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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 22ND DAY OF AUGUST, 2019

BEFORE

THE HON' BLE MR. JUSTICE B. VEERAPPA

C.M.P. No.357/2018

BETWEEN: SHAPOORJI PALLONJI & COMPANY PRIVATE LIMITED (PREVIOUSLY SHAPOORJI PALLONJI & COMPANY LIMITED) A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 HAVING ITS REGISTERED OFFICE AT NO.70 NAGINDAS MASTER ROAD FORT, MUMBAI-400 023. AND HAVING ITS REGIONAL OFFICE AT NO.124 7TH FLOOR, SURYA CHAMBERS HAL OLD AIRPORT ROAD, MURGESHPALYA, BENGALURU-560 017. REPRESENTED HEREIN BY ITS ADDL.GENERAL MANAGER MR. HARI MANIGANDLA.

... PETITIONER (BY SRI A. ARUN KUMAR, SENIOR COUNSEL A/W SRI VIKAS MAHENDRA, ADVOCATE) AND: LILY REALTY PRIVATE LIMITED., 3RD FLOOR, BENGAL CHEMICALS BLDG., 502, VEER SAVARKAR MARG PRABHADEVI, MUMBAI-400025. REPRESENTED BY ITS AUTHORISED REPRESENTATIVE,

... RESPONDENT (BY MS. PRIYANKA DAS, ADVOCATE FOR SRI N.K. DILIP, ADVOCATE)

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THIS CMP IS FILED UNDER SECTION 11(6) OF THE ARBITRATION AND CONCILIATION ACT 1996, PRAYING TO APPOINT AN ARBITRATOR ON BEHALF OF THE RESPONDENT SO AS TO ENABLE CONSTITUTION OF AN ARBITRAL TRIBUNAL TO ARBITRATE ALL DISPUTES BETWEEN THE PETITIONER AND RESPONDENT INCLUDING, IN PARTICULAR, THE CLAIM OF THE PETITIONER AGAINST THE RESPONDENT AS DETAILED IN THE PETITIONER'S LETTER DATED: 23 OCTOBER 2018 IN TERMS OF CL.15 OF GENERAL TERMS OF CONTRACT DATED: 02.04.2013 IN ANNEXURE-B. THIS CMP COMING ON FOR ADMISSION THIS DAY, THE COURT MADE THE FOLLOWING:

ORDER

This Civil Miscellaneous Petition is filed under the

provisions of Section 11(6) of the Arbitration and

Conciliation Act, 1996 to appoint sole Arbitrator to

adjudicate the dispute between the parties in terms of

the acceptance letter dated 23.8.2013 and in terms of

Clause (15) of the General Terms of Contract dated

2.4.2013, Annexure-B to the civil miscellaneous

petition.

2. It is the case of the petitioner that it is a

leading construction company in India providing

services to the Corporations, Government and

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International Clients across various sectors. The

present claim is duly filed for and on behalf of the

Petitioner-Company Pvt. Ltd. The petitioner is being

represented in this proceedings by its authorized

representative Mr. Hari Manigandla. The respondent-

Company is engaged in the development and

construction of commercial and residential projects

across the Country. The respondent and its Associate

Companies viz., Pashmina Developers Pvt. Ltd and

Ishani Reality Pvt. Ltd., are part of the ASK Group of

Companies.

3. It is further stated that Ishani Realty invited

tenders from pre-qualified builders for the development

of 25,00,000 sq. ft of land located at K.R. Puram,

Bangalore in respect of a project to be known as

‘Pashmina Waterfront’ . The petitioner was one among

the many renowned developers, who submitted an offer

in pursuance of the tender floated by Ishani Realty. It is

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the further case of the petitioner that after a fair and

competitive bidding process, the petitioner emerged as

the successful bidder to execute the works in relation to

the project as stipulated in the tender. Accepting the

petitioner’s offer bearing No.SP/BNG/OPRN/125/2012-

13 dated 31st August, 2012, the respondent issued a

Letter of Acceptance dated 5th September, 2012 wherein

the petitioner had been awarded a contract for Civil,

Structural and Finishing Works for the project.

