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STERNA INDIA OIL AND GAS PRIVATE LIMITED v. NANDINI IMPEX PRIVATE LIMITED
Factual and Procedural Background
The petitioner and the respondent entered into a Memorandum of Understanding (MoU) dated 22 August 2019, along with two sub-contracts on the same date, governing their relationship in relation to City Gas Distribution (CGD) projects. The MoU established that the petitioner would be the nominated sub-contractor for projects awarded to the respondent. Specific clauses detailed responsibilities regarding bank guarantees, indemnities, and the execution of separate agreements for each agreed project.
Disputes arose between the parties concerning alleged defaults and liabilities under the MoU and sub-contracts, leading to mutual termination communications. Both agreements contained identical arbitration clauses providing for resolution of disputes by a sole arbitrator appointed mutually by the parties, with arbitration proceedings to be held in New Delhi under the Arbitration and Conciliation Act, 1996.
Following failed negotiations on the appointment of a sole arbitrator—where the petitioner proposed a retired District Judge and the respondent suggested a different retired Judge—the petitioner filed petitions under Section 11(6) of the Arbitration & Conciliation Act, 1996, seeking appointment of an arbitrator by the Delhi International Arbitration Centre (DIAC).
Legal Issues Presented
- Whether the Court should appoint an arbitrator through DIAC under Section 11(6) of the Arbitration & Conciliation Act, 1996, due to failure of parties to mutually appoint the arbitrator.
- Whether consolidation of arbitration proceedings arising from two independent sub-contracts, though related to one MoU, is permissible.
Arguments of the Parties
Petitioner's Arguments
- The petitioner proposed a retired District Judge as sole arbitrator to resolve disputes.
- Suggested consolidation of arbitration proceedings to save time and costs.
- Contended that the respondent’s response relied on the arbitration clause in the MoU.
Respondent's Arguments
- Agreed to arbitration but did not consent to the petitioner’s proposed arbitrator and suggested a different retired Judge.
- Relied on the Supreme Court judgment in Duro Felguera, S.A v. Gangavaram Port Limited to argue that consolidation is not permissible as the disputes relate to two independent sub-contracts.
- Pointed out that the petitioner’s notice invoked arbitration clauses in the sub-contracts, not the MoU.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Duro Felguera, S.A v. Gangavaram Port Limited | Consolidation of arbitration proceedings is not permissible when disputes arise from independent contracts. | The Court noted the respondent’s reliance on this precedent to argue against consolidation, but did not decide on consolidation, leaving the matter to DIAC. |
Court's Reasoning and Analysis
The Court acknowledged the failure of parties to mutually appoint an arbitrator as required under the arbitration clauses of the MoU and sub-contracts. Given the deadlock, the Court considered the petitioner’s request for appointment of an arbitrator by DIAC under Section 11(6) of the Arbitration & Conciliation Act, 1996. The Court noted the parties’ differing views on consolidation of the arbitration proceedings. While the respondent relied on the Duro Felguera judgment to argue against consolidation, the petitioner suggested consolidation to save time and costs. The Court observed that Rule 6 of the DIAC (Arbitration Proceedings) Rules, 2018, allows consolidation of proceedings with the parties’ consent. Therefore, the Court refrained from deciding on consolidation, leaving the issue to DIAC’s discretion in accordance with its rules. Ultimately, the Court directed the disputes to be referred to DIAC for appointment of arbitrators, tentatively as two separate proceedings, with liberty to consolidate if legally permissible.
Holding and Implications
DISPOSED OF
The Court disposed of the petitions by referring the parties to the Delhi International Arbitration Centre for appointment of arbitrators to adjudicate the disputes. The matter was referred as two separate arbitral proceedings initially, with the possibility of consolidation left to DIAC’s discretion under its procedural rules. No new precedent was established by this order. Pending applications were dismissed as not surviving for adjudication. The decision directly facilitates the commencement of arbitration proceedings but leaves procedural consolidation to the arbitration institution.
% 08.09.2020 (Video-Conferencing)
I.A. 7824/2020 in ARB.P. 356/2020 &
I.A. 7826/2020 in ARB.P. 358/2020
1. Exemptions allowed, subject to all just exceptions.
2. The applications stand disposed of. ARB.P. 356/2020 & ARB.P. 358/2020 Page 2 of 8 ARB.P. 356/2020 & ARB.P. 358/2020
1. These are petitions under Section 11(6) of the Arbitration & Conciliation Act, 1996, for appointment of arbitrators.
2. Issue notice. Mr Aseem Chaturvedi accepts notice on behalf of the respondent.
3. With consent of parties, the matter has been heard finally.
4. The relationship between the petitioner and the respondent is governed by a Memorandum of Understanding (MoU), as well as by two sub-contracts, all of which are dated 22 August, 2019.
