REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION

ARBITRATION PETITION NO.30 OF 2016

M/S. DURO FELGUERA, S.A.      ........Petitioner

VERSUS

M/S. GANGAVARAM PORT LIMITED               ........Respondent

WITH

ARBITRATION PETITION NO.31 OF 2016 T.C.(C) NOS.25/2017, 26/2017,  27/2017 AND 28/2017  

J U D G M E N T

BANUMATHI, J.

Arbitration Petition No.30 of 2016 has been filed by M/s Duro Felguera,

S.A. under Section 11(6)(a) read with Sectiion 11(12)(a) of the Arbitration and

Conciliation Act, 1996 (for short, 'the Act') to appoint the nominee arbitrator on

behalf of the respondent (second arbitrator) in terms of sub-clause 20.6 of the

Special Conditions of the Contract with respect to the arbitration arising under

the Contract dated 10.05.2012. T.C. No.25 of 2017, T.C. No.26 of 2017, T.C.

No.27 of 2017 and T.C. No.28 of 2017 have been filed by M/s. Felguera Gruas

India Private Limited (hereinafter referred to as 'the FGI') for appointment of

Domestic Arbitral Tribunal for resolving the dispute pertaining to the contract

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awarded to  FGI.  Arbitration Petition  No.31 of  2016 has been filed  by M/s.

Gangavaram Port Limited (hereinafter referred to as 'the GPL') to appoint an

arbitrator under the Memorandum of Understanding (MoU) dated 11.08.2012

and  to  constitute  a  single  Arbitral  Tribunal  by  a  composite  reference  for

adjudication of  all  the disputes between the parties  in  connection with  the

"Works"  covered  under  all  the  five  Package  Contracts  and  the  Corporate

Guarantee dated 17.03.2012 executed by Duro Felguera.   

2. As  the  parties  and  issues  in  both  the  arbitration  petitions  and  the

transferred cases are one and the same, both arbitration petitions and the

transferred  cases  shall  stand  disposed  of  by  this  common  order.   For

convenience, parties are referred to as per their array in Arbitration Petition

No.30 of 2016.

3. Brief Facts: The Respondent-Gangavaram Port Limited (GPL) developed

a green-field, ultra-modern, all-weather sea-port near Gangavaram Village in

Visakhapatnam  District  in  the  State  of  Andhra  Pradesh.  This  sea-port

commenced operations in the year 2009. The Respondent intended to expand

its facilities in the Port with respect to Bulk Material Handling Systems. This

included  Engineering,  Design,  Procurement  of  Materials,  Manufacturing,

Supply,  Erection,  Testing  and  Commissioning  of  Bulk  Material  Handling

Systems, as well as all other associated works and integration of the same

with the existing coal handling systems etc. For this purpose, on 08.08.2011,

Gangavaram  Port  Limited  invited  a  tender/bid.  In  response  to  the

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aforementioned  tender  dated  08.08.2011,  the  Spanish  Company-Duro

Felguera Plantas Industrials S.A. (since merged with the petitioner) along with

its Indian subsidiary-M/s. Felguera Gruas India Private Limited (FGI) submitted

a Single Bid/Tender-Original Package No.4 Tender Document on 15.11.2011.

This  included  the  Commercial  Bid  and  the  Technical  Bid.   After  post-bid

negotiations,  the  petitioner  Duro  Felguera  and  its  subsidiary  (FGI)  were

considered  by  GPL  and  Duro  Felguera  and  FGI  were  selected  as  "the

Contractors" for the work.

4. After discussion between the parties, Original Package No. 4 TD was

divided into five different and separate Packages, namely, New Package No.

4-F.O.B.  Supply of  Bulk  Material  Handling Equipments  (awarded to  foreign

company-M/s Duro Felguera),  Package No.  6-design,  manufacture,  supply,

installation,  erection,  testing,  commissioning  of  Bulk  Material  Handling

Equipments  and  all  other  activities  related  therewith;  Package  No.  7-Civil

Works and all other activities related therewith;  Package No. 8-International

Transportation of Bulk Material Handling Equipments and parts through sea

including  insurance  and  all  related  activities;  Package  No.  9-Installation,

Testing and Commissioning of Ship Unloaders and all other activities related

therewith (Packages No.6 to 9 awarded to Indian subsidiary-FGI).  Separate

Letters of Award (dated 17.03.2012) for five different Packages were issued

to M/s Duro Felguera, S.A. and the Indian Subsidiary-FGI for the above said

work respectively.  

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5. Five different contracts were entered into on 10.05.2012 for five split-up

Packages with different works viz. namely New Package No. 4 with foreign

company-M/s Duro Felguera and Packages No. 6, 7, 8 and 9 with FGI.  Each

of  the  Packages  has  special  conditions  of  contract  as  well  as  general

conditions of contract. Each one of the Contract/Agreement for works under

split-up  Packages  contains  an  arbitration  clause  namely  sub-clause  20.6.

Duro Felguera had also entered into a Corporate Guarantee dated 17.03.2012

guaranteeing due performance of all the works awarded to Duro Felguera and

FGI.  The said Corporate Guarantee had its own arbitration clause namely

clause (8).

6. Duro  Felguera  and  FGI  have  executed  a  tripartite  Memorandum  of

Understanding  (MoU)  with  M/s  Gangavaram  Port  Limited  (GPL)  on

11.08.2012.  In the said MoU, Duro Felguera and FGI have agreed to carry out

the works as per the priority of documents listed therein.  Case of GPL is that

the MoU dated 11.08.2012 being the latest covers all the five contracts namely

New Package No. 4 awarded to M/s Duro Felguera and Packages No. 6 to 9

awarded to FGI.  According to GPL, since MoU refers to original Package No.

4  Tender  Document  (TD)  which  contains  arbitration  clause,  the  Original

Package No. 4 TD with its arbitration clause shall be deemed to have been

incorporated in the MoU.

7. Case of M/s. Gangavaram Port Limited is that the petitioner-M/s Duro

Felguera, S.A. and its Indian Subsidiary-FGI failed to perform their obligations,

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including their obligation to attend and rectify faulty works and complete the

pending works etc.  Further grievance of GPL is that though the works were

scheduled to be completed at the latest by 16.03.2014, the petitioner-M/s Duro

Felguera,  S.A.  and  its  Indian  Subsidiary  (FGI)  caused  inordinate  delay  in

execution of the work and, therefore, GPL was constrained to invoke the Bank

Guarantee on 07.01.2016 given by petitioner-M/s  Duro Felguera.  GPL had

also  issued  Notices  of  Termination  dated  31.01.2016  to  the  Foreign

Company-M/s  Duro  Felguera  and  its  Indian  Subsidiary(FGI).   M/s  Duro

Felguera, S.A. and its Indian Subsidiary (FGI) issued notice of dissatisfaction

on 04.02.2016 and 07.02.2016 to GPL.   Subsequently M/s.  Duro Felguera

issued an arbitration notice dated 05.04.2016 for New Package No. 4 Contract

and FGI issued four arbitration notices dated 07.04.2016 for Packages No. 6

to 9 Contracts.  Both M/s. Duro Felguera and FGI have separately nominated

Mr. Justice D.R. Deshmukh (Former Judge, Chhattisgarh High Court) as their

nominee arbitrator for each of the five contracts.

8. GPL issued a comprehensive arbitration notice on 13.04.2016 appointing

Mr. Justice M.N. Rao (Former Chief Justice, Himachal Pradesh High Court) as

its  nominee  arbitrator  under  sub-clause  20.6  of  the  conditions  of  contract

which form part of the "Original Package No. 4 Tender Document".  Contention

of GPL is that "Original Package No. 4 (TD) and the Corporate Guarantee by

M/s.  Duro  Felguera"  and  the  MoU  dated  11.08.2012  cover  all  the  five

contracts,  namely,  New Package  No.  4,  Package  No.  6,  Package  No.  7,

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Package  No.  8  and  Package  No.  9  as  well  as  the  Corporate  Guarantee.

Further case of GPL is that five individual arbitration notices issued by M/s.

Duro Felguera and FGI are untenable and since Duro Felguera-the foreign

company has guaranteed the due performance of the works covered under all

the five packages and there has to be only one single Arbitral  Tribunal for

resolving  the  disputes  of  "International  Commercial  Arbitration"  arising

between the parties.