Thereafter in terms of Clause-1 of the Letter of

Acceptance, the parties have executed a Contract

Agreement dated 2nd April, 2013 (Contract Agreement)

for the Civil, Structural and Finishing Works for the

proposed construction of the Project. The said

instrument expressly records that the Tender, Drawings

and Tender Addendums, General and Special

Conditions of Contract, Scope of Works and

Specifications, the Bill of Quantities, the offer submitted

by the petitioner and the Letter of Acceptance dated 5th

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September, 2012 were to be read as part and parcel of

the Contract Agreement.

4. It is the further case of the petitioner that it

duly and diligently performed all its obligations under

the contract and works expected of it with regard to the

project. Upon completion of its work, it raised multiple

bills on the respondent calling upon to make payment of

the amounts owed to it. On 20th March, 2018 it raised

Final Bill calling upon the respondent to pay a sum of

Rs.1,13,19,63,974/-(Rupees One Hundred and Thirteen

Crores Nineteen Lakhs Sixty Three Thousand Nine

Hundred and Seventy Four Only) subsequent to which a

joint inspection of works was conducted by its and

respondent’s representatives and during the said joint

inspection, the parties mutually agreed upon the

quantities and various other claims. Accordingly, it

issued an updated final bill dated 9th July, 2018 for an

amount of Rs.1,12,65,99,544/- (Rupees One Hundred

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and Twelve Crores Sixty Five Lakhs Ninety Nine

Thousand Five Hundred and Forty Four Only).

5. It is further case of the petitioner that on

28th September, 2018, it issued one more letter re-

enclosing the revised final bill dated 9th July, 2018

clarifying that in addition to the sums mentioned in the

revised Final Bill, the respondent was also liable to pay

an amount of Rs.67,89,141/-(Rupees Sixty Seven Lakhs

Eighty Nine Thousand One Hundred and Forty One

only) towards Service Tax. Accordingly, the petitioner

called upon the respondent to pay a sum of

Rs.1,13,33,88,685/-(Rupees One Hundred and Thirteen

Crores Thirty Three Lakhs Eighty Eight Thousand Six

Hundred and Eighty Five only).

6. It is further case of the petitioner that the

respondent continued to maintain a stoic silence on the

amounts that it owed to the petitioner under the terms

of the Contract and Final Bills raised thereon. The

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petitioner on various occasions prompted the

respondent to settle the outstanding amount but was of

no avail. It is further stated that in terms of Clause-15

of the General Conditions of Contract, the Agreement

stipulates the settlement of disputes and Arbitration.

Hence, it issued legal notice dated 23rd October, 2018 to

the respondent demanding payment of outstanding

amount owed to it under the Contract and the

respondent received the said legal notice, but has not

replied. Therefore, the petitioner is before this Court for

the relief sought for.

7. The respondent filed statement of objections

and raised various contentions including preliminary

objection with regard to maintainability of this civil

miscellaneous petition contending that issuance of

notice of Arbitration dated 23.10.2018 by the petitioner

to it is invalid as it is inconsistent with the provisions of

the Contract Agreement dated 2.4.2013 because the

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said agreement does not contain any arbitration clause.

It is further contended that there is no Arbitration

Agreement specifically executed between the parties.

Further the notice of arbitration dated 23.10.2018 also

is disputed by the respondent. It is further contended

that the Arbitration Agreement is executed between the

petitioner and Ishani Realty Pvt. Ltd an entity which is

not party to the Contract Agreement dated 2.4.2013.

The said Entity is not a party to the dispute which is

presently being adjudicated before this Court and the

Ishani Realty Private Limited is also not arrayed as

party to the dispute.

