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IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION ARBITRATION CASE © NO.22 OF 2013

ONGC Petro Additions Limited ..Applicant versus

Daelim Industrial Company Limited, Korea     ..Non-applicant

J U D G M E N T

JAGDISH SINGH KHEHAR, J.

1. In spite of the fact, that notice in this case was issued  to  the  non-applicant,  and  the  non-applicant-Daelim Industrial Company Limited, Korea, was duly served, yet none entered appearance on behalf of the non-applicant. Even though the matter came to be adjourned on some dates, on account of the absence of representation on behalf of the non-applicant, under  the  belief  that  some  one  or  the  other  would  enter appearance on its behalf. The hope entertained by this Court was belied,  in the sense, that none has entered appearance on behalf of the non-applicant.  Since the non-applicant was duly served, this Court is left with no other alternative, but to proceed with the case against the non-applicant, ex-parte. 2. We have heard learned counsel for the applicant. 3. The  applicant  ONGC  Petro  Additions  Limited (hereinafter  referred  to  as  the  'OPaL')  issued  a  notice inviting tenders, on 17.11.2009.  By the aforesaid notice, the applicant solicited bids for construction of a dedicated high

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density  Poly  Ethylene  plant,  for  its  Dahej  Petrochemical Complex.  The pleadings in the present arbitration petition reveal,  that  the  non-applicant-Daelim  Industrial  Company Limited,  Korea,  submitted   its  tender  in  response  to  the aforesaid  notice  on  17.11.2009.  According  to  the  learned counsel representing OpaL, in terms of the conditions depicted in the notice inviting tenders, the bid documents submitted by the tenderers could be accepted by the applicant finally, and such  acceptance,  would  result  in  a  concluded  and  binding contract.   Insofar  as  the  instant  aspect  of  the  matter  is concerned,  reference  was  made  to  Clause  26  of  the  notice inviting tender dated 17.11.2009.  The same is being extracted hereunder:

“Clause 26 of the Instructions to the Bidder of the NIT dated 17.11.2009 26.0 Notification of Award: 26.1 Prior to the expiration of the period of  Bid  Validity,  the  company  shall  notify  the successful Bidder in writing by registered letter or by fax or by telex that their tender has been accepted. 26.2 The above letter/ telex/ telefax of acceptance shall construe that the Contract shall be  deemed  to  have  been  concluded.  The Notification of Award shall constitute a binding contract between the successful bidder and the Company.”

(emphasis is mine)

From a perusal of Clause 26.2, it clearly emerges, that the acceptance  of  the  bid  by  the  applicant,  would  by  itself,

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conclude  the  contract.   Thereupon,  the  consequential 'notification of award', would be treated as a binding contract between the bidder and the applicant.  It also emerges from the pleadings,  that  having  accepted  the  bid  furnished  by  the non-applicant-Daelim  Industrial  Company  Limited,  Korea,  the applicant  issued  a  'notification  of  award'  on  6.1.2011. According to the learned counsel representing the applicant, the above notification demonstrates, the factum of a concluded contract  between  OPaL  and  the  non-applicant;  whereby  Daelim Industrial  Company  Limited,  Korea,  became  bound  by  the  bid submitted by it, in response to the notice inviting tenders. 4. It is also necessary to reproduce herein, some other clauses depicted in the 'notification of award' dated 6.1.2011, which have a bearing on the determination of the present case. In this behalf, clauses 8 to 12 of the 'notification of award' are being extracted hereunder:

“8.0 M/S. Daelim Industrial Company Ltd. Shall be required to sign a formal Contract with Opal within 30 (thirty) days from the date of issue of this  NOA.   This  NOA  shall  constitute  binding Contract between M/S. Daelim Industrial Company Ltd and Opal and shall be subject to all terms and  conditions  of  the  Biddings  Documents  and other documents mentioned in Para 1.0 above. The date of commencement of activities under this Contract shall be the date of issuance of this NOA. 9.0 All other terms and conditions shall be as per  Bidding  document  No.  MR/OW/MM/HDPE/15/2009, subsequent  Amendments  and  Documents  issued thereof as mentioned at Para 1.0 above. 10.0  Kick  off  meeting  shall  be  held  within  2

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weeks from the date of acceptance of this NOA. Exact date/time and venue shall be communicated shortly. 11.0  The effective date of Contract is the date of this Notification of Award i.e. 06.01.2011. 12.0  Kindly  acknowledge  this  Notification  of Award immediately.”