9. Mr. Mukul Rohtagi and Mr. Raju Ramachandran, learned Senior Counsel

for  M/s Gangavaram Port  Limited (GPL) submitted that  the split  up of  the

"Works"  into  five  separate  contracts  was  made  only  on  the  basis  of  the

requests made by the Duro Felguera for convenience of the contractors.  It

was contended that all the works are inter-connected and inter-linked and if

there  are  separate  arbitrations  for  each  of  the  packages,  and  separate

arbitration for New Package No. 4 and the Corporate Guarantee take place,

then in each arbitration, the respondent party will blame the lapse on the part

of GPL in another Package and thereby attempt to escape liability.  It  was

urged that the appointment of a single arbitral tribunal, under the MoU and the

Corporate Guarantee will avoid conflicting awards between the parties, huge

wastage of time, resources and expenses; and would be consistent with law

and public policy. The learned Senior Counsel further submitted that MoU was

executed by Duro Felguera and FGI on 11.08.2012 and the contents of MoU

including  the  priority  of  the  documents  referred  therein  prevail  over  the

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contents  of  the  Letters  of  Award  and  the  Contracts.  It  was,  therefore,

submitted that  the arbitration clause covered under sub-clause 20.6 of  the

conditions of contract, which forms part of the "Original Package No. 4 Tender

Document" which is incorporated in the MoU shall prevail over the arbitration

clause covered under sub-clause 20.6 of the contract for five packages.  It

was  further  submitted  that  having  regard  to  the  nature  of  disputes  which

extend over  each of  the Packages and collectively covered the Corporate

Guarantee executed by Duro Felguera under MoU, it would be just and proper

to  make  a  'composite  reference' and  have  a  single  arbitral  tribunal  of

'international commercial arbitration' for settling the dispute arising between

the parties and the same would be consistent with the intention of the parties

and public policy.  It was urged that the contract for the "Works" has always

been envisaged by the parties as one composite contract even though the

contracts  were  split  into  various  Packages  and  there  cannot  be  multiple

arbitral tribunals for adjudication of disputes between the parties as it would

lead only to complications in settling the disputes and execution of the awards.

10. Mr.  Sunil  Gupta  learned  Senior  Counsel  appearing  for  Duro

Felguera-Spanish  Company submitted  that  by conscious  agreement  of  the

parties, the Original Package No.4 Tender Document was superseded by five

new Contracts with different  works namely New Package No. 4,  Packages

No.6, 7, 8 and 9, each of which have special conditions as well as general

conditions of contract.  It was further submitted that the Corporate Guarantee

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dated 17.03.2012 executed by Duro Felguera guaranteeing due performance

of the works awarded to Duro Felguera and FGI has its own separate and

distinct arbitration clause and the same has no connection with the arbitration

clauses (sub-clause 20.6) of the five different contracts for New Package No. 4

and  Packages  No.  6,  7,  8  and  9.   The  learned  Senior  Counsel  further

submitted  that  the  MoU  dated  11.08.2012  which  enlists  priority  of  the

documents to be considered is only to have clarity in carrying out the works

and  the  MoU  cannot  override  the  terms  of  the  contracts  for  five  different

packages including the arbitration clauses contained therein.  It was submitted

that the five new split-up Packages followed by five different Letters of Award

and  five  different  contracts  were  substantially  different,  independent  and

separate in their content and subject matter and there cannot be a 'composite

reference' for efficacious settlement of disputes, it would be just and proper to

have  multiple  arbitral  tribunals  and  may  be  by  the  same  arbitrators.  The

learned Senior Counsel submitted that so far as New Package No.4 and the

issues pertaining to the Corporate Guarantee executed on 17.03.2012 by Duro

Felguera-the foreign Company, the arbitral tribunal has to be for International

Commercial Arbitration.

11. Reiterating  the  above  submissions,  Mr.  Singhvi,  the  learned  Senior

Counsel  appearing  for  Indian  subsidiary-FGI  contended  that  by  conscious

decision and agreement of the parties, Original Package   No. 4 (TD) was

superseded  and  five  new  TDs  with  different  works  namely  TD  for  New

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Package No. 4 and Packages No. 6, 7, 8 and 9 were brought into existence

and there were separate Letters of Award and five separate contracts for each

one of those split-up packages.  It was submitted that each of the contracts

contain special conditions as well as general conditions of contract apart from

the arbitration clause, (sub-clause 20.6), which is relevant for governing the

contractual and arbitral relations between the parties and in case of dispute

arising  between  the  parties  under  any  of  the  respective  contracts  or  the

Corporate Guarantee, the aggrieved party would have to invoke the respective

arbitration clauses in the respective contracts in question and cannot invoke

the  MoU  dated  11.08.2012.  It  was  further  submitted  that  the  Corporate

Guarantee dated 17.03.2012 was executed by Duro Felguera under which it

had  guaranteed  the  due  performance  of  all  the  works  awarded  to  Duro

Felguera and FGI and FGI is not a party under the said Corporate Guarantee.

It was further submitted that the MoU dated 11.08.2012 came into existence

long after the Contracts and it does not contain any arbitration clause and MoU

does not intend to alter the nature of the rights, responsibilities and obligations

of the parties arising from the respective contracts and, therefore, for settling

the disputes arising under the Packages No. 6, 7, 8 and 9 awarded to FGI,

there  have  to  be  four  domestic  arbitral  tribunals  and  there  cannot  be  a

'composite reference' by invoking MoU.

12. Considering the facts  and circumstances and rival  contentions of  the

parties, the following points arise for determination:

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(1) Whether Gangavaram Port Limited (GPL) is right in contending

that  Memorandum of  Understanding  (MoU)  dated  11.08.2012

and Original  Package No. 4 Tender Document and Corporate

Guarantee dated 17.03.2012 executed by Duro Felguera covers

all the five split-up Packages awarded to Duro Felguera and FGI

and  whether  there  has  to  be  a  composite  reference/single

arbitral  tribunal  for  "International  Commercial  Arbitration"

covering all the five different Packages and also the Corporate

Guarantee executed by Duro Felguera?

(2) Whether there have to be 'multiple arbitral tribunals' for each of

the  five  different  Packages  of  Work  awarded  to  the  foreign

company-Duro  Felguera  and  Indian  Subsidiary-FGI  (one

International  Commercial  Arbitral  Tribunal  plus  four  Domestic

Arbitral  Tribunals)  and  another  one  arbitral  tribunal  for

'international commercial arbitration' under Corporate Guarantee

(17.03.2012) executed by the foreign company-Duro Felguera?

13. The  Arbitration  and  Conciliation  (Amendment)  Act,  2015  (w.e.f.

23.10.2015) has brought in substantial changes in the provisions of the Arbitra-

tion and Conciliation Act, 1996.  After the Amendment Act 3 of 2016, as per the

amended provision of sub-section (6A) of Section 11, the power of the court is

confined only to examine the existence of the arbitration agreement. It further

clarifies that the decision of appointment of an arbitrator will be made by the

Supreme Court or the High Court (instead of Chief Justice) and under Section

11(7), no appeal shall lie against such an appointment.   

Position prior to Amendment Act 3 of 2016  

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14. Under Section 11(6) of the Arbitration and Conciliation Act, 1996, as it

stood prior to Amendment Act 3 of 2016, on an application made by any of the

parties,  the  Chief  Justice  of  the  High  Court  appoints  an  arbitrator  for

adjudication.  Initially,  the  line  of  decisions  ruled  that  the  appointment  of

arbitrator is an administrative order passed by the Chief Justice. In  Konkan

Railway  Corporation  Limited  and  Others  v.  Mehul  Construction

Company, (2000) 7 SCC 201, it was held that the powers of the Chief Justice

under  Section  11(6)  of  the  Arbitration  and  Conciliation  Act,  1996  are  of

administrative nature and that the Chief Justice or his designate does not act

as  a  judicial  authority  while  appointing  an  arbitrator.  The  same  view  was

reiterated  in  the  subsequent  judgment  of  this  Court  in  Konkan  Railway

Corporation Limited and Another v. Rani Construction Private Limited,

(2002) 2 SCC 388.

15. However, in the year 2005, a Constitution Bench of  Seven Judges in

SBP and Co. v. Patel Engineering Limited and Another, (2005) 8 SCC 618,

made a departure from the previous judgments and held that the order passed

by the Chief Justice is not administrative but judicial in nature and hence the

same is subject to appeal under  Article 136 of the Constitution of India.  The

Court further held that in deciding the appointment of an arbitrator, the Chief

Justice could first  by way of  a preliminary decision decide the court's  own

jurisdiction of that matter to entertain the arbitration petition, the existence of a

valid arbitration agreement, the subsistence of a "live claim i.e. the claim that

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is not barred by limitation".

16. The judgment in SBP and Co. (supra) was further clarified in National

Insurance Company Limited v. Boghara Polyfab Private Limited, (2009) 1

SCC  267,  wherein  this  Court  held  that  while  appointing  an  arbitrator,  the

following could be considered:-

"22.  Where the intervention of  the  court  is  sought  for  appointment  of  an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. (2005) 8 SCC 618.  This Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issued which he may choose to decide; and (iii)  issues which should be left  to the Arbitral  Tribunal to decide."

The judgments in Shree Ram Mills Ltd. v. Utility Premises (P) Ltd, (2007) 4

SCC 599 and  Arasmeta Captive Power Company Private Limited and

Another v. Lafarge India Private Limited, (2013) 15 SCC 414, are on the

same line pertaining to the issues which have to be dealt with by the Chief

Justice or his designate.

