the parties are free to agree on a
procedure for appointing the arbitrator or arbitrators”
Section 11(2) permits the parties to agree on an arbitrator or
arbitrators. But in the instant case the Agreement for appointment of
arbitrators has been violated. The respondents have failed to appoint
an arbitrator who is a member of the local authority. Thus, herein the
procedure previously agreed upon is inactive.
B. THE TERMINATION OF THE CONCESSION AGREEMENT IS
INVALID.
B1. The Agreement was wrongfully terminated and there
was a violation of procedure for termination stated in the
Agreement.
According to Article 11.2 (A) (1) of the Concession Agreement GOD
shall be entitled to terminate this Agreement by issuing a termination
notice due to an event of default by from the part of the
Concessionaire. The Event of Default, explained from Articles 11.1 (a)
(1) to 11.1 (a) (9), is an event executed by the concessionaire unless
it is an event of default of GOD or a Force Majeure event. Whereas a
force Majeure event is an event which (1) is beyond the reasonable
control and not arising out of the fault of the concessionaire and the
concessionaire (2) has been unable to overcome such act or event by
the exercise of due diligence and reasonable efforts, skill and care, and
(3) has a Material Adverse Effect on the project.8
8 Article 13 of the Concession Agreement
On the outset of the project, GOD who was entitled to give the physical
possession of the Project Site free from Encumbrance within 30 days
from the date of the Agreement had failed to do so. After the delayed
acquisition of the Project Site from GOD the concessionaire had
initiated the work to achieve mile stone 1 within the prescribed time
but was restricted from working due to a stay order from the High
Court of Delhi, which was provoked by a PIL from the NGO “Eco
Friendly” alleging that the Project would have adverse effects on water
bodies and will deplete the resources of the river even though, through
Article 2.8 of the Concession Agreement, GOD had affirmed that the
Project/Project Site had been granted clearances relating to
environmental protection and conservation. The above mentioned
events had caused great delay in attaining Milestone 1 by the
Concessionaire. At the same time, the Independent Engineer
appointed, had failed to furnish the report regarding the Drawings of
the Project (as per Article 7.1) within 15 (fifteen) days of the receipt of
the Drawings in accordance to Article 7.2 (b) of the Concession
Agreement. The Concessionaire had resubmitted the Drawings on 22-
04-2007 for approval to the Independent Engineer who, for the second
time, failed to furnish the report regarding the Drawings within 15
(fifteen) days.
Here, the claimant claims the above incidents as Force Majeure Events,
as the above events satisfy the requirements of a Force Majeure Event,
delaying the Concessionaire from achieving Milestone 2 and leading
the GOD to terminate the Agreement without an Event of Default of the
Concessionaire whereas the Agreement was subject to Termination by
the GOD only upon the occurrence of a Concessionaire Event of
Default.
Since the delay in achieving Milestone 2 of the Project was caused due
to Force Majeure Events and at the same time it being not an Event of
Default of the Concessionaire, the claimant claims that the Agreement
was wrongly terminated by the GOD and the Termination was not
proper.
B2. Problems associated with RMC & Co. could in no way be
linked to BEHEMOTH as RMC & Co. is a separate entity.
BEHEMOTH INTERNATIONAL (PVT) LTD is a consortium incorporated
under the Companies Act, 1956 and is led by RMC & Co. a reputed
Indian construction company and KUTSCO a large Korean Chaebol. The
claimant claims that even though RMC & Co forms an integral part of
the consortium it is itself still a registered company. If it were the same
entity, then there would not have arisen a need for BEHEMOTH to
register. So the claimant claims that RMC & Co. is a separate entity.
Even if RMC & Co. had not been a separate entity when related with
BEHEMOTH, the allegations against RMC & Co. ought not been
considered for Termination of the Agreement by the GOD because;
even though Mr. Ramu B., Chairman of the Board of Directors of RMC &
Co. had disclosed of the financial irregularities in the company, the
regulatory bodies did not recommend or command for dissolving the
company, but only placed the company for surveillance. This meant
that the company was able to continue to exist even in the light of the
disclosure and the surveillance of the regulatory bodies. Thus the
problems faced by RMC & Co. in no way would have had any influence
in the running of the Consortium. Thus the claimant claims that
problems associated with RMC & Co. could in no way be linked to
BEHEMOTH as RMC & Co. is a separate entity.
B3. Award of contract to Avaram Company is invalid.
In Air India Ltd. v. Cochin International Airport Ltd.9 it was held
that,
9 AIR 2000 SC 801
“In awarding a contract the State, its corporations, instrumentalities
and agencies have the public duty to be fair to all concerned.”
[Emphasis added]
There is no prohibition placed upon GOD refraining it from forming a
new contract with another. The only condition that is required is that
the currently existing Agreement, if any, has to be properly terminated
in order to form a new contract. Here, the Agreement between
BEHEMOTH and GOD had been terminated wrongly and the termination
was not valid. Since there is an Agreement still subsisting, the claimant
claims that the award of contract to Avaram Company is also invalid.
B4. GOD has violated the provisions of the Agreement as it has
failed to pay the contractually stipulated Termination Payment
and BEHEMOTH should be entitled for damages on account of
loss of profit.
Article 11.4 stipulates about the Termination Payment, pursuant to
Article 11, which is to be paid by the GOD to the Concessionaire after
Termination of the Concession Agreement. Article 11.4 states that,
“The Termination Payment pursuant to Article 11 as the case may be,
shall be payable to the Concessionaire by GOD within thirty days of
demand being made by the Concessionaire with the necessary
particulars duly certified by the Statutory Auditors. If GOD fails to pay
Termination Payment in full within the said period of 60 days, the
amount remaining unpaid shall be paid along with interest @ SBI PLR
plus two percent from the Termination Date till payment.”
Here; after the Termination Process was completed, the GOD had failed
to furnish the Termination Payment to the Concessionaire. The
Termination Payment, supposed to be paid within 30 days, by the GOD
on demand of the Concessionaire was not paid even after the
Concessionaire had demanded for payment. Thus it is a violation of
Article 11.4 of the Concession Agreement. At the same time, the
claimant has claimed that the Termination was unilateral so the
Concessionaire is entitled for damages for loss of profit.
PRAYER FOR RELIEF
In light of the above submissions, Counsel respectfully requests the Tribunal to find that:
A. THE ARBITRAL TRIBUNAL IS NOT COMPETENT FOR ARBITRATING THE CURRENT DISPUTE.
A1. The Tribunal is not constituted as per the Agreement of the
parties.
A2. Mr. Y’s association with the Government would invariably bring in
the element of bias in the decision making process.
A3. The constitution of the Tribunal is not in accordance with the
Indian Law on Arbitration.
B.THE TERMINATION OF THE CONCESSION AGREEMENT IS INVALID.
B1. The Agreement was wrongfully terminated, the Termination was
not proper and there was a violation of procedure for Termination
stated in the Agreement.
B2. Problems associated with RMC & Co. could in no way be linked to
BEHEMOTH as RMC & Co. is a separate entity.
B3. Award of contract to Avaram Company is invalid.