8. It is further contended by the respondent

that the registered office of Ishani Realty Pvt. Ltd., is

situated at Mumbai and therefore, the present

miscellaneous petition before this Court is not

maintainable and if at all the petitioner needs to file an

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application for reference, it is appropriate for it to file

before the High Court of Mumbai.

9. The respondent has further contended that

the documents so executed by the parties viz., the

Contract Agreement dated 2.4.2013 and the Letter of

Award dated 5.9.2012, the parties have intentionally

and voluntarily agreed not to resolve their disputes

through arbitration, but through the jurisdiction of the

Civil Court. The Letter of Award was awarded by it to

the Petitioner on 5.9.2019 and thereafter, they have

entered into the Contract Agreement dated 2.4.2013

which do not contain any express provision for

arbitration of disputes.

10. It is the contention of the respondent that

the compensation due to the petitioner as per the

Contract Agreement have been remitted to the tune of

Rs.116,93,47,240/- (Rupees One Hundred and Sixteen

Crores Ninety Three Lakhs Forty Seven Thousand and

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Two hundred and Forty only) which is in excess of the

works completed by the petitioner and hence, there

remains no ground for the petitioner to approach this

Court.

11. It is further contended that the tender called

for was by another group of company and not the

respondent. It is also contended that the present civil

miscellaneous petition is barred by limitation and the

petitioner has not paid the stamp duty. Therefore the

respondent sought for dismissal of the civil

miscellaneous petition.

12. I have heard the learned Counsel for the

parties to the lis.

13. Sri A. Arun Kumar, learned Senior Counsel

along with Sri Vikas Mahendra, learned Counsel for the

petitioner reiterating the averments made in the civil

miscellaneous petition, contended that in pursuance of

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the letter of acceptance issued by the respondent,

petitioner and respondent have entered into an

agreement on 2.4.2013 wherein the contract stipulates

that following documents shall be deemed to form and

be read and construed as part of the agreement:

a) Tender

b) The Drawings & Tender Addendums

c) General & Special Conditions of Contract

d) Scope of Works and Specifications

e) The Bill of Quantities and

f) The Letter of Acceptance dated 5th September,

2012. He further contended that in terms of the said Letter of

Acceptance and Contract Agreement, conditions and

contract also came to be executed between the parties

on 2.4.2013. Clause 15.1 of the terms of the Contract

prescribes ‘Settlement of Disputes and Arbitration’

which is not in dispute. It is further contended that

existence of contract and arbitration clause are not in

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dispute. He would further contend that the legal notice

is issued by the petitioner under Section 7(5) of the

Arbitration and Conciliation Act, 1996 to the respondent

and no reply is filed by the respondent, Sole Arbitrator

be appointed to adjudicate the dispute between the

parties. Therefore, he sought to allow the civil

miscellaneous petition.

14. Per Contra, Ms. Priyanka Das for Sri N.K.

Dilip, learned Counsel for the respondent reiterating the

averments made in the statement of objections,

contended that there is no special condition in the

contract entered into between the parties. She further

contended that the petitioner has committed fraud on

the respondent for a sum of Rs.113 Crores (Rupess One

Hundred and Thirteen Crores only) and since no

sufficient stamp duty is paid on the agreement, the said

agreement cannot be entertained unless and until

stamp duty is paid as per the provisions of Section 34 of

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the Karnataka Stamp Act. She would further submit

that subsequently the stamp duty is paid that too after

this civil miscellaneous petition is filed before this Court

which cannot be entertained. Even the penalty paid is

insufficient. She would also contend that the present

civil miscellaneous petition is not maintainable for want

of jurisdiction since the office of both petitioner and

respondent are situated at Bombay and therefore, this

Court has no jurisdiction to entertain the present civil

miscellaneous petition and sought for dismissal of the

civil miscellaneous petition.

15. In support of her contentions, learned

Counsel for the respondent relied upon the judgment of

the Hon’ble Supreme Court in the case of Duro

Felguera, S.A. –vs- Gangavaram Port Limited reported in

(2017) 9 SCC 729 with regard to general reference to

another contract will not be sufficient to incorporate the

arbitration clause from the referred contract into the

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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.