   (emphasis is mine) A  perusal  of  clause  8.0  of  the  'notification  of  award', extracted  hereinabove,  reveals,  that  M/s  Daelim  Industrial Company Limited, Korea, was required to sign a formal contract with  OpaL  within  30  days,  from  the  date  of  issue  of 'notification of award'.  A perusal of the same clause, further leads to the inference, that the 'notification of award' would constitute a binding contract between the applicant and the non-applicant, and that, the terms and conditions expressed in the bidding documents, would also constitute the conditions of the contract.  Furthermore, clause 8.0 also finalised the date of commencement of activities under the contract, as the date of issuance of the 'notification of award'.  Learned counsel for the applicant also invited the Court's attention to clause 10.0  of  the  'notification  of  award'  dated  6.1.2011,  which reveals,  that  the  kick  off  meeting  between  the  contracting parties would be convened within two weeks from the date of acceptance  of  the  'notification  of  award'  by  the non-applicant-Daelim Industrial Company Limited, Korea. 5. In  order  to  demonstrate  the  conclusion  of  the contract,  and  also  the  acceptance  of  the  'notification  of

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award'  dated  6.1.2011,  learned  counsel  for  the  applicant invited  this  Court's  attention  to  a  communication  dated 7.1.2011,  addressed  by  the  General  Manager  of  the non-applicant-Daelim  Industrial  Company  Limited,  Korea.   An extract  of  the  aforesaid  communication  is  being  reproduced hereunder:

“Sub:- Acknowledgment of Notification Award (NOA) for  Dedicated  High  Destiny  Poly  Ethylene  Plant (HDPE)  for  Dahej  Petrochemical  Complex  against Bidding Document No. MR/OW/MM/HDPE/15/2009 Dear Sir(s), With  reference  to  your  Notification  of  Award (NOA)  dated  Jan.  6,  2011  (Ref  No. OPAL/BDA/CTS/089/10-11), as per the clause 12.0 of the foregoing NOA, we, Daelim Industrial Co., Ltd, are pleased to hereby acknowledge the NOA. As  for  the  Kick  Off  Meeting,  we  respectfully propose to invite you and hold the meeting in Daelim Seoul Office from Jan. 25, 2011 to Jan. 27, 2011.  We would like you to kindly confirm the  proposed  meeting  schedule,  or  otherwise, inform us of your preferred date(s) and place for the meeting. Assuring you of our readiness to fulfill all

your  requirements  for  this  Project,  we  are looking forward to accentuate our competency and ability  to  provide  you  with  success  in  this Project. Faithfully yours,  Sd/- S.Y. Lee General Manager, Daelim Industrial Co., Ltd.”

(emphasis is mine) Learned counsel for the applicant pointedly invited the Court's attention,  to  the  second  paragraph  of  the  aforesaid

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communication,  and  contended  that,  the  non-applicant  had requested for the convening of the 'kick off meeting' from 25.1.2011 to 27.1.2011.  It was the submission of the learned counsel  for  the  applicant,  that  the  aforesaid  'kick  off meeting' could have been solicited by the non-applicant, only on the acceptance of the 'notification of award' dated 6.1.2011 (as is clearly evident from clause 10 thereof). 6. Learned counsel then invited this Court's attention to a message, addressed by the non-applicant-Daelim Industrial Company  Limited,  Korea, to  the  applicant-OPaL  on  22.1.2011, wherein  in  compliance  with  clause  3.3,  the  non-applicant submitted  a scanned copy of the 'performance bank guarantee'. The aforesaid message dated 22.1.2011 is also being extracted hereunder:

“Message (Jinho Shin)shinjh@daelim.co.k  Sat, Jan 22, 2011 at 4.04 PM To: sunilkumar upadhyay skuopal@gmail.com  Cc:”01(LESSY) Leesy@daelim.co.kr   (Park, Dong-Jib)” djpark@daelim.co.kr,“01 (Dongkjh0907@daelim.co.kr,  jspark@daelim.co.kr Dear Mr. Upadhyay, As per the clause 3.3. “Performance Guarantee” in General Conditions of Contract, we hereby submit our  scanned  “Performance  Bank  Guarantee”  as enclosed. The  original  copy  is  to  be  submitted  in  the contact signing ceremony on Jan.27, 2011. Sincerely,

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Jinho Shin  Jinho SHIN Assistant Manager/Overseas Plant Business Team 1 DAELIM 17-7 Asiaone, Youngdungpo Ga, Yuido-Dong, Seoul, 150-010, Korea.”

(emphasis is mine) Based  on  the  communication  dated  7.1.2011,  and  the  message dated 22.1.2011, learned counsel for the applicant contended, that  the  non-applicant-Daelim  Industrial  Company  Limited, Korea, had  voluntarily  accepted  the  contract.  Based  on  the above acceptance, the terms and conditions of the contract were liable to be construed, in consonance with the 'notification of award' dated 6.1.2011, read along with the bid documents.   7. There  can  be  no  doubt  whatsoever,  that  the submissions advanced by the learned counsel for the applicant deserve  acceptance,  even  though  the  terms  and  conditions, especially  clause  26  of  the  notice  inviting  tender  dated 17.11.2009 reveals, that the acceptance of bid documents by the applicant  would  constitute  a  concluded  contract  between  the parties.  The  communication  dated  7.1.2011,  and  the  message dated 22.1.2011, fully affirm the above conclusion.  The two communications dated 7.1.2011 and 22.1.2011 leave no room for any  doubt,  that  the  non-applicant  consciously  accepted  the 'notification  of  award'  dated  6.1.2011,  and  thereby,  bound itself to the terms and conditions of the contract. . 8. Despite the afore-stated concluded contract between the parties, it seems, that the non-applicant-Daelim Industrial

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Company Limited, Korea, could not fulfill its obligations in terms of the 'notification of award'  dated 6.1.2011.  It is therefore,  that  the  non-applicant  addressed  a  letter  dated 11.2.2011 to the applicant, wherein the non-applicant expressed its  regret  in  not  being  in  a  position  to  execute  its obligation, under the contract.  The letter dated 11.2.2011 is reproduced hereunder:

“Date: February 11, 2011 Ref: OBD-075

ONGC PETRO Additions LIMITED VCCI Complex, 4th Floor, 73-GIDC Makarpura Road Vandora -390010, India

 Attention:  Mr.  Sunil  Upadhyay,  General  manager (MM)- Opal. Subject:  Tender  No.:  MR/OW/MM/HDPE/15/2009  – Dedicated High Destiny Poly Ethylene Plant (HDPE) for Dahej Petrochemical Complex at Dahej. Dear Sirs, Further to our email dated 8, 2011, we have been intensively discussed with the licensor, Chevron Philips  Co.,  LP,  in  order  to  maintain  our partnership  established  for  a  success  in  the subject project. However, it is immensely regretful to inform you that we are not in a position to enter into the contract since we failed to resolve the unsettled issues recently undergone with the licensor. With much gratitude for your hospitality towards us,  we  respectfully  solicit  your  kind understanding for our situation. Faithfully yours, Sd/- S.Y.Lee General Manager Daelim Industrial Co., Ltd.”