5. The MoU, between the petitioner and the respondent, was a fallout of bids, submitted by the respondent, for certain projects relating to City Gas Distribution (CGD) network for various customers.
6. The petitioner and the respondent came to an understanding, formalised in the shape of the aforesaid MoU, dated 22 August, 2019, to the effect that, in the case of projects awarded to the respondent, the petitioner would be the nominated sub-contractor for execution of part of the works related thereto.
7. Clause 1(ii)(a) of the MoU may, in this regard, be reproduced, thus:
(ii). Projects already awarded in favour of NIPL ARB.P. 356/2020 & ARB.P. 358/2020 Page 3 of 8 (a) In case of the projects which have already been awarded to NIPL as on the date of this MoU, Sterna shall be the nominated subcontractor for execution of part of works of the projects. NIPL shall subcontract the works or part of the works on the same schedule of rates as per the main contract executed by it with the respective client.
8. Sub-clauses (iv) & (v) of clause (1) of the MOU also merit reproduction, thus:
(iv). The Parties will decide on the submission of bank guarantees for the Agreed Projects on case to case basis. In the event Sterna agrees to provide performance bank guarantees for any Agreed Project as per the terms of the respective tender/ the contract, the costs incurred by Sterna in issuance, maintenance or renewal of the said performance bank guarantees will be reimbursed by NIPL if agreed mutually, on case to case basis. Further, in the event bank guarantees submitted by Sterna are invoked by the Client, NIPL shall keep Sterna fully indemnified against any loss or damage that may be caused to Sterna so long as the encashment was not directly due to a sole breach of the contract terms or non-performance on the part of Sterna.
(v). The Parties will execute with respect to each Agreed Project, a detailed separate agreement for allocation of scope of work, responsibilities, price and risk sharing as well as for establishing mechanism for execution of the Project (s), resolution of disputes etc., based on the terms of this MoU, prior to submission of proposal for each Agreed Project. Specific agreement executed between the Parties for Patiala GA Project forms part of this MoU as Annexure- 2.
9. The petitioner asserts that at the request of the respondent, two bank guarantees were submitted by the petitioner in favour of the respondents client, namely, Torrent Gas Pvt. Ltd. ARB.P. 356/2020 & ARB.P. 358/2020 Page 4 of 8
10. As contemplated by clause 1(v) of the MoU, extracted hereinabove, two sub-contracts were executed, between the petitioner and the respondent, on the date of the MoU, i.e. 22 August, 2019, relating to the work to be done for the areas of Patiala, Punjab and Karikal, Puducherry.
11. The disputes arose between the parties, consequent on the petitioner asserting that the respondent had defaulted in its obligation under the MoU and the sub-contracts, and the respondent levelling parallel allegations against the petitioner.
12. It appears that, the petitioner and the respondent exchanged communications, terminating the MoU and the sub-contracts.
13. The disputes between the parties related to alleged liabilities, by one towards the other, under the MoU/sub-contracts.
14. The arbitration clauses, in the MoU and the two sub-contracts, are alike and identical. Clause 6, in the MoU, reads thus:
6. Governing law& Dispute Resolution
(i) This MoU and the rights and obligations of the Parties hereunder shall be governed and construed in accordance with the laws of India. The courts at New Delhi, India, shall have exclusive jurisdiction to settle any matter.
(ii) If a dispute, claim or controversy arises out of or in connection with this Agreement, the Parties shall negotiate in good faith in an attempt to reach an amicable settlement. If the disputed matter is not settled amicably between the Parties within thirty (30) ARB.P. 356/2020 & ARB.P. 358/2020 Page 5 of 8 days, such disputed matter shall be finally settled in arbitration as set out herein below.
(iii) Any dispute arising between the Parties with relation to this MoU shall be referred to arbitration comprising of a sole arbitrator to be appointed mutually by the Parties. Any orders/directions/award of the sole arbitrator shall be final and binding on the Parties. The arbitration proceedings shall be held in English language in accordance with the Arbitration and Conciliation Act, 1996 and the rules made thereunder, or any statutory modification(s) or re- enactment(s) thereto for the time being in force. The venue and seat of arbitration shall be at New Delhi, India.