16. The learned Counsel for the respondent

further relied upon the judgment of the Hon’ble

Supreme Court in the case of A.Ayyasamy –vs- A.

Paramasivam and Others reported in (2016) 10 SCC

386 wherein it has been held that mere allegation of

fraud simpliciter may not be a ground to nullify the

effect of arbitration agreement between the parties. It is

only in those cases where the court, while dealing with

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Section 8 of the Act, finds that there are very serious

allegations of fraud which make a virtual case of

criminal offence or where allegations of fraud are so

complicated that it becomes absolutely essential that

such complex issues can be decided only by the civil

Court on the appreciation of the voluminous evidence

that needs to be produced, the court can sidetrack the

agreement by dismissing the application under Section

8 and proceed with the suit on merits.

17. Having heard the learned Counsel for the

parties, it is an undisputed fact that Ishani Realty

invited tenders from pre-qualified builders for the

development of 6,86,614 sq.ft. of the land located at

K.R. Puram, Bangalore in respect of a project known as

‘Pashmina Waterfront’. It is also not in dispute that the

petitioner participated in the tender process and it was

declared as the successful bidder to execute the works

in relation to the project as stipulated in the tender. It

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is also not in dispute that the present respondent

issued a Letter of Acceptance dated 5th September, 2012

specifically stating that the petitioner and respondent

had to execute a Contract Agreement for the Civil,

Structural and Finishing Works for the proposed

construction of the Project subject to the terms and

conditions and the letter of award (LOA) is subject to

execution of a definitive agreement/contract by you with

Lily Realty Pvt. Ltd., and this LOA is subject to

compliance with all applicable statutory laws. At the

bottom of the said letter, it is specifically stated that the

of contract that the following documents shall be

deemed to form and be read and construed as part of

this Agreement viz., Tender, Drawings and Tender

Addendums, General and Special Conditions of

Contract, Scope of Works and Specifications, Bill of

Quantities and the Letter of Acceptance dated 5th

September, 2012. At the bottom of the said letter which

is a letter head, it is specifically stated as ‘Lily Realty

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Pvt. Ltd.’ . It is also not in dispute that in the Letter of

Acceptance, it is stated at Clause 1.21 ‘Arbitration’ and

the same is as per contract clause. It is an undisputed

fact that subsequently the petitioner and the

respondent entered into contract agreement on 2nd

April, 2013 and at para-1 of the said agreement it is

stated that in the Agreement words and expressions

shall have the same meanings as are respectively

assigned to them in the conditions of contract

hereinafter referred to and the following documents

shall be deemed to form and be read and construed as

part of the agreement –

a) The said Tender,

b) The Drawings & Tender Addendums

c) General & Special Conditions of Contract

d) Scope of Works and Specifications

e) The Bill of Quantities

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f) The Letter of Acceptance Ref.PBPL/SPC/LOA/

BANG/010 dated 5th September, 2012.

18. It is also not in dispute that on the very

same day the condition agreement came into force. It is

also not in dispute that the parties entered into

condition of contract i.e., as per General Conditions of

Contract mentioned in Part-I, Definitions and

Interpretations are mentioned wherein ‘Contract’ means

the Notice Of Tender, Instructions to Tenderers,

Conditions of Contract, Specifications, Drawings, Priced

Bill of Quantities, Schedule of Rates and Prices, if any,

correspondence letters concerned to tender, Letters of

Intent (LOI) and the Contract Agreement, when

completed. Clause 15 of the said Agreement refers to

Settlement of Disputes and Clause 15.1 refers to

Settlement of Disputes and Arbitration which reads as

under:

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“15.1 Settlement of disputes and arbitration:

All disputes and difference arising out or in

connection with the contract whether during

the progress or work or after completion shall

be referred to and settled by arbitration by

two Arbitrators, one to be nominated by the

contractor and one to be nominated by the

Client. The two arbitrators shall, in turn

appoint a neutral third party who shall also

be an arbitrator. The decision of the Umpire

shall, however, be final and binding on both

the parties. For the purpose of this clause,

the provisions of the Arbitration and

Conciliation Act, 1996, with the relevant

amendments and latest revisions shall be

applicable.