Changes brought about by the Arbitration and Conciliation (Amendment) Act, 2015 (Amendment Act 3 of 2016)

17. The language in Section 11(6) of the Act "the Chief Justice or any person

or institution designated by him" has been substituted by "Supreme Court or

as the case may be the High Court or any person or institution designated by

such Court".  Now, as per sub-section (6A) of Section 11, the power of the

Court has now been restricted only to see whether there exists an arbitration

agreement.  The amended provision in sub-section (7) of Section 11 provides

that the order passed under Section 11(6) shall not be appealable and thus

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finality  is  attached  to  the  order  passed  under  this  Section.  The  amended

Section 11 reads as under:-

"11.  Appointment  of  arbitrators.-  (1)  A person  of  any  nationality  may  be  an arbitrator, unless otherwise agreed by the parties.  

(2)  Subject  to sub-section (6),  the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.

(3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.

(4)  If the appointment procedure in sub-section (3) applies and-  (a) a  party  fails  to  appoint  an  arbitrator  within  thirty  days  from the

receipt of a request to do so from the other party; or (b)  the two appointed arbitrators  fail  to  agree on the third  arbitrator

within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by *[the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court].

(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if  the parties fail  to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by *[the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court].

(6) Where, under an appointment procedure agreed upon by the parties,- (a) a party fails to act as required under the procedure; or (b)  the  parties,  or  the  two  appointed  arbitrators,  fail  to  reach  an

agreement expected of them under that procedure; or (c) a  person,  including  an  institution,  fails  to  perform  any  function

entrusted to him or it under that procedure,

a party may request *[the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court] to take the necessary measure, unless the  agreement  on  the  appointment  procedure  provides  other  means  for  securing  the appointment.

*[(6A)  The Supreme court  or, as  the  case may be,  the  High  Court,  while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.]

*[(6B) The designation  of any person or institution by the Supreme Court or, as the case may be, the High Court, for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court.]

(7)  A decision  on  a  matter  entrusted  by  sub-section  (4)  or  sub-section  (5)  or sub-section (6) to *[the Supreme Court or, as the case may be, the High Court or the person  or  institution  designated  by  such  Court  is  final  and  no  appeal  including Letters Patent Appeal shall lie against such decision].

*[(8) The Supreme Court or, as the case may be, the High Court or the person or institution designated  by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to-

(a) any qualifications required of the arbitrator by the agreement of the parties; and

(b) the contents of the disclosure and other considerations as are likely  to  secure  the  appointment  of  an  independent  and impartial arbitrator.]

(9)  In  the  case  of  appointment  of  sole  or  third  arbitrator  in  an  international commercial arbitration, *[the Supreme Court or the person or institution designated by that Court] may appoint  an arbitrator of  a nationality other than the nationalities of  the parties where the parties belong to different nationalities.

*[(10) The Supreme Court or, as the case may be, the High Court, may make such  scheme  as  the  said  Court  may  deem  appropriate  for  dealing  with  matters entrusted by sub-section (4) or sub-section (5) or sub-section (6), to it.]

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(11)  Where  more  than  one  request  has  been  made  under  sub-section  (4)  or sub-section (5) or sub-section (6) to *[different High Courts or their designates, the High Court or its designate to whom the request has been first made] under the relevant sub-section shall alone be competent to decide on the request.

*[(12)(a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and sub-section (10) arise in an international commercial arbitration, the reference to the "Supreme Court or, as the case may be, the High Court" in those sub-sections shall be construed as a reference to the "Supreme Court"; and

(b)  where  the  matters  referred  to  in  sub-sections  (4),  (5),  (6),  (7),  (8)  and sub-section (10) arise in any other arbitration, the reference to "the Supreme Court or, as the case may be, the High Court" in those sub-sections shall be construed as a reference  to  the  "High  Court"  within  whose  local  limits  the  principal  Civil  Court referred to in clause (e) of sub-section (1) of section 2 is situate, and where the High Court itself is the Court referred to in that clause, to that High Court.]

*[(13) An application made under this section for appointment of an arbitrator or arbitrators shall be disposed of by the Supreme Court or the High Court or the person or institution designated by such Court, as the case may be, as expeditiously as possible and an endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.

(14) For the purpose of determination of the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal, the High Court may frame such rules as may be necessary, after taking into consideration the rates specified in the Fourth Schedule.

Explanation.-For  the  removal  of  doubts,  it  is  hereby  clarified  that  this sub-section shall not apply to international commercial arbitration and in arbitrations (other than international commercial arbitration) in case where parties have agreed for determination of fees as per the rules of an arbitral institution.]"

*Substituted by Act 3 of 2016 (w.e.f. 23.10.2015)

18. The effect of the Arbitration and Conciliation (Amendment) Act, 2015 in

Section 11 of the Act has been succinctly elucidated in the text book "Law

Relating  to  Arbitration  and  Conciliation  by  Dr.  P.C.  Markanda",  which

reads as under:-

"The changes made by the Amending Act are as follows: 1. The words 'Chief Justice or any person or institution designated by him' shall be substituted by the words 'the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court'. Thus, now it is not only the Chief Justice who can hear applications under Section 11, the power can be delegated to any judge as well. 2. As per sub-section (6-A), the power of the Court has now been restricted only to examination of  the existence of  an arbitration agreement.  Earlier, the Chief  Justice had been given the power to examine other aspects as well, i.e. limitation, whether the claims were referable for arbitration etc. in terms of the judgments of the Supreme Court in SBP and Co. v. Patel Engineering Ltd., (2005) 8 SCC 618; and National Insurance Co. Ltd. V. Boghara Polyfab Pvt. Ltd., (2009) 1 SCC 267. Now all preliminary issues have been left for the arbitral tribunal to decide in terms of Section 16 of the Act. 3. The Amending Act has categorically provided in sub-section (6-B) that designation of any person or institution by the Supreme Court or High Court would not be construed as delegation of judicial power. The order passed by a designated person or institution would continue to be regarded as a judicial order.  4. It has been provided is sub-section (7) that the order passed under this section shall not appealable. This change means that finality is attached to the order passed under this section and it would not be subject to further examination by an appellate court. 5. Sub-section (8) has been amended to bring it in conformity with amended section 12 with regard to ensuring independence and impartiality of the arbitrator. Before appointing

14

any arbitrator, a disclosure in writing has to be obtained in terms of section 12(1) of the Act. This is to ensure that the appointed arbitrator shall be independent and impartial and also harmonizes the provisions of sections 11 and 12 of the Act. 6. The Amending Act has introduced sub-section (13) which provides that the disposal of the application under this section has to be expeditious and endeavour shall be made to dispose of the application within a period of 60 days from the date of service of notice on the opposite party. This sub-section would ensure speedy disposal of applications under this section and all contentious issues have been left to be decided by the arbitral tribunal. 7. For determining the fee structure of the arbitral tribunal, it has been recommended that the High Courts may frame the necessary rules and for that  purpose, a model fee structure has been provided in the Fourth Schedule of the Amending Act. However, this sub-section would not be applicable for the fee structure in case of international commercial arbitrations and domestic arbitrations where the parties have agreed for determination of fee as per rules of an arbitral institution. This sub-section has been inserted to ensure a reasonable fee structure since the cost of arbitration has increased manifold due to high charges being levied on the parties by the arbitral tribunal and other incidental expenses. [Reference: Law Relating to Arbitration and Conciliation by Dr. P.C. Markanda; Lexis Nexis, Ninth Edition, Page 460]

19. There  is  no  dispute  between  the  parties  that  the  issue  at  hand  is

governed by the amended provision of sub-section (6A) of Section 11.  Even

though Letters of  Award are  dated 17.03.2012 and five  separate  contracts

were  entered  into  between  the  parties  on  10.05.2012,  the  dispute  arose

between the parties in 2016 as pointed out earlier, Gangavaram Port Limited

invoked the Bank Guarantee on 07.01.2016 and M/s. Duro Felguera and its

Indian  Subsidiary-FGI  issued  notice  of  dissatisfaction  on  04.02.2016  and

07.02.2016 respectively  to  Gangavaram Port  Limited.   M/s.  Duro Felguera

issued arbitration notice on 05.04.2016 for contract relating to Package No. 4

and FGI issued four arbitration notices dated 07.04.2016 for contracts relating

to Packages No. 6 to 9.  Gangavaram Port Limited also issued an arbitration

notice on 13.04.2016. Since the dispute between the parties arose in 2016, the

amended provision of sub-section (6A) of Section 11 shall govern the issue, as

per which the power of the Court is confined only to examine the existence of

the arbitration agreement.

15

Whether  there  has  to  be  a  Single  Arbitral  Tribunal  for  'International Commercial Arbitration' or 'Multiple Arbitral Tribunals'?  

