Contractual Arbitration: Calcutta High Court's Verdict on Reference Dispute

CASE TITLE:

M/s Power Mech Projects Limited vs. M/s Bharat Heavy Electricals Limited

DATE OF THE CASE:

17th October, 2023

PARTIES INVOLVED:-

Petitioner: M/s Power Mech Projects Limited

Respondent: M/s Bharat Heavy Electricals Limited

BENCH/JUDGE:

Hon’ble Justice Moshumi Bhattacharya

IMPORTANT PROVISIONS:-

The important provisions and legal aspects involved in this case are:

1. Arbitration and Conciliation Act, 1996: This act governs the arbitration proceedings and defines the legal framework for arbitration agreements, the appointment of arbitrators, and the resolution of disputes through arbitration.

2. Section 7(1) of the Arbitration and Conciliation Act: This section defines an "arbitration agreement" as an agreement between parties to submit disputes to arbitration.

3. Section 7(5) of the Arbitration and Conciliation Act: This section pertains to the incorporation of arbitration agreements by reference in later contracts. It outlines the requirements for reference to be valid.

4. Indian Stamp Act, 1899: This law deals with the stamping of documents and instruments, including arbitration agreements.

5. Section 4 of the Indian Stamp Act: This section deals with stamp duty on instruments used in a single transaction of sale, mortgage, and settlement.

6. Section 35 of the Indian Stamp Act: This section relates to the admissibility of instruments in evidence and how they should be sufficiently stamped.

SUBJECT: Arbitration Dispute over Incorporation by Reference in Contract Agreement

OVERVIEW:-

The case involves two arbitration petitions presented before the Calcutta High Court. In both petitions, the same parties are seeking the appointment of an arbitrator to resolve disputes arising from the same contract. One petition aims to resume arbitration from a previous stage, while the other seeks the appointment of a Sole Arbitrator for new disputes.

The respondent, Bharat Heavy Electricals Limited (BHEL), raises objections related to the incorporation of the arbitration agreement and stamping of documents. They claim that the contract agreement does not properly incorporate the arbitration clause, and there is an issue with stamping.

The Calcutta High Court examines these objections, delves into the legal intricacies of arbitration agreement incorporation, and scrutinizes relevant sections of the Indian Stamp Act. Ultimately, the court rules in favor of the petitioner, appointing an arbitrator to resolve the disputes. The case underscores the court's role in resolving complex arbitration and contract-related matters.

ISSUES RAISED:-

1. Is the arbitration agreement properly incorporated into the Contract Agreement as required by the law?

2. Are the documents involved in the contractual and arbitration process adequately stamped to ensure their admissibility in evidence?

3. Should a Sole Arbitrator be appointed for the resolution of disputes arising from the same contract at different stages?

4. What is the role and decision of the Calcutta High Court in resolving these disputes and addressing the issues raised?

CONTENTIONS RAISED BY THE PETITIONER:-

• The petitioners argue that a Sole Arbitrator should be appointed for the resolution of disputes arising from the same contract, despite different stages of the disputes. They claim that this approach is reasonable and practical, especially after the termination of the previous arbitrator's mandate.

• The petitioners contend that the arbitration agreement is properly incorporated into the Contract Agreement. They assert that the reference to the Notice Inviting Tender (NIT), Letter of Intent (LOI), and Work Order within the Contract Agreement is sufficient to incorporate the arbitration clause by reference, as mandated by the law.

• The petitioners argue that the Contract Agreement meets the requirements of the Indian Stamp Act, particularly in terms of stamp duty. They claim that the Contract Agreement is properly stamped and, therefore, satisfies the statutory obligations.

CONTENTIONS RAISED BY THE RESPONDENTS:-

• BHEL contends that the incorporation of the arbitration agreement into the Contract Agreement is insufficient. They argue that there is no specific reference to the arbitration clause within the Contract Agreement, which, in their view, fails to demonstrate the parties' intention to incorporate it by reference.

• BHEL raises the issue of stamping, claiming that several documents related to the transaction, including the Notice Inviting Tender (NIT) and the Work Order, are not adequately stamped. They argue that the Contract Agreement's compliance with the Indian Stamp Act does not absolve the unstamped documents from their stamping requirements.

• BHEL asserts that their contracts are not standard form agreements and can vary based on the nature of the project. They contend that the exceptions to the rule of