The seat of arbitration shall be

Bangalore and the arbitration shall be carried

out in the English language.”

19. In view of the aforesaid clause, the

contention of the learned Counsel for the respondent

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that the petition is not maintainable before this Court

for want of jurisdiction cannot be accepted.

20. The contention of the learned Counsel for

the respondent that there is no condition in separate

agreement cannot be accepted, since the very

respondent by a letter dated 5th September, 2012

addressed to the present petitioner accepted the revised

tender offer by the petitioner with regard to Civil,

Structural and Finishing Works for the said project and

subsequently the very petitioner and respondent

entered into an Agreement on 2nd April 2013, wherein

General and Special Conditions of Contract have been

specified. Therefore, the contention of the learned

Counsel for the respondent that there was no condition

of contract for Arbitration Clause in the said Agreement

cannot be accepted. It is also not in dispute that the

respondent has not disputed the existence of contract

agreement dated 2nd April, 2013 between the parties

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and General and Special Conditions thereon and

Arbitration Clause stated supra. It is also not in

dispute that the petitioner issued legal notice on

23.10.2018 and admittedly, though the same was

received by respondent, it did not reply.

21. The another contention raised by the learned

Counsel for the respondent is that the tender was called

for by another group of Company and not by the

respondent. If that is so, what is the business of

respondent to issue Letter of Acceptance to the

petitioner on 5th September, 2012 and then to enter into

an Agreement on 2nd April, 2013 which is not

forthcoming. Therefore, the said contention raised by

the respondent is nothing, but wasting public time

which cannot be accepted.

22. In support of the contentions raised by the

learned Counsel for the respondent that the claim is

barred by limitation is concerned, it is an undisputed

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fact that final bill was raised on 20.3.2018, updated

final bill on 9.7.2018, supplementary final bill on

28.9.2018, the legal notice was issued on 23.10.2018

and the present civil miscellaneous petition is filed on

29.11.2018, but the respondent has not shown under

which provision, this civil miscellaneous petition is

barred by limitation. Article 137 of the Limitation Act ,

1963 stipulates that in application for which no period

of limitation is provided elsewhere in the Limitation Act,

the period of three years commences when the right to

apply accrues. When the bill was raised for the time in

the month of March, 2018 and last bill in the month of

September, 2018, the legal notice issued on 23.10.2018

was well within the time stipulated and in accordance

with law and therefore, the contention of the respondent

that the civil miscellaneous petition is barred by

limitation cannot be accepted.

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23. In so far as the stamp duty and penalty is

concerned, though at the time of filing the present

petition, the petitioner has not paid the stamp duty on

the contract agreement, subsequently, it has

approached the Deputy Registrar of Stamps on 2nd July,

2019 and paid the stamp duty on the agreement dated

2nd April, 2013 before the jurisdictional District

Registrar and Deputy Commissioner of Stamps,

Shivajinagar, Bengaluru, who has issued the certificate

dated 26.7.2019 stating that the petitioner has paid the

Stamp duty of Rs.1,58,000/- (Rupees One Lakh Fifty

Eight Thousand only) and Rs.60,000/- (Rupees Sixty

Thousand only) towards penalty and in all it has paid a

sum of Rs.2,18,000/-(Rupees Two Lakhs Eighteen

Thousand only) including penalty through Demand

Draft bearing No.114886 dated 27.6.2019 drawn on

SCB, Koramangala, Bengaluru and accordingly, a

certificate has been issued under the provisions of

Section 39 of the Karnataka Stamps Act, 1957 certifying

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that the document is duly stamped. Therefore, the

contention of the learned Counsel for the respondent

that the petitioner has not paid sufficient stamp duty

cannot be accepted and the endorsement issued by the

District Registrar and Deputy Commissioner of Stamps

has reached finality.