20. Original Package No.4 Tender Document for Gangavaram Port Limited

Expansion-2011  consisted  of  "Bulk  Material  Handling  Systems  including

Engineering,  Design,  Procurement  of  Materials,  Manufacturing,  Supply

erection,  testing  and  commissioning  of  bulk  material  handling  systems

including  all  other  associated  works  and  integration  of  the  same  with  the

existing coal handling systems (Package 4-"Works").  By mutual consent and

agreement of the parties, Original Package No.4 TD was split into five different

Packages-New  Package  No.  4  [awarded  to  Duro  Felguera  (Spanish

Company)]  and  Packages  No.  6,  7,  8  and  9  awarded  to  its  Indian

subsidiary-FGI.   Letters  of  Award  dated  17.03.2012  was  awarded to  Duro

Felguera and FGI for various Packages.  Pursuant to Letters of Award, parties

have entered into contract agreement on 10.05.2012. These split-up contracts

have Volume I-Conditions of  Contract;   Volume II-Employer's  Requirement,

Scope  of  Work,  Specifications  and  Drawings;  and  Volume  III-Schedule  of

Prices. Five different Packages, the Letters of Award and the contract awarded

to Duro Felguera and FGI and the Scope of Work and the value thereof, read

as under:   

16

THE

CORPORATE GUARANTEE CONTRACT GPL-DF (Spain) 17.03.2012

Corporate Guarantee ..... .... Arbitration Clause - Cl.8

21. On behalf of GPL, it was repeatedly urged that the works are intrinsically

connected,  inseparable,  integrated,  interlinked  and  that  they  are  one

composite  contract  and  that  they  were  split  up  only  on  the  request  and

representations given by Duro Felguera and FGI.  As discussed earlier, as per

amended provision Section 11 (6A), the power of the Supreme Court or the

High  Court  is  only  to  examine  the  existence  of  an  arbitration  agreement.

From the record, all that we could see are five separate Letters of Award; five

separate  Contracts;  separate  subject  matters;  separate  and  distinct  work;

each containing separate arbitration clause signed by the respective parties to

the contract.

17

Package  & Parties (1) L.O.A.

(2) Date of Contract & the Scope of Work (3) Value/Price

(4) No.4 GPL-DF (Spain) 17.03.2012 10.5.12 F.O.B. SUPPLY OF BULK MATERIAL HANDLING EQUIPMENTS

USD 26,666,932 No.6 GPL-FGI (India) 17.03.2012 10.5.12 Design, manufacture, supply, installation, erection, testing, commissioning of Bulk  Material Handling Equipments and all other activities related therewith

Rs.208,66,53,657 No.7 GPL-FGI (India) 17.03.2012 10.5.12

22. All  the above five contracts awarded to Duro Felguera and FGI have

independent  arbitration  clauses.   Mr.  Sunil  Gupta  and  Mr.  A.M.  Singhvi,

learned Senior  Counsel  have taken us through the contract  agreements in

New Package No. 4 awarded to M/s Duro Felguera and Package No.6 (for

sample) awarded to FGI and submitted that all the five different contracts have

independent  arbitration  clauses  (in  sub-clause  20.6).   In  the  contract  New

Package No.4 there is a header "Supply of Bulk Material Handling Equipments

and Parts on FOB Basis".  Likewise, contract agreement for Package No.6

contains  the  header  "Design,  manufacture,  supply,  installation,  erection,

testing  commissioning  of  Bulk  Material  Handling  Equipments  and  all  other

activities related therewith".  Various clauses in the Original TD Package No.4

were suitably modified and incorporated in the split-up contract agreements.

Sub-clause 20.6 dealing with arbitration in the original Package No.4 TD has

been reproduced in New Package No.4 and other Packages No. 6 to 9. The

contract for New Package No. 4 which was entered into between M/s. Duro

Felguera and GPL, also contains an arbitration clause, which reads as under:

"Sub-Clause 20.6 - Arbitration Any dispute in respect of which amicable settlement has not been reached within the period stated in Sub-Clause 20.5, shall be finally and conclusively settled by Arbitration  under  the  Arbitration  and  Conciliation  Act,  1996  by  appointing  two arbitrators one by each party and a presiding arbitrator to be appointed by the said arbitrators.  Any such arbitration proceeding shall be within the exclusive jurisdiction of court of law at Hyderabad, India.  The place of Arbitration shall be Hyderabad and the Language of Arbitration shall be English.  The Contractor shall continue to attend to discharge all his obligations under the Contract during pendency of the Arbitration proceedings."

23. Likewise, the four different contract Packages No. 6, 7, 8 and 9 which

were awarded to FGI for  different works also contain an arbitration clause.

18

Sub-clause 20.6 of Package No.6-Design, manufacture,  supply, installation,

erection testing,  commissioning of  Bulk  Material  Handling Equipments  etc.,

reads as under:-

"Sub-Clause 20.6 - Arbitration Any dispute in respect of which amicable settlement has not been reached within the period stated in Sub-Clause 20.5, shall be finally and conclusively settled by Arbitration  under  the  Arbitration  and  Conciliation  Act,  1996  by  appointing  two arbitrators one by each party and a presiding arbitrator to be appointed by the said arbitrators.  Any such arbitration proceeding shall be within the exclusive jurisdiction of court of law at Hyderabad, India.  The place of Arbitration shall be Hyderabad and the Language of Arbitration shall be English.  The Contractor shall continue to attend to discharge all his obligations under the Contract during pendency of the Arbitration proceedings."

Like  Package  No.  6,  Contract/Agreement  pertaining  to  other  packages

awarded  to  FGI,  namely,  Packages  No.7,  8  and  9  also  contain  similar

arbitration clause in sub-clause 20.6.   The Original Package No. 4 TD split

into five different Packages, each having different works prima facie indicates

the intention  of  the parties  to  split-up original  Package No.  4  TD into  five

different packages, as was discussed above.   

24. In the contract agreement, the parties have agreed that the documents

mentioned in clause (2) of the agreement will have priority.  Clause (2) of the

agreement in New Package No. 4 awarded to Duro Felguera, reads as under:- "2.The following documents shall form and be read and construed as part of this Agreement and shall have the priority one over the other in the following sequence:

(a) this Agreement; (b) the Letter of Award; (c) Special Conditions of Contract (Conditions of Particular Applications) (d) General Conditions of Contract; (e) the  Employer's  Requirements,  Scope  of  Work,  Specifications  and

Drawings; (f) the Schedule of Prices; (g)  the Tender to the extent annexed herewith."

Similar clauses as to the priority of the documents was incorporated in all other

contract agreements-Packages No. 6, 7, 8 and 9 awarded to Indian subsidiary

19

FGI.  In the sequence of documents of clause (2) of the contract agreement

quoted above, the Tender Document is mentioned in the sequence only as (g)

and all other documents or the other documents like Letters of Award, Special

conditions of contract etc. have priority over the same.  While so, the terms

contained in Original Package No. 4 TD including the arbitration clause cannot

have priority over the Special Conditions of contract of the split-up contracts.

When the  Original  Package No.  4  TD has  been split-up  into  five  different

Packages, GPL is not right in contending that inspite of split-up of the work, the

Original Package No.4 TD collectively covered all the five Packages.  After the

Original Package No. 4 was split into five different contracts, the parties cannot

go back to the Original Package No.4 nor can they merge them into one.  We

do not find merit in the submissions of GPL that sub-clause 20.6 of the Original

Package No. 4 TD will  still  collectively cover all  the five Packages to justify

constitution of single Arbitral Tribunal.

25. The  foreign  company-Duro  Felguera  had  executed  a  Corporate

Guarantee  dated  17.03.2012  guaranteeing  the  due  performance  of  all  the

works awarded to Duro Felguera and FGI. The Corporate Guarantee itself has

its own separate and distinct arbitration clause. The arbitration clause of the

Corporate Guarantee i.e. clause (8) reads as under: "8.  This Corporate Guarantee shall  be governed by the Indian Laws.  In case of  any disputes, the Parties shall endeavor to settle the same amicably.  In case of failure to settle the disputes amicably, the same shall be finally settled under the Arbitration and Conciliation Act 1996 of India by appointing two Arbitrators, one by each party and a Presiding Arbitrator to be appointed by the said Arbitrators.  The award of the Arbitrators shall  be  final  and  binding  on  the  Corporate  Company and  the  Employer.  Any  such Arbitration proceeding shall be at Hyderabad and within the Jurisdiction of the Court of Law at Hyderabad, Andhra Pradesh, India.The Arbitration shall be conducted in English language."  

