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Larsen & Toubro Ltd. And Anr. Petitioners v. Mumbai Metropolitan Regional
Factual and Procedural Background
This petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenges an interim arbitral award dated 18 August 2016, which decided whether the claimants were entitled to file claims individually as claimant no. 1 and claimant no. 2 or only as the Consortium of Larson and Toubro Limited and Scomi Engg. Bhd. The contract was entered into on 9 January 2009 between the Mumbai Metropolitan Region Development Authority (respondent) and the Consortium comprising the petitioners for the planning, design, construction, and commissioning of a Monorail system. The Consortium was jointly and severally responsible under the contract. Disputes arose regarding delayed payments and interest, leading to arbitration invoked by the Consortium. Although arbitration was invoked by the Consortium, the two constituent companies initially filed separate claims, which was objected to by the respondent. Eventually, the claim was filed by the Consortium. The arbitral tribunal held that claims must be filed only by the Consortium and not by the constituents separately. The present petition challenges that decision.
Legal Issues Presented
- Whether the claimants are entitled to file the arbitration claim individually as claimant no. 1 and claimant no. 2 or only as the Consortium of Larson and Toubro Limited and Scomi Engg. Bhd.?
Arguments of the Parties
Petitioners' Arguments
- The Consortium is not a registered legal entity; hence, the petitioners fear future objections to proceedings initiated by the Consortium on this ground.
- The contract was signed independently by petitioner no. 1 and petitioner no. 2, not by an individual on behalf of the Consortium.
- Relied on a Single Bench decision of the High Court in Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd., where a petition filed by a consortium member was held maintainable due to the constituent members' entitlement to separate payments under that contract.
- Argued that the precedent supports filing claims individually by consortium members.
Respondent's Arguments
- Objected to the maintainability of the petition filed by the constituents of the Consortium, asserting that claims must be filed only by the Consortium as a single entity.
- Relied on the Supreme Court decision in Gammon India Limited v. Commissioner Of Customs, Mumbai, which held that a Consortium or joint venture constitutes a legal entity akin to a partnership and is a "person."
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2002 (6) Bom. C.R. 657) | Held that a constituent member of a consortium could file a petition independently if the contract allowed separate and exclusive claims to each member. | The court distinguished this case on facts, noting that unlike Saw Pipes Ltd., the present contract does not allow independent claims by constituents, thus the precedent was not applicable. |
| Gammon India Limited v. Commissioner Of Customs, Mumbai ((2011) 12 SCC 499) | Established that a Consortium or joint venture is a legal entity akin to a partnership and can be treated as a person. | The court relied on this principle to affirm that the Consortium is a legal entity and the parties must deal with the respondent as a Consortium only, not individually. |
Court's Reasoning and Analysis
The court examined the terms of the contract and the nature of the Consortium. It noted that the contract was entered into by the Consortium as a single entity, which was responsible jointly and severally. The contract defined the Consortium as the contractor with a specific address for notices, and all payments and statutory obligations were handled by the Consortium's bank accounts and tax registrations, indicating it functions as a separate legal entity. The invocation of arbitration was by the Consortium, not by individual members. The court distinguished the precedent relied on by the petitioners, as that case involved contract terms permitting separate claims by members, whereas the present contract does not. The court accepted the respondent's submission, supported by the Supreme Court's decision in Gammon India Limited, that a Consortium is a legal entity akin to a partnership. Accordingly, the petitioners cannot rely on their individual identities in dealings with the respondent and must act as the Consortium. Therefore, the arbitral tribunal's decision that claims must be filed only by the Consortium was upheld, and the petition was dismissed as not maintainable.
Holding and Implications
The petition is dismissed.
The court held that the claimants must file arbitration claims only as the Consortium and not as individual constituents. This decision confirms that a Consortium, as defined in the contract and recognized by law, is a legal entity capable of filing claims and dealing with contractual obligations collectively. The direct effect is that the petitioners cannot maintain arbitration proceedings independently, and no new precedent beyond the application of established principles was set.
R.P. SondurBaldota, J.:— This petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (‘the Arbitration Act’, for short) challenges the interim award dated 18 August, 2016, which decides the following preliminary issue:
2. Whether the claimants are entitled to file this claim as claimant no. 1 and claimant no. 2 or only as the Consortium of L & T and Scomi Engg. Bhd.?
3. For the reasons stated in the impugned order, the Arbitral Tribunal holds that the claimant has to file claims before it in the name of Consortium of Larson and Toubro Limited and Scomi Engg. Bhd. Malaysia i.e. LTSE and not as two separate claimants.
4. The present petition has been filed not by the Consortium but by the two constituents of the Consortium i.e. Larson & Toubro as petitioner no. 1 and Scomi Engg. Bhd. as petitioner no. 2. The respondent has taken an objection to the maintainability of the petition by the constituents of the Consortium contending that since the claim before the Arbitral Tribunal is by the Consortium, the present petition could not have been filed by the constituents of the Consortium independently. Since identical objection was raised before the Tribunal, the decision whereon is presently under challenge, the objection raised by the respondent to the maintainability of the present petition need not be considered separately.
