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

8

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

10

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

11

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

12

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.]

13

(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.

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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 11

th

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

37

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.

45

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

46

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)

47