20

26. In the Corporate Guarantee, Duro Felguera has undertaken to ensure

performance of all the works both by Duro Felguera and also the contracts

pertaining to Packages No. 6 to 9 awarded to FGI.  Duro Felguera has also

undertaken that in the event of any delay in completion of the works as per the

time stipulated for completion of the contracts, Duro Felguera had undertaken

to compensate for  the delay, damages to GPL which will  be based on the

overall contract price collectively of all the contracts. The relevant clauses read

as under:- "1.  The Corporate Company hereby guarantees and covenants with the employer that FGI will perform all its obligations and duties as per package 6 to package 9, failing which the corporate company shall take over from FGI, as may be demanded by the employer under this Guarantee, and shall perform or cause to be performed at its own cost and risk and all the responsibilities, obligations and duties of FGI under package 6 to Package 9 so far as and to the extent FGI was liable to perform it, without  any additional  time  and  cost  implication  to  the  employer,  subject  to  the employer continuing to meet its own obligations under package 6 to package 9 with respect  to  payments,  approvals  for  drawings  and  other  related  matters  to  the corporate  company as  if  the  corporate  company were  the  principal  contractor  in place of FGI.

2. In the event of any delay in completion of the works as per the time for completion of the contracts for the reasons attributable to FGI and/or the corporate company, such that these delays in turn results in causing overall delay in completion of all or any  one  of  the  contracts,  then  the  corporate  company  hereby  undertakes  to compensate for the delay damages to the employer, which shall  be based on the overall contract price collectively of all the contracts and any other contract that may be  entered  into  by  and  between  the  employer  and  the  corporate  company  or FGI.........."

27. Contention of GPL is that as per the Corporate Guarantee, the Spanish

Company has  inter alia undertaken to compensate GPL for delay damages,

based on the overall contract price collectively of all the Contracts awarded to

both Duro Felguera and FGI, arising on account of delay in completion of the

works in any one or all of the five Contracts. It is contended that the Spanish

Company is obligated to take over and perform the works at its own costs, risk

and responsibilities, as if it is the Principal Contractor including for the works

21

awarded to the Indian Subsidiary and therefore as per terms of  Corporate

Guarantee  executed  by  Duro  Felguera,  there  has  to  be  a  single  arbitral

tribunal for all the Packages.  

28. As per the terms of Corporate Guarantee, it shall cease on issuance of

the performance certificate under all the contracts. Of course, Duro Felguera

has given the Corporate Guarantee for all the five contracts viz., New Package

No.4, Packages No. 6 to 9. Corporate Guarantee executed by Duro Felguera

dated 17.03.2012 also recognizes the split up of the original Package No. 4

Tender Document.  As per the terms of the Corporate Guarantee, it is to be

invoked only if  breach is established in one of the five contracts. Since the

Corporate Guarantee by itself has a separate arbitration clause, it cannot be

contended  that  by  virtue  of  the  Corporate  Guarantee  executed  by  Duro

Felguera, there has to be a 'composite reference' of 'International Commercial

Arbitration' which would cover all the five Packages. The Corporate Guarantee

by Duro Felguera cannot supersede the five split-up contracts and the special

conditions of contract thereon.   

29. Duro  Felguera  and  FGI  have  executed  a  tripartite  Memorandum  of

Understanding (MoU) on 11.08.2012 which, according to GPL, covers all the

five contracts namely New Package No. 4, Package No. 6, Package No. 7,

Package No. 8 and Package No. 9. In the said MoU both Duro Felguera and

FGI have agreed to carry out the works as per the priority of the documents

listed  therein  which  includes  the  Original  Package  No.4  Tender  Document

22

issued and final bid submitted by Duro Felguera and FGI. The relevant portion

of Memorandum of Understanding reads as under:-

"This Memorandum of Understanding (MoU) has been executed at Hyderabad on 11th August 2012 by and between: M/s Gangavaram Port Limited.....

    And M/s Duro Felguera Plantas Industries, S.A........,  M/s Felguera Gruas India Private Limited........ (Both DFPI and FGI shall jointly be referred to as the Contractors.  The Employer and the contractors shall collectively be referred to as the Parties.  All the captive terms used if any herein shall have the same meaning ascribed to it in the Contract.) Whereas the parties have entered into different package contracts for execution of Bulk  Material  Handling  System  under  "Original  Package  4  Tender  Document" covering  ship  unloaders,  stackers,  reclaimers,  in-motion  wagon  loading  system, conveyors, transfer towers, electrical and control works, civil works, etc. and in order to have more clarity on technical and execution related matters, the parties hereby agree that the works shall be carried out as per the following priority of documents. 1. Annexure I to the Letter of Award issued for Package 4 Contract. 2. Annexure  III  to  the  Letter  of  Award  issued  for  Package  4,  6,  7,  8,  and  9

contracts. 3. Clarifications/Addendum No.1 to 4 (in the descending order) issued by the

Employer to the Original Package 4 Tender Document. 4. The Original Package 4 Tender Document issued by the Employer. 5. Final Technical Bid submitted by the Contractors in response to the Original

Package 4 Tender Document. The parties undertake to keep this MoU as strictly confidential."

30. Contention  of  GPL  is  that  Memorandum  of  Understanding  (dated

11.08.2012) collectively covers all  the five Packages and MoU shall  prevail

over  the  arbitration  clauses  contained  in  five  different  Packages.   In  this

regard, reliance was placed upon sub-section (5) of Section 7 of the Act to

contend that since reference is made to Original Package No.4 TD in MoU,

arbitration  clause  20.6  must  be  deemed to  have  become part  of  MoU.  In

support of their contention, learned Senior Counsel Mr. Mukul Rohatgi and Mr.

Raju Ramchandran appearing for GPL, placed reliance upon Chloro Controls

India  Private  Ltd.  v.  Severn  Trent  Water  Purification  Inc.  and  Others

(2013) 1 SCC 641.

23

31. Per  contra,  the  learned  Senior  Counsel  for  Duro  Felguera  and  FGI

submitted that merely because MoU refers to Original Package No.4 Tender

Document,  such  mere reference  cannot  lead  to  an  inference of  arbitration

clause being incorporated as it only depends upon the intention of the Parties.

It  was  further  submitted  that  the  Memorandum of  Understanding  (MoU)  is

merely a supplementary document which was meant to lay down the priority of

documents only to clarify the priority in execution of the work under different

Packages.  It was further submitted that MoU was neither intended to alter the

nature of the rights, responsibilities and obligations of the parties involved in

the respective contracts nor does it  override the terms of the main contract

including the arbitration clauses in the five different packages.

32. In light of the above contentions, the point falling for consideration is by

virtue of sub-section (5) of Section 7, whether the MoU is to be taken as the

basis for  arbitration,  justifying the constitution of  single arbitral  tribunal  be-

cause a reference is made to Original Package No.4 TD in Memorandum of

Understanding (MoU).  

33. Section 7 (5) of the Arbitration and Conciliation (Amendment) Act, 2015

reads as under:-

“7. Arbitration agreement.—(1) ..... (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the con- tract.”

As per Section 7(5) of the Act, even though the contract between the parties

does not contain a provision for arbitration, an arbitration clause contained in

24

an independent document will be imported and engrafted in the contract be-

tween the parties, by reference to such independent document in the contract,

if the reference is such as to make the arbitration clause in such document, a

part of the contract. Section 7(5) requires a conscious acceptance of the arbi-

tration clause from another document, as a part of their contract, before such

arbitration clause could be read as a part of the contract between the parties.

The question whether or not the arbitration clause contained in another docu-

ment, is incorporated in the contract, is always a question of construction of

document in reference to intention of the parties.  The terms of a contract may

have to be ascertained by reference to more than one document.   

34. In  M.R.  Engineers  and  Contractors  Private  Limited  v.  Som Datt

Builders  Limited (2009)  7  SCC 696,  the  Supreme Court  held  that  even

though  the  contract  between the  parties  does  not  contain  a  provision  for

arbitration, an arbitration clause contained in an independent document will

be incorporated into the contract  between the parties,  by reference, if  the

reference is such as to make the arbitration clause in such document, a part

of  the  contract.  In  M.  R.  Engineers  and  Contractors  Private  Limited

(supra), this Court held as under:-

13. .......Having regard to Section 7(5) of the Act, even though the contract between the par- ties does not contain a provision for arbitration, an arbitration clause contained in an indepen- dent document will be imported and engrafted in the contract between the parties, by refer- ence to such independent document in the contract, if the reference is such as to make the arbitration clause in such document, a part of the contract. ..... 22. A general reference to another contract will not be sufficient to incorporate the arbitration clause from the referred contract into the contract under consideration. There should be a special reference indicating a mutual intention to incorporate the arbitration clause from an- other document into the contract. The exception to the requirement of special reference is where the referred document is not another contract, but a standard form of terms and condi-

25

tions of trade associations or regulatory institutions which publish or circulate such standard terms and conditions for the benefit of the members or others who want to adopt the same. ...... 24. The scope and intent of Section 7(5) of the Act may therefore be summarised thus:

   (i) An arbitration clause in another document, would get incorporated into a contract by reference, if the following conditions are fulfilled:

(1) the contract should contain a clear reference to the documents containing arbi- tration clause, (2) the reference to the other document should clearly indicate an intention to incor- porate the arbitration clause into the contract, (3) the arbitration clause should be appropriate, that is capable of application in re- spect of disputes under the contract and should not be repugnant to any term of the contract.