(emphasis is mine)

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9. Consequent  upon  the  default  at  the  behest  of  the non-applicant-Daelim  Industrial  Company  Limited,  Korea, in executing the contract in compliance with the 'notification of award' dated 6.1.2011, the applicant issued a legal/arbitration notice, to the non-applicant-Daelim Industrial Company Limited, Korea. While indicating the obligations which the non-applicant had failed to fulfill, in consonance with the 'notification of award'  dated  6.1.2011,  the  legal/arbitration  notice  dated 26.11.2012  nominated  Mr.  Justice  V.N.  Khare,  former  Chief Justice of India, as the applicant's nominee arbitrator, for the resolution of the disputes raised in the legal/arbitration notice.  The law firm (R.S.Prabhu and company) which had issued the  above  notice  dated  26.11.2012,  issued  a  further communication  to  the  non-applicant,  on  behalf  of  the applicant-OPaL (in continuation of the legal/arbitration notice dated 26.11.2012).  It is not relevant, for the purpose of disposal of the present controversy, to delineate the position depicted in the latter communication. 10. In  response  to  the  legal/arbitration  notice  dated 26.11.2012  (issued  on  behalf  of  the  applicant),  the non-applicant through its law firm (Kim and Chang) served a reply dated 21.1.2013.  Whilst denying the claims raised by the applicant, against the non-applicant, as were set out in the legal/arbitration  notice  dated  26.11.2012,  the  non-applicant adopted the following expressed position in its reply:

“10.  In addition to the reservation set out in

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paragraph  5  of  this  Response,  Respondent  denies that the provisions of the Indian Arbitration and Conciliation  Act,  1996  should  apply  to  this arbitration or that the Chief Justice of India (or any person or institution designated by him) has the authority to appoint the third and presiding arbitrator  if  any  agreement  cannot  be  reached between the party-appointed arbitrators. 11. If  an  arbitration  agreement  does  exist between the parties, which is not admitted, the law and rule governing the procedure of any arbitration between the parties is the Singapore International Arbitration Act (the “Act”) and the UNICITRAL Rules respectively. 12. Therefore,  subject  to  the  reservation  set out in paragraph 5 of this Response and pursuant to Articles  7.1  and  9.1  of  the  UNICITRAL  Rules, Respondent agrees to a three arbitrator arbitral tribunal and nominates Mr. Peter Leaver QC as its party appointed arbitrator.  Mr. Leaver's details are as follows:”

(emphasis is mine) A perusal of paragraph 10 of the reply issued by the law firm, on  behalf  of  the  non-applicant-Daelim  Industrial  Company Limited, Korea, would reveal, that the non-applicant denied the applicability of the provisions of the Indian Arbitration and Conciliation Act, 1996.  In fact, it was specifically pointed out in paragraph 11 of the above reply, that the procedure for settlement  of  disputes  by  way  of  arbitration  between  the parties, would be regulated as per the Singapore International Arbitration Act, and in consonance with the UNICITRAL Rules. In paragraph  12,  the  non-applicant  agreed  to  an  arbitral adjudication,  by  a  three  member  arbitral  tribunal.  It  is therefore, that in response to the applicant having nominated Justice  V.N.  Khare,  former  Chief  Justice  of  India,  the

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non-applicant-Daelim  Industrial  Company  Limited,  Korea, nominated Mr. Peter Leaver, Q.C. to act as arbitrator on its behalf. 11. It is not a matter of dispute, that the two nominated arbitrators,  were  to  appoint  the  presiding  arbitrator,  by mutual  consent.   Despite  mutual  consultations,  the  two nominated arbitrators, could not arrive at a concensus on the name of the presiding arbitrator.  It is therefore, that the applicant approached this Court, requiring it to appoint the presiding arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.  12. Before  the  prayer  made  at  the  behest  of  the applicant, under Section 11 of the Arbitration and Conciliation Act, 1996, is accepted, it would be imperative for this Court to conclude, that the provisions of the 1996 Act are indeed applicable to the contract, executed between the rival parties. It is therefore, that the Court required the learned counsel for the applicant, to respond to the objections raised by the law  firm  (Kim  and  Chang),  through  its  communication  dated 21.1.2013.   13. In  response,  learned  counsel  for  the  applicant invited this Court's attention to clause 1.3 of the General Conditions of Contract (Part-II) (as amended) of the notice inviting tender, dated 17.11.2009.  Clause 1.3 relied upon by the  learned  counsel  for  the  applicant  is  being  reproduced hereunder:

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“1.3 Laws/Arbitration: 1.3.1 Applicable Laws All  questions,  disputes  or  differences  arising under, out of or in connection with this Contract shall be settled in accordance with laws of India (both  procedural  and  substantive)  from  time  to time in force and to the exclusive jurisdiction of the Courts in India, subject to the provisions of Clause 1.3.2. 1.3.2 Arbitration: Except  as  otherwise  provided  elsewhere  in  the contract if any dispute, difference, question or disagreement arises between the parties hereto or their respective representatives or assignees, at any time in connection with construction, meaning, operation,  effect,  interpretation  or  out  of  the contract  or  breach  thereof  the  same  shall  be decided  by  an  Arbitral  Tribunal  consisting  of three Arbitrators.  Each party shall appoint one Arbitrator  and  Arbitrators  so  appoined  shall appoint  the  third  Arbitrator  who  will  act  as Presiding Arbitrator. In  case  a  party  fails  to  appoint  an  arbitrator within 30 days from the receipt of the request to do so by the other party or the two Arbitrators so appointed  fail  to  agree  on  the  appointment  of third Arbitrator within 30 days from the date of their appointment, upon request of a party, the Chief  Justice  of  India  or  any  person  or institution  designated  by  the  him  (in  case  of International  Commercial  Arbitration)  shall appoint the Arbitrators/ Presiding Arbitrator.  In case of domestic contracts, the Chief Justice of the  High  Court  or  any  person  or  institution designated  by  him  within  whose  jurisdiction  the subject contract has been made, shall appoint the arbitrator/ Presiding Arbitrator upon request of one of the parties.”  

(emphasis is mine) Having perused the notice inviting tender, dated 17.11.2009, and the 'notification of award' dated 6.1.2011, it is apparent, that the terms and conditions in the notice inviting tender,

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were binding between the parties.  A perusal of clause 1.3.1 “applicable laws” leaves no room for any doubt, for recording an effective conclusion, that the parties had agreed, that all questions or disputes arising between them, would be settled in accordance with laws of India (both procedural and substantive) in force, from time to time. Insofar as the instant aspect of the matter is concerned, it is apparent, that the provisions of the Indian Arbitration and Conciliation Act, 1996, lays down the  procedural,  as  well  as,  the  substantive  provisions, relating to the settlement of arbitral disputes in India.  It is  therefore  not  possible  for  this  Court  to  accept,  the objections  raised  by  the  non-applicant-Daelim  Industrial Company Limited, Korea, in paragraph 10 of the reply filed on behalf of the non-applicant through its law firm, expressing that the provisions of the Indian Arbitration and Conciliation Act, 1996 would not apply to the settlement of disputes arising between  the  applicant  and  the  non-applicant.  Having  so concluded, the assertion made by the law firm (representing the non-applicant) in paragraph 11, to the effect that the parties would be bound by the provisions of the Singapore International Arbitration Act, is liable to be rejected, and is accordingly rejected. 14. It  has  already  been  recorded  hereinabove,  that Justice  V.N.  Khare,  former  Chief  Justice  of  India,  was nominated  as arbitrator on behalf of the applicant, and Mr. Peter Leaver Q.C. was nominated as arbitrator on behalf of the