24. In so far as the reliance of the judgment of

the Hon’ble Supreme Court by the learned Counsel for

the respondent in the case of Duro Felguera S.A. –vs-

Gangavaram Port Ltd., reported in (2017) 9 SCC 729

stated supra that a general reference to another

contract will not be sufficient to incorporate the

arbitration clause from the referred contract into the

contract under consideration and there should be a

special reference indicating a mutual intention to

incorporate the arbitration clause from another

document into the contract, admittedly in the present

case, in response to the tender notification issued by

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the Ishani Realty, the petitioner was declared as a

successful bidder and the present respondent through

its letter head issued acceptance of bid to the petitioner.

Subsequently the petitioner and respondent entered

into the contract and conditions of contract in

pursuance of the Agreement and therefore, there is no

another separate contract between the parties. The

contract, agreement and letter of acceptance are one

and the same and same contract between the parties.

Therefore, the said judgment has no application to the

facts and circumstances of the present case.

25. In so far as the judgment of the Hon’ble

Supreme Court relied upon by the learned Counsel for

the respondent in the case of A. Ayyasamy –vs- A

Paramasivam and Others reported in (2016) 10 SCC

386 wherein it has been held that in case of fraud, if

there are any serious allegations of fraud, the

application filed under Section 8 of the Arbitration and

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Conciliation Act, 1996 has to be dismissed and the

matter – suit has to be decided on merits, this Court

has no quarrel with the law laid down by the Hon’ble

Apex Court. In the circumstances where applications

are filed under Section 8 of the Arbitration and

Conciliation Act and when there are very serious

allegations of fraud, which make a virtual case of

criminal offence or where allegations of fraud are so

complication that it becomes absolutely essential that

such complex issue can be decided only by the Civil

Court on the appreciation of the voluminous evidence

that needs to be produced, the Court can sidetrack the

agreement by dismissing the application under Section

8 of the Arbitration and Conciliation Act and proceed

with the suit on merits. Admittedly in the present case,

the application filed is under the provisions of Section

11 of the Arbitration and Conciliation Act. Hence, the

said judgment has no application to the facts and

circumstances of the present case. The said contention

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can be raised before the learned Arbitrator and it is for

the learned Arbitrator to decide the same in accordance

with law.

26. The material on record which clearly depicts

the existence of dispute between the parties, Arbitration

Clause, issuance of legal notice and respondent has not

replied to the legal notice are not in dispute. Therefore

the petitioner has made out a prima-facie case for

appointment of Arbitrator as prayed for and there is no

impediment to appoint the Sole Arbitrator to adjudicate

the dispute between the parties.

27. At this stage, learned Counsel for the parties

to the lis jointly agree for appointment of Hon’ble Mr.

Justice Ashok B. Hinchigeri, Former Judge of this Court

as the Sole Arbitrator to adjudicate the dispute between

the parties.

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28. For the reasons stated above, civil

miscellaneous petition is allowed. In view of the

aforesaid admitted facts and consent given by the

learned Counsel for the parties, Hon’ble Mr. Justice

Ashok B. Hinchigeri, Former Judge of this Court, is

appointed as the sole Arbitrator to adjudicate the

dispute between the parties in terms of Clause-15.1 of

the Contract Agreement dated 2nd April, 2013 entered

into between the parties and in accordance with law.

29. All the contentions raised by the parties are

left open to be urged before the learned Arbitrator.

30. Registry is directed to send a copy of this

order to – The Hon’ble Mr. Justice Ashok B. Hinchigeri,

Former Judge of this Court as well as to the Arbitration

Centre forthwith for reference.

Sd/-

Judge

Nsu/-