   (ii) When the parties enter into a contract, making a general reference to another contract, such general reference would not have the effect of incorporating the arbitra- tion clause from the referred document into the contract between the parties. The arbi- tration clause from another contract can be incorporated into the contract (where such reference is made), only by a specific reference to arbitration clause.     (iii) Where a contract between the parties provides that the execution or performance of that contract shall be in terms of another contract (which contains the terms and con- ditions relating to performance and a provision for settlement of disputes by arbitration), then, the terms of the referred contract in regard to execution/performance alone will apply, and not the arbitration agreement in the referred contract, unless there is special reference to the arbitration clause also.    (iv) Where the contract provides that the standard form of terms and conditions of an independent trade or professional institution (as for example the standard terms and conditions of a trade association or architects association) will bind them or apply to the contract, such standard form of terms and conditions including any provision for arbitra- tion in such standard terms and conditions, shall be deemed to be incorporated by ref- erence. Sometimes the contract may also say that the parties are familiar with those terms and conditions or that the parties have read and understood the said terms and conditions.     (v) Where the contract between the parties stipulates that the conditions of contract of one of the parties to the contract shall form a part of their contract (as for example the general conditions of contract of the Government where the Government is a party), the arbitration clause forming part of such general conditions of contract will apply to the contract between the parties."

35. Considering the MoU, in light of the above ratio, as pointed out earlier, in

the MoU, Original Package No.4 Tender Document is merely referred only to

have more clarity on technical and execution related matters and the parties

agreed that the works shall be carried out as per the priority of the documents

indicated  thereon.   Mere  reference  to  Original  Package  No.4  Tender

Document in the sequence of priority of documents (as serial No.4) indicates

that the documents Original Package No. 4 TD containing arbitration clause

was not intended to be incorporated in its entirety but only to have clarity in

26

priority of the documents in execution of the work.  Be it noted that Original

Package  No.4  TD  occurs  as  Serial  No.4  in  sequence,  after  three  other

documents viz...,  

"(i) Annexure 1 to the  Letter of Award issued for Package No. 4 Contract; and (ii) Annexure III to the Letter of Award issued for Packages No. 4, 6, 7, 8 and  9  contracts;  and    (iii)  Clarifications/Addendums  No.1  to  4  (in  the descending order) issued by the Employer to the Original Package No. 4 Tender Document."

There are a number of contract agreements between the parties - GPL, Duro

Felguera and FGI. It is pertinent to note that MoU dated 11.08.2012 itself does

not contain an arbitration clause. When reference is made to the priority of

documents to have clarity in execution of the work, such general reference to

Original Package No.4 Tender Document will not be sufficient to hold that the

arbitration clause 20.6 in the Original Package No.4 TD is incorporated in the

MoU.   

36. The submission of GPL is that since reference to Original Package No.4

TD is made in MoU, the arbitration clause is incorporated in the MoU and

there has to be a 'composite reference' for settling the disputes under different

contracts  by  constitution  of  single  arbitral  tribunal  for  dealing  with  the

international  commercial  arbitration.    As  discussed  earlier,  as  per  the

amended provision of sub-section (6A) of Section 11, the power of the court is

only to examine the existence of arbitration agreement.  When there are five

separate  contracts  each  having  independent  existence  with  separate

arbitration clauses that  is  New Package No.4 (with  foreign company Duro

Felguera) and Packages No. 6, 7, 8 and 9 [with Indian subsidiary (FGI)] based

27

on MoU and Corporate Guarantee, there cannot be a single arbitral tribunal

for "International Commercial Arbitration".

37. It was submitted that if the request of GPL is accepted and all Packages

are  considered  under  the  same  reference,  they  shall  be  treated  as

international  commercial  arbitrations,  then FGI may lose the opportunity of

challenging the award under Section 34(2A) of the Act.  In response to the

above submission,  GPL offered to concede and submitted that  Section 34

(2A)  of  the  Act  may be  invoked by Indian  subsidiary-FGI,  though Section

34(2A)  is  not  applicable  to  international  commercial  arbitration.  Such  a

concession is against the provisions and specific mandate of legislature and

cannot be accepted.

38. The  Corporate  Guarantee  dated  17.03.2012  was  executed  by  the

foreign  company-Duro  Felguera  undertaking  to  compensate  for  the  delay,

damages to the GPL.  Since the Corporate Guarantee was by the foreign

company-Duro Felguera which contains separate arbitration clause, there has

to be a separate arbitral tribunal for resolving the disputes arising out of the

said Corporate Guarantee.

39. New  Package  No.  4  TD-  F.O.B.  Supply  of  Bulk  Material  Handling

28

Equipments USD 26,666,932 has been awarded to the foreign company-Duro

Felguera.  Since Duro Felguera is a foreign company, in so far as the contract

awarded to Duro Felguera i.e. New Package No.4 and the dispute arising out

of the Corporate Guarantee executed by the foreign company-Duro Felguera

is concerned, the arbitral tribunal has to be for the international commercial

arbitration.

40. The learned Senior Counsel for GPL relied upon Chloro Controls India

Private Ltd. (supra), to contend that where various agreements constitute a

composite transaction,  court  can refer  disputes to arbitration if  all  ancillary

agreements  are  relatable  to  principal  agreement  and  performance  of  one

agreement is so intrinsically interlinked with other agreements. Even though

Chloro  Controls  has  considered  the  doctrine  of  "composite  reference",

"composite performance" etc., ratio of Chloro Controls may not be applicable

to the case in hand.  In Chloro Controls, the arbitration clause in the principal

agreement  i.e.  clause  (30)  required  that  any  dispute  or  difference  arising

under or in connection with the principal (mother) agreement, which could not

be settled by friendly negotiation and agreement between the parties, would

be finally settled by arbitration conducted in accordance with Rules of ICC.

The words thereon "under and in connection with" in the principal agreement

was  very  wide  to  make  it  more  comprehensive.  In  that  background,  the

performance  of  all  other  agreements  by  respective  parties  including  third

29

parties/non-signatories had to fall in line with the principal agreement.  In such

factual background, it  was held that all  agreements pertaining to the entire

disputes are to be settled by a "composite reference".   The case in  hand

stands  entirely  on  different  footing.   As  discussed earlier,  all  five  different

Packages  as  well  as  the  Corporate  Guarantee  have  separate  arbitration

clauses and they do not depend on the terms and conditions of the Original

Package  No.4  TD  nor  on  the  MoU,  which  is  intended  to  have  clarity  in

execution of the work.

41. Duro Felguera being a foreign company, for each of the disputes arising

under  New  Package  No.4  and  Corporate  Guarantee,  International

Commercial Arbitration Tribunal are to be constituted.  M/s. Duro Felguera has

nominated  Mr. Justice  D.R.  Deshmukh (Former  Judge of  Chhattisgarh

High  Court) as  their  arbitrator.   Gangavaram  Port  Limited  (GPL)  has

nominated  Mr.  Justice  M.N.  Rao  (Former  Chief  Justice  of  Himachal

Pradesh High Court). Alongwith the above two arbitrators Mr. Justice R.M.

Lodha, Former Chief Justice of India is appointed as the Presiding Arbitrator of

the International Commercial Arbitral Tribunal.

42. Package No.6 (Rs.208,66,53,657/-); Package No.7 (Rs.59,14,65,706/-);

Package  No.8  (Rs.9,94,38,635/-);  and  Package  No.9  (Rs.29,52,85,  558/-)

have been awarded to the Indian company-FGI.   Since the issues arising

30

between the parties are inter-related, the same arbitral tribunal, Justice R.M.

Lodha, Former Chief Justice of India, Justice D.R. Deshmukh, Former

Judge of Chhattisgarh High Court and Justice M. N. Rao, Former Chief

Justice  of  Himachal  Pradesh  High  Court,  shall  separately  constitute

Domestic  Arbitral  Tribunals for  resolving each of  the disputes pertaining to

Packages No.6, 7, 8 and 9.

43. Arbitration Petition No. 30 of 2016 filed by Duro Felguera shall  stand

allowed  and  Arbitration  Petition  No.31  of  2016  filed  by  GPL  shall  stand

disposed of in the same line. Transfer Case No. 25/2017, Transfer Case No.

26/2017, Transfer Case No. 27/2017 and Transfer Case No. 28/2017 filed by

FGI shall also stand disposed of in the above lines.  Parties shall bear their

respective costs.

..............................J.    [R. BANUMATHI]  

New Delhi; October 10, 2017

31

REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION

ARBITRATION PETITION NO.     30 OF 2016  

M/S. DURO FELGUERA, S.A.                             …   PETITIONER

  VERSUS

M/S. GANGAVARAM PORT LIMITED            …   RESPONDENT

WITH

ARBITRATION PETITION NO.     31 OF 2016, T.C. (C) NO. 25 OF 2017, T.C. (C) NO. 26 OF 2017, T.C. (C) NO. 27 OF 2017

AND T.C. (C) NO. 28 OF 2017

J U D G M E N T

KURIAN, J.:

1. While agreeing with the conclusions in the illuminating judgment

of my esteemed sister Banumathi, J., I feel that a few more lines

would add greater lustre to the judgment.  