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non-applicant.  In  terms  of  clause  1.3.2.  of  the   General Conditions of Contract (Part-II) (as amended) of the 'notice inviting tender' dated 17.11.2009, the arbitrators nominated by the rival parties, were to appoint the presiding arbitrator by mutual  consultation.  Insofar  as  the  present  controversy  is concerned, even though there was mutual consultation between the two nominated arbitrators, yet the same did not fructify into the appointment of an agreed presiding arbitrator. It is in the above circumstances, that the applicant approached this Court, for appointing the  presiding arbitrator, under Section 11 of the Indian Arbitration and Conciliation Act, 1996. 15. Having arrived at the conclusion, that there was a binding contract between the parties, and further, that the parties were to be governed by the provisions of the Indian Arbitration and Conciliation Act, 1996, there remains no room for any doubt, that in the absence of consensus between the nominated arbitrators, this Court is obliged to appoint the presiding arbitrator.  Accordingly, Mr. Justice R.V.Raveendran, a retired Judge of this Court, is appointed as the presiding arbitrator, to settle the disputes raised by the applicant.   16. The presiding arbitrator shall be free to settle his terms and conditions of engagement.   He shall be forwarded a copy of this order, by the Registry of this Court, without any delay.  The presiding arbitrator shall commence proceedings of the arbitral tribunal comprising of himself, Mr. Justice V.N. Khare and Mr. Peter Leaver Q.C., after consulting them, at the

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earliest. 17. It is necessary to record, that consequent upon a request made by the non-applicant, it was agreed between the parties, that the venue of the arbitral proceedings would be Singapore. This position was conceded by the learned counsel for the applicant.  It is accordingly directed, that arbitral proceedings  shall,  subject  to  a  mutual  consensus  to  the contrary, be conducted  at Singapore.  18. Disposed of in the above terms.

…......................J. [JAGDISH SINGH KHEHAR]

NEW DELHI; APRIL 07, 2015.

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ITEM NO.401               COURT NO.4               SECTION XVIA                S U P R E M E  C O U R T  O F  I N D I A                        RECORD OF PROCEEDINGS Before Hon'ble Mr.Justice Jagdish Singh Khehar Arbitration Case (Civil) No(s).22/2013 ONGC PETRO ADDITIONS LTD.                        Applicant(s)                                 VERSUS DAELIM INDUSTRIAL COMPANY LTD. KOREA           Non-Applicant(s) Date : 07/04/2015 This petition was called on for hearing  

  today.

For Petitioner(s) Mr. Tushar Mehta, ASG Mr. Rajat Nair, Adv.  

                   for Mr. K. R. Sasiprabhu,AOR                       For Respondent(s)                                UPON hearing the counsel the Court made the following                              O R D E R

The arbitration case (c) no.22 of 2013 is disposed of in terms of the signed judgment.

Having arrived at the conclusion, that there was a binding contract between the parties, and further, that the parties were to be governed by the provisions of the Indian Arbitration and Conciliation Act, 1996, there remains no room for any doubt, that in the absence of consensus between the nominated arbitrators, this Court is obliged to appoint the presiding arbitrator.  Accordingly, Mr. Justice R.V.Raveendran, a retired Judge of this Court, is appointed as the presiding arbitrator, to settle the disputes raised by the applicant.    

The presiding arbitrator shall be free to settle his terms and conditions of engagement.   He shall be forwarded a copy of this order, by the Registry of this Court, without any delay.  The presiding arbitrator shall commence proceedings of the arbitral tribunal comprising of himself, Mr. Justice V.N. Khare and Mr. Peter Leaver Q.C., after consulting them, at the earliest.

It is necessary to record, that consequent upon a request made by the non-applicant, it was agreed between the parties, that the venue of the arbitral proceedings would be Singapore.

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This  position  was  conceded  by  the  learned  counsel  for  the applicant.   It  is  accordingly  directed,  that  arbitral proceedings  shall,  subject  to  a  mutual  consensus  to  the contrary, be conducted  at Singapore.  

(Parveen Kr. Chawla) (Renu Diwan)     Court Master Court Master

[Signed Judgment is placed on the file]