5. The respondent, Mumbai Metropolitan Region Development Authority was in the process of setting up Monorail System between Gadge Maharaj Chowk to Chembur via Wadala. It has entered into contract dated 9 January, 2009 with the Consortium comprising of the petitioners herein for the purpose of planning, designing, development, construction/manufacture/supply, testing and commissioning of Monorail system for the two sections i.e. Sant Gadge Maharaj Chowk to Wadala and Wadala to Chembur Railway station. The recital to the agreement provided that the constituents of the Consortium shall be jointly and severally responsible to the respondent under the contract for the Monorail project.
6. Disputes have arisen between the parties over delay in payment to the Consortium and the interest payable on the delayed payment. Consequently the Project Director of the Consortium by the letter dated 2 March, 2015 written on the letterhead of the Consortium invoked arbitration under Clause 22.2 of the agreement. Later by another notice dated 24 June, 2015 again on the letterhead of the Consortium, the Project Director invoked arbitration in accordance with Sub-clause 20.4 and 20.5 also of the contract. Accordingly, an Arbitral Tribunal of three members is constituted, which has been conducting arbitral proceedings between the parties. Though the invocation of the arbitration was by the Consortium when it came to filing of the statement of claim, the two constituents of the Consortium filed independent statements of claim. On raising of objection by respondent, the constituents filed a joint statement of claim, which was also objected to. Finally statement of claim by the Consortium came to be filed. The parties have thereafter completed the pleadings.
7. In the subsequent meeting of the Arbitral Tribunal while submitting their draft issues, the petitioners once again raised the contention of their entitlement to file separate claims. Consequently, the preliminary issue as stated at para 1 above came to be raised. While deciding the preliminary issue the Tribunal observes the Clause 1.4.2 and 1.5 of the “instructions to bidders” permitted a Consortium to bid. Accordingly the Consortium of the petitioners had submitted the bid. The petitioners have executed a Consortium Agreement between themselves. The Contract Agreement dated 9 January, 2009 between the parties is executed by the Consortium of the petitioners on one part and the respondent on the other part. Under Clause 6 of that contract, the Contractors are defined as “Consortium of L & T Ltd. and Scomy Engg. Bhd.” with the specific address of the Consortium for service of notices. The various Bank guarantees provided under the contract including the performance guarantees have been provided by the Consortium. Sub-clause 20.2 of the contract agreement defines the Consortium's Bank accounts and the respondent has been paying all the bills into the Bank account of the Consortium at Mumbai. Further it is the Consortium, which is paying all the taxes, statutory dues etc. as per the contract agreement. It also holds an independent PAN number and a separate Service Tax number. In addition to these undisputed facts, the invocation of the arbitration was by the Consortium. Therefore the Tribunal answered the preliminary issue against the petitioners.
8. Mr. Sawant, the learned advocate for the petitioner submits that the Consortium not being a registered association, is not a legal entity. Therefore the petitioners apprehend that in future if an occasion arises, the proceedings initiated by the Consortium should not be objected to on the ground of it not being a legal entity. He points out that the agreement between the parties has been independently signed by petitioner no. 1 and petitioner no. 2. It has not been signed by one individual on behalf of the consortium. He refers to a decision of Single Bench of our High Court in the case of Oil and Oil & Narural Gas Corporation Ltd.… v. Saw Pipes Ltd.…. reported in 2002 (6) Bom. C.R. 657 wherein similar objection has been turned down by this Court by holding that the petition filed by one of the members of the consortium was maintainable. In the judgment cited this Court at paras 12 and 13, extensively referred to the terms for the contract between the parties before it and on the basis thereof concluded that the claim in the arbitral proceedings was restricted. The constituents of the consortium in fact under the agreement itself were entitled to different and exclusive payments for each. As such the claim in the arbitral proceedings was restricted to the claim to which the constituent of the Consortium alone was entitled to. It did not form part of the claim relating to any amount which was due and outstanding to the other constituent of the Consortium. Hence, the arbitral proceedings were held to be correctly initiated by a constituent. The facts of the case on hand are exactly contrary. The terms and conditions of the contract between the Consortium of the petitioners and the respondent do not provide for any independent claims to petitioner no. 1 and petitioner no. 2. Therefore, on the basis of the terms and conditions of the contract itself there is no scope for the petitioners to contend that they have to be treated separate from the Consortium.
9. As regards the identity of the Consortium as a legal entity Mr. Ankhad, the learned advocate for the respondent relying upon decision of the Apex Court in Gammon India Limited v. Commissioner Of Customs, Mumbai, Mumbai reported in (2011) 12 SCC 499, submits that a Consortium or a joint-venture would be a legal entity in the nature of partnership of the constituent companies and as such would be a person.
10. Considering the terms and conditions of the contract as well as the decision cited by Mr. Ankhad, in my opinion, in the facts and circumstances of the present case, it is not open for the petitioners to rely upon their independent identities while dealing with the respondent and that they will have to deal with the respondent as a Consortium only. Therefore there is no infirmity in the impugned order. For the same reason the present petition as filed would also not been maintainable. Hence, the same is dismissed.
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