2. What is the effect of the change introduced by the Arbitration

and Conciliation (Amendment) Act, 2015 (hereinafter referred to

as “the 2015 Amendment”) with particular reference to Section

32

11(6) and the newly added Section 11(6A) of the Arbitration and

Conciliation Act, 1996 (hereinafter referred to as “the 1996 Act”)

is the crucial question arising for consideration in this case.

3. Section 11(6A) added by the 2015 Amendment, reads as follows:

“11(6A) The Supreme Court or, as the case may be,  the  High  Court,  while  considering  any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to  the  examination  of  the  existence  of  an arbitration agreement.”

(Emphasis Supplied)

From  a  reading  of  Section  11(6A),  the  intention  of  the

legislature is crystal clear i.e. the Court should and need only look

into one aspect- the existence of an arbitration agreement. What are

the  factors  for  deciding  as  to  whether  there  is  an  arbitration

agreement is the next question. The resolution to that is simple - it

needs to be seen if the agreement contains a clause which provides

for arbitration pertaining to the disputes which have arisen between

the parties to the agreement.  

4. On the facts of the instant case, there is no dispute that there

are five distinct contracts pertaining to five different works. No

doubt that all the works put together are for the expansion of

facilities  at  Gangavaram  Port.  However,  the  parties  took  a

33

conscious decision to split the works which led to five separate

contracts and consequently an arbitration clause in each split

contract  was  retained.  The  sixth  one,  namely  the  Corporate

Guarantee also contains an arbitration clause.  

5. The main thrust of the arguments of Mr. Mukul Rohatgi, learned

Senior  Counsel,  is  that  the  Memorandum  of  Understanding

(hereinafter referred to as “MoU”) has subsumed all the separate

agreements and therefore and thereafter there can only be one

agreement  and,  if  so,  only  one  Arbitral  Tribunal  for  all  the

disputes emanating from the five different agreements and the

Corporate  Guarantee.  This  submission  in  our  view  is

misconceived. The whole purpose of the MoU is evident from its

text, the relevant portion of which has been extracted below :-

“Whereas  the  parties  have  entered  into  different package  contracts  for  execution  of  Bulk  Material Handling System under “Original  Package 4 Tender Document”  covering  ship  unloaders,  stackers, reclaimers,  in-motion  wagon  loading  system, conveyors,  transfer  towers,  electrical  and  control works,  civil  works,  etc.  and in  order  to  have more clarity  on  technical  and execution related  matters, the  parties  hereby  agree  that  the  works  shall  be carried  out  as  per  the  following  priority  of documents; 1.  Annexure  I  to  the  Letter  of  Award  issued  for Package 4 Contract. 2.  Annexure  III  to  the  Letter  of  Award  issued  for Package 4, 6, 7, 8 and 9 contracts.

34

3.  Clarifications/  Addendum  No.  1  to  4  (in  the descending  order)  issued  by  the  Employer  to  the Original Package 4 Tender Document. 4. The Original Package 4 Tender Document issued by the employer. 5.  Financial  Technical  Bid  submitted  by  the contractors  in  response  to  the  Original  Package  4 Tender Document.”                       

                          (Emphasis supplied)

6. It is clear that there is no novation by substitution of all the five

agreements nor is there a merger of all into one. The reference

to Original  Package No.  4 Tender Document is  only for  better

clarity on technical and execution related matters.   

7. The above finding is wholly in line with Section 7(5) of the 1996

Act. Section 7 which deals with arbitration agreement  reads as

follows :-

“7.  Arbitration  agreement.—(1)  In  this  Part, “arbitration  agreement”  means  an  agreement  by the  parties  to  submit  to  arbitration  all  or  certain disputes  which  have  arisen  or  which  may  arise between  them  in  respect  of  a  defined  legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is  contained in —

35

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means  of  telecommunication  including communication  through  electronic  means  which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

(5)  The  reference  in  a  contract  to  a  document containing  an  arbitration  clause  constitutes  an arbitration agreement if the contract is in writing and the  reference  is  such  as  to  make  that  arbitration clause part of the contract.”

(Emphasis  Supplied)

Section 7(5) deals with incorporation by reference. The words

“the reference is such as to make that arbitration clause part of the

contract” are of relevance.  Essentially,  the parties must have the

intention to incorporate the arbitration clause. In  M.R. Engineers

and  Contractors  Pvt.  Ltd. v.  Som  Datt  Builders  Ltd.  1,

Raveendran,  J.  has  dealt  with  this  particular  requirement  in  a

comprehensive manner. To quote:  

“14. The wording of Section 7(5) of the Act makes it clear  that  a mere reference to a document would not have the effect of making an arbitration clause from  that  document,  a  part  of  the  contract.  The reference to the document in the contract should be such  that  shows  the  intention  to  incorporate  the arbitration clause contained in  the document,  into the contract. If the legislative intent was to import an  arbitration  clause  from  another  document, merely  on  reference  to  such  document  in  the

1   (2009) 7 SCC 696

36

contract,  sub-section  (5)  would  not  contain  the significant later part which reads: “and the reference is such as to make that arbitration clause part of the contract”, but would have stopped with the first part which reads:

“  7.  (5)  The  reference  in  a  contract  to  a document  containing  an  arbitration  clause constitutes  an  arbitration  agreement  if  the contract is in writing….”

        XXX    XXX XXX

19. Sub-section (5)  of  Section 7 merely reiterates these  well-settled  principles  of  construction  of contracts.  It  makes  it  clear  that  where  there  is  a reference  to  a  document  in  a  contract,  and  the reference  shows  that  the  document  was  not intended  to  be  incorporated  in  entirety,  then  the reference will not make the arbitration clause in the document, a part of the contract, unless there is a special reference to the arbitration clause so as to make it applicable.

           XXX             XXX                    XXX

22.   A general reference to another contract will not be  sufficient  to  incorporate  the  arbitration  clause from the referred contract into the contract under consideration. There should be a special  reference indicating  a  mutual  intention  to  incorporate  the arbitration clause from another document into the contract.  The  exception  to  the  requirement  of special reference is where the referred document is not another contract, but a standard form of terms and  conditions  of  trade  associations  or  regulatory institutions which publish or circulate such standard terms and conditions for the benefit of the members or others who want to adopt the same.

        XXX             XXX                    XXX

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24. The scope and intent of Section 7(5) of the Act may therefore be summarised thus:

(i)  An  arbitration  clause  in  another  document, would  get  incorporated  into  a  contract  by reference, if the following conditions are fulfilled:

(1)  the  contract  should  contain  a  clear reference  to  the  documents  containing arbitration clause,

(2)  the reference to the other document should  clearly  indicate  an  intention  to incorporate the arbitration clause into the contract,

(3)  the  arbitration  clause  should  be appropriate, that is capable of application in respect of disputes under the contract and should not be repugnant to any term of the contract.

(ii)  When  the  parties  enter  into  a  contract, making a general reference to another contract, such general reference would not have the effect of incorporating the arbitration clause from the referred document into the contract between the parties.  The  arbitration  clause  from  another contract  can  be  incorporated  into  the  contract (where  such  reference  is  made),  only  by  a specific reference to arbitration clause.

  (  iii  )  Where  a  contract  between  the  parties provides  that  the  execution  or  performance  of that contract shall be in terms of another contract (which contains the terms and conditions relating to performance and a provision   for settlement of  disputes  by  arbitration),  then,  the terms of the referred contract in regard to execution/performance  alone  will  apply, and not the arbitration agreement in the referred contract,  unless there is  special reference to the arbitration clause also.

38

(iv)  Where  the  contract  provides  that  the standard  form  of  terms  and  conditions  of  an independent trade or professional institution (as for example the standard terms and conditions of a trade association or architects association) will  bind them or  apply  to  the  contract,  such standard form of terms and conditions including any  provision  for  arbitration  in  such  standard terms  and  conditions,  shall  be  deemed to  be incorporated  by  reference.  Sometimes  the contract  may  also  say  that  the  parties  are familiar with those terms and conditions or that the parties have read and understood the said terms and conditions.

  (  v  )  Where  the  contract  between  the  parties stipulates that the conditions of contract of one of the parties to the contract shall form a part of their  contract  (as  for  example  the  general conditions of contract of the Government where the  Government  is  a  party),  the  arbitration clause forming part of such general conditions of contract will  apply to the contract between the parties.”

                                 (Emphasis supplied)

8. The detailed analysis of Section 7(5) in M.R. Engineers (supra)

further fortifies our conclusion that the MoU does not incorporate

an arbitration clause.

9. Learned Senior Counsel also contended that for convenience, it

is expedient that a single Arbitral Tribunal is constituted. We are

afraid  that  this  contention  also  cannot  be  appreciated.  The

parties are free to agree to anything for their convenience but

once such terms are reduced to an agreement, they can resile

39

from them only in accordance with law.

10.Having said that,  this being one of the first cases on Section

11(6A) of the 1996 Act before this Court, I feel it appropriate to

briefly outline the scope and extent of the power of the High

Court and the Supreme Court  under Sections 11(6) and  11(6A).

11.This  Court  in  S.B.P  &  Co  v.  Patel  Engineering  Ltd  and

Another  2 overruled Konkan Railway Corpn. Ltd. and others

v.  Mehul  Construction  Co.  3 and  Konkan  Railway  Corpn.

Ltd. & another. v. Rani Construction Pvt. Ltd.  4 to hold that

the power to appoint an arbitrator under Section 11 is a judicial

power and not a mere administrative function. The conclusion in

the decision as summarized by Balasubramanyan, J.  speaking

for the majority reads as follows:

“47. We, therefore, sum up our conclusions as follows:

(  i  ) The power exercised by the Chief Justice of the High  Court  or  the  Chief  Justice  of  India  under Section 11(6) of the Act is not an administrative power. It is a judicial power.

(ii) The power under Section 11(6) of the Act, in its  entirety,  could  be  delegated,  by  the  Chief Justice of the High Court only to another Judge of that  Court  and  by  the  Chief  Justice  of  India  to another Judge of the Supreme Court.

2  (2005) 8 SCC 618 3  (2000) 7 SCC 201 4  (2002) 2 SCC 388

40

(iii) In case of designation of a Judge of the High Court or of the Supreme Court, the power that is exercised by the designated Judge would be that of the Chief Justice as conferred by the statute.

(iv) The Chief Justice or the designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request,  the  existence  of  a  valid  arbitration agreement,  the existence or otherwise of a live claim,  the  existence  of  the  condition  for  the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the designated Judge would be entitled to seek the  opinion  of  an  institution  in  the  matter  of nominating  an  arbitrator  qualified  in  terms  of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the designated Judge.

(v) Designation of a District Judge as the authority under Section 11(6) of the Act by the Chief Justice of the High Court is not warranted on the scheme of the Act. (vi) Once the matter reaches the Arbitral Tribunal or the sole arbitrator,  the High Court would not interfere with the orders passed by the arbitrator or the Arbitral Tribunal during the course of the arbitration  proceedings  and  the  parties  could approach the Court only in terms of Section 37 of the Act or in terms of Section 34 of the Act.

(vii) Since an order passed by the Chief Justice of the High Court or by the designated Judge of that Court is a judicial order, an appeal will lie against that  order  only  under  Article  136  of  the Constitution to the Supreme Court.

(viii) There can be no appeal against an order of the  Chief  Justice  of  India  or  a  Judge  of  the Supreme  Court  designated  by  him  while

41

entertaining an application under Section 11(6) of the Act.

(ix) In a case where an Arbitral Tribunal has been constituted  by  the  parties  without  having recourse to Section 11(6) of the Act, the Arbitral Tribunal  will  have  the  jurisdiction  to  decide  all matters as contemplated by Section 16 of the Act.

(x) Since all were guided by the decision of this Court  in  Konkan  Rly.  Corpn.  Ltd. v.  Rani Construction  (P)  Ltd. and  orders  under  Section 11(6) of the Act have been made based on the position adopted in that decision, we clarify that appointments  of  arbitrators  or  Arbitral  Tribunals thus  far  made,  are  to  be  treated  as  valid,  all objections being left to be decided under Section 16 of the Act. As and from this date, the position as  adopted  in  this  judgment  will  govern  even pending applications under Section 11(6) of the Act.

(xi) Where District Judges had been designated by the Chief Justice of the High Court under Section 11(6) of the Act, the appointment orders thus far made  by  them  will  be  treated  as  valid;  but applications if any pending before them as on this date will stand transferred, to be dealt with by the Chief  Justice  of  the  High  Court  concerned  or  a Judge  of  that  Court  designated  by  the  Chief Justice. (xii)  The  decision  in  Konkan  Rly.  Corpn.  Ltd. v. Rani Construction (P) Ltd is overruled.”                                          (Emphasis Supplied)

12.This  position  was  further  clarified  in  National  Insurance

Company Limited v. Boghara Polyfab Private Limited  5  To

quote:   

5  (2009) 1 SCC 267

42

“22. Where the intervention of the court is sought for  appointment  of  an  Arbitral  Tribunal  under Section  11,  the  duty  of  the  Chief  Justice  or  his designate  is  defined  in  SBP  &  Co. This  Court identified  and  segregated  the  preliminary  issues that may arise for consideration in an application under Section 11 of the Act into three categories, that  is,  (i)  issues  which  the  Chief  Justice  or  his designate is bound to decide; (ii) issues which he can  also  decide,  that  is,  issues  which  he  may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.

22.1. The  issues  (first  category)  which  the  Chief Justice/his designate will have to decide are:

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether  the  party  who  has  applied  under Section  11  of  the  Act,  is  a  party  to  such  an agreement.

22.2. The issues (second category) which the Chief Justice/his  designate  may  choose  to  decide  (or leave them to the decision of the Arbitral Tribunal) are:

(a) Whether the claim is a dead (long-barred) claim or a live claim.

(b) Whether  the  parties  have  concluded  the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:

(i) Whether  a  claim made  falls  within

43

the  arbitration  clause  (as  for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).

(ii) Merits or any claim involved in the arbitration.”    

      13.The scope of the power under Section 11 (6) of the 1996 Act was

considerably  wide  in  view  of  the  decisions  in  SBP  and  Co.

(supra) and  Boghara Polyfab (supra). This position continued

till  the  amendment  brought  about  in  2015.  After  the

amendment,  all  that  the  Courts  need  to  see  is  whether  an

arbitration agreement exists - nothing more, nothing less. The

legislative  policy  and  purpose  is  essentially  to  minimize  the

Court’s intervention at the stage of appointing the arbitrator and

this  intention as  incorporated in  Section 11 (6A)  ought  to  be

respected.

14. In the case at hand, there are six arbitrable agreements (five

agreements for works and one Corporate Guarantee) and each

agreement contains a provision for arbitration. Hence, there has

to  be  an  Arbitral  Tribunal  for  the  disputes  pertaining  to  each

agreement. While the arbitrators can be the same, there has to

be  six  Tribunals  -  two  for  international  commercial  arbitration

involving the Spanish Company-M/s Duro Felguera, S.A. and four

44

for the domestic.  

    .…......................J.                           (KURIAN JOSEPH)

New Delhi; October 10, 2017.   

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ITEM NO.1502               COURT NO.4               SECTION XVI -A                S U P R E M E  C O U R T  O F  I N D I A                        RECORD OF PROCEEDINGS

Petition(s) for Arbitration Petition  No(s).  30/2016 M/S DURO FELGUERA S.A                              Petitioner(s)                                 VERSUS M/S. GANGAVARAM PORT LIMITED                       Respondent(s) WITH ARBIT. Petition No. 31/2016 (XVI -A) T.C.(C) No. 25/2017 (XVI -A) T.C.(C) No. 26/2017 (XVI -A) T.C.(C) No. 27/2017 (XVI -A) T.C.(C) No. 28/2017 (XVI -A)   Date  :  10-10-2017  These  petitions  were  called  on  for  Judgment today.   Counsel for the  parties  Ms. Anitha Shenoy, Adv.  

Ms. Rashmi Nandakumar, Adv.  Ms. Sristi Agnihotri, Adv.  Mr. Tarun Dua, AOR

                   Mr. Faisal Sherwani , AOR                            

Hon'ble Mrs. Justice R. Banumathi pronounced the reportable Judgment of the Bench comprising Hon'ble Mr. Justice Kurian Joseph and Her Lordship.   

While agreeing with the conclusions in the Judgment pronounced by Hon'ble Smt. R. Banumathi, J, Hon'ble Mr. Justice Kurian Joseph also pronounced the reportable Judgment with concurrent opinion.   

The concluding part of the Judgment pronounced by Hon'ble Mrs. Justice R. Banumathi is as follows :-

“Arbitration Petition No. 30 of 2016 filed by Duro  Felguera  shall  stand  allowed  and

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Arbitration Petition No.31 of 2016 filed by GPL shall  stand  disposed  of  in  the  same  line. Transfer  Case  No.  25/2017,  Transfer  Case  No. 26/2017, Transfer Case No. 27/2017 and Transfer Case No. 28/2017 filed by FGI shall also stand disposed of in the above lines.  Parties shall bear their respective costs.”  

Pending Interlocutory Applications, if any, stand disposed of.    

(JAYANT KUMAR ARORA)                              (RENU DIWAN)    COURT MASTER                                ASSISTANT REGISTRAR

(Two signed reportable Judgments are placed on the file)

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