15. Parallelly, Article 10 of the sub-contracts reads thus: Article 10 Governing law& Dispute Resolution 10.1 This Agreement and the rights and obligations of the Parties hereunder shall be governed and construed in accordance with the laws of India and shall be under the exclusive jurisdiction of the courts at New Delhi. 10.2 If a dispute, claim or controversy arises out of or in connection with this Agreement, the Parties shall negotiate in good faith in an attempt to reach an amicable settlement. If the disputed matter is not settled amicably between the Parties within 30 (thirty) days, such disputed matter shall be finally settled in arbitration as set out herein below. 10.3 Any dispute arising between the Parties with relation to this Agreement shall be referred to Arbitration comprising of a sole arbitrator to be appointed mutually by the Parties. Any orders/ directions/award of the sole arbitrator shall be final and binding on the Parties. The arbitration proceedings shall be held in Engl.sh language in accordance with the Arbitration and Conciliation Act, 1996 and the Rules made thereunder, or any statutory modification (s) or re- enactment(s) thereto tor the time being in force. The venue of Arbitration shall be at New Delhi. The cost of the arbitration proceedings shall be first borne equally by the Parties and the ARB.P. 356/2020 & ARB.P. 358/2020 Page 6 of 8 arbitrator shall be requested to rule on the division of these costs between the Parties along with his principle decree.
16. Consequent to the aforesaid disputes having arisen between the parties, on 27 March, 2020, the petitioner addressed a notice, to the respondent, setting out its claim and proposing settlement of the disputes by arbitration. The petitioner also proposed the name of retired learned District Judge as the arbitrator to arbitrate on the disputes.
17. The respondent replied, on 21st April, 2020, acceding to the request of the petitioner for settlement of the disputes by arbitration. However, the respondent did not consent to arbitration by the learned arbitrator named by the petitioner, but suggested, instead, a learned retired Judge of this Court as the sole arbitrator.
18. The said proposal is not acceptable to the petitioner.
19. As such, the parties have not been able to arrive at a consensus on the identity of the person who would arbitrate on the disputes between them.
20. It is in these circumstances, that the petitioner has moved this Court, by the present petitions under Section 11(6) of the Arbitration & Conciliation Act, 1996, seeking that the matter may be referred to the Delhi International Arbitration Centre (hereinafter referred to as the DIAC) to appoint an arbitrator from the panel of arbitrators maintained by the DIAC. ARB.P. 356/2020 & ARB.P. 358/2020 Page 7 of 8
21. Mr. Aseem Chaturvedi, learned counsel appearing for the respondent, has no objection.
22. Mr. Kamal Mehta, learned counsel appearing for the petitioner, had advanced a suggestion that the proceedings could be consolidated and arbitrated in a single arbitral proceeding, so as to save time and money.
23. However, Mr. Aseem Chaturvedi, relying on the judgment of the Supreme Court in Duro Felguera S.A v. Gangavaram Port Limited , submitted that consolidation of the disputes was not permissible as they relate to two independent sub-contracts, though they were fall outs of one umbrella MoU. Mr. Chaturvedi also points out, in this regard, that the notice dated 27 March, 2020, addressed by the petitioner, to the respondent, invoked the arbitration clauses contained in the sub-contracts, and not the arbitration clause in the MoU.
24. To this submission, Mr. Mehta responds, stating that in its response dated 21 April, 2020, the respondent had relied on the arbitration clause in the MoU.
25. Be that as it may, the learned counsel have stated, fairly, that as a provision for consolidation of proceedings, albeit by consent of parties, exists in Rule 6 of the Delhi International Arbitration Centre 2017 (9) SCC 729 ARB.P. 356/2020 & ARB.P. 358/2020 Page 8 of 8 (DIAC) (Arbitration Proceedings) Rules, 2018, the parties could raise the issue of consolidation of proceedings before the DIAC, which could consider the request for consolidation of the proceedings, in accordance with the provisions contained in the said Rules.
26. In view thereof, I am not entering into the issue of consolidation of the proceedings in this order, and referring the disputes to the DIAC, tentatively, as two separate arbitral proceedings.
27. Should consolidation of the proceedings be legally permissible in accordance with the Delhi International Arbitration Centre (DIAC) (Arbitration Proceedings) Rules, 2018, the DIAC would be at liberty to do so, before, or at the stage of, referring the disputes to arbitration.
28. Accordingly, and subject to the above, these petitions are disposed of, referring the petitioner and the respondent to the DIAC, for appointment of an arbitrator, to arbitrate on the disputes between the petitioner and the respondent.
29. Pending applications, if any, do not survive for adjudication and stand disposed of accordingly. C. HARI SHANKAR, J. SEPTEMBER 8, 2020
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