C.A. @ S.L.P.(C)No.5610/17

  NON-REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.6605 OF 2019 (Arising out of S.L.P (C)No.5610 of 2017)

National Aluminium Company Limited      ...Appellant       

versus

Subhash Infra Engineers  Pvt. Ltd. & Anr.            ...Respondents

J U D G M E N T

R. Subhash Reddy, J.

1. Leave granted.

2. This  civil  appeal  is  filed  by  the  first

defendant/National  Aluminum  Company  Limited  (NALCO),

a Government of India Enterprise, in pending Civil Suit

No. 2610 of 2015, on the file of Learned Senior Civil

Judge, Gurgaon, Haryana, aggrieved by the order dated

22.10.2016, passed in Civil Revision No.2471 of 2016

(O&M)  by  the  High  Court  of  Punjab  &  Haryana  at

Chandigarh.

3. The  appellant-Company,  a  Government  of  India

enterprise, has issued a tender notice on 05.05.2011,

inviting  tenders  for  construction  of  Ash  Pond-IV  in

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District Angul of Odisha State. The first respondent

herein  i.e  Subhash  Infra  Engineers  Pvt.  Ltd.

(for  short  ‘SIE’)  has  submitted  its  offer/tender  on

06.06.2011.  On  09.11.2011,  the  appellant  herein  has

accepted  the  offer/tender  submitted  by  the  first

respondent herein and issued the work order to the said

respondent. By a letter dated 18.11.2011, the appellant

addressed  the  first  respondent  to  attend  a  kick  off

meeting on 19.11.2011. As no one on behalf of first

respondent attended the meeting proposed on 19.11.2011,

the appellant again issued a letter dated 21.11.2011,

requesting the first respondent once again to come for a

kick  off  meeting.  In  response  to  the  letter  dated

21.11.2011, the first respondent/SIE herein vide letter

dated 21.11.2011, expressed his inability to execute the

work, unless certain specifications are changed/revised.

In  the  said  letter  dated  21.11.2011,  the  first

respondent/SIE  herein  has  agreed  that  the  appellant-

Company has accepted the offer made by it. Further, vide

letter dated 02.12.2011, the respondent/SIE informed the

appellant that the work order is not acceptable to them.

4. Subsequently, when the first respondent herein was

not  coming  forward  to  participate  in  the  kick  off

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meeting and instead addressed a letter dated 02.12.2011,

vide  letter  dated  30.01.2012,  the  appellant-company

informed the respondent/SIE that the contract work will

be carried out, through some other agency, at the risk

and cost of the respondent/SIE. Further by letter dated

06.02.2015, the appellant-company has informed the first

respondent/SIE  that  it  suffered  a  financial  loss  of

Rs.4,86,61,440/-(Rupees  Four  Crore  Eighty-Six  Lakh

Sixty-One Thousand Four Hundred and Forty Only). The

respondent/SIE was directed to deposit the said amount

otherwise  the  appellant  will  be  forced  to  invoke

Arbitration Clause as per Clause 22 of NIT and Clause 87

of the General Conditions of Contract. Then, the first

respondent/SIE  has disputed  the  claim  made  by  the

appellant,  on  the  ground  that  there  is  no  binding

contract, that came into existence between the parties,

as such, the demand is illegal and unjustified. A letter

dated 28.02.2015 was communicated to that effect, to the

appellant.  

5. Further,  when  the  appellant-company  asked  the

respondent/SIE to select an arbitrator from a panel of

three names sent by it, the respondent/SIE, vide letter

dated 23.07.2015, informed the appellant that, as much

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as,  there  is  no  binding  contract  that  came  into

existence between the parties, the disputes cannot be

resolved by the arbitrator.  

6. The appellant herein, having regard to terms and

conditions of contract, invoked the arbitration clause,

by proceeding dated 02.09.2015 and appointed the second

respondent  Shri  C.R.  Pradhan,  who  was  the  Former

Chairman(CMD)  of  the  Company,  as  an  arbitrator.  The

learned arbitrator initiated the proceeding by issuing

notice dated 07.09.2015, asking the appellant, as well

as  the  first  respondent  to  attend  the  preliminary

meeting on 09.10.2015 at Bhubaneswar.  

7. On receipt of such notice issued by the arbitrator,

the first respondent herein approached the Civil Court

and filed Civil Suit No.2610 of 2015 on the file of

Senior  Civil  Judge,  Gurgaon,  seeking  relief  of

declaration that the appointment of second respondent,

as a sole arbitrator, is null and void. Further, relief

of permanent injunction was also sought restraining the

arbitrator,  from  proceeding  with  arbitration

proceedings. Pending suit, interim injunction sought for

is rejected by the Learned Trial Judge i.e Senior Civil

Judge, Gurgaon.

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8. Against the order of the Trial Court, refusing to

grant injunction orders, the first respondent approached

the   District  Court.  The  Appellate  Court  i.e  the

Additional  District  Judge,  Gurgaon,  vide  order  dated

25.01.2016,  allowed  the  appeal  and  granted  the

injunction, restraining the second respondent-arbitrator

from  proceeding  further,  pursuant  to  notice  dated

07.09.2015.  When  the  appellant  herein  has  questioned

such order by way of Civil Revision No. 2471 of 2016,

before  the  High  Court  of  Punjab  and  Haryana  at

Chandigarh,  the  same  is  dismissed  vide  order  dated

22.10.2016. Hence this appeal by way of Special Leave.  

9. We  have  heard  the  Sri  Ashok  K.  Gupta,  learned

senior counsel appearing for the appellant and Sri Manoj

Swarup, learned counsel for the first respondent, though

the second respondent is served, there is no appearance

on his behalf. We have perused the impugned order and

other material placed on record.  

10. It is the case of the appellant, that as much as

the  appellant  has  accepted  offer/tender  submitted  by

respondent,  it  is  a  concluded  contract  and  is  an

arbitration agreement within the meaning of Section 7

of  the  Arbitration  and  Conciliation  Act,  1996  (for

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short, ‘the Act’). On the other hand, it is the case of

the respondent, as acceptance was not unconditional, it

does  not  amount  to  a  binding  contract  between  the

appellant  and  the  first  respondent,  as  such,  the

arbitrator has no jurisdiction to decide the lis between

the parties. Mainly, it was a case of the appellant that

as much as the acceptance of the bid will conclude the

contract and having regard to terms and conditions of

NIT and General Conditions of Contract, it is a binding

contract between the parties, as such, dispute is to be

resolved only by way of arbitration.

11. The learned counsel for the appellant has placed

reliance  on  judgment  in  the  case  of  Kvaerner

Cementation  India  Limited  V.  Bajranglal  Agarwal  and

Another1.  

12. It is a case of the appellant-Company that even if

the first respondent disputes the jurisdiction of the

arbitrator, it is open for the first respondent to move

an application before the arbitrator under Section 16 of

the Act, but at the same time, the suit filed by the

first respondent, for declaration and injunction is not

maintainable.  

1 2012(5) SCC, 214.

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13. In  the  Judgment  of  this  Court,  in  the  case  of

Kvaerner  Cementation  India  Limited  V.  Bajranglal

Agarwal  and  Another1,  this  Court  has  examined  the

similar issue and held that any objection with respect

to existence or validity of the arbitration agreement,

can  be  raised  only  by  way  of  an  application  under

Section  16  of  the  Act  and  Civil  Court  cannot  have

jurisdiction to go into such question.

14. Having regard to aforesaid judgment of this Court

and various communications between the parties, we are

in agreement with the submission made by the learned

senior  counsel  for  the  appellant  that,  if  the  first

respondent wants to raise an objection with regard to

existence or validity of the arbitration agreement, it

is open for the first respondent to move an application

before the arbitrator, but with such plea, he cannot

maintain a suit for declaration and injunction. Though

the Trial Court rightly rejected the interim injunction

sought  for  by  the  first  respondent,  the  same  is

erroneously reversed by the learned Additional District

Judge and such order is confirmed by the High Court, by

the impugned order.  

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15. As we are of the view that the order passed by the

Additional District Judge and the High Court are not in

conformity with the law on the subject and are contrary

to  judgment  of  this  Court  as  referred  above,  the

impugned order is liable to be set aside by vacating the

injunction orders.  

16. At the same time, it is to be noted that when the

first respondent has not responded to select one of the

members as an arbitrator, from the panel, the appellant

has  appointed  Sri  C.R.  Pradhan,  former  Chairman-cum-

Managing  Director  of  the  company  itself  as  an

arbitrator, who has commenced arbitration proceedings.

Having regard to the Fifth Schedule introduced, by Act 3

of  2016  to  the  Act,  second  respondent  cannot  be

continued  as  an  arbitrator,  to  adjudicate  the  lis

between the parties.

17.  For  the  aforesaid  reasons,  we  allow  this  Civil

Appeal and set aside the impugned order dated 22.10.2016

passed in C.R. No.2471 of 2016, by the High Court of

Delhi.  Further we also quash the appointment of second

respondent, as an Arbitrator.   

18. Learned counsels on both sides, have consented and

requested  this  Court  to  appoint  an  arbitrator,  for

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resolution of dispute.  In view of such request and

consent  of  the  learned  counsels  on  both  sides,  we

appoint Hon’ble Mr. Justice M.L. Mehta, Former Judge of

Delhi High Court, as an arbitrator, to adjudicate the

disputes between the parties. It is open for the learned

arbitrator to fix his own fees.

19. We also make it clear that if the first respondent

disputes the jurisdiction of the arbitrator, it is open

for  it  to  file  appropriate  application  before  the

arbitrator under Section 16 of the Act.  If any such

application is filed, same is to be decided on its own

merits in accordance with law, uninfluenced by, any of

the observations and findings recorded by this Court.

20. We direct the Registry to communicate a copy of

this order to Hon’ble Mr. Justice M.L. Mehta.  

.....................J. [Abhay Manohar Sapre

.....................J. [R. Subhash Reddy]

New Delhi; August 23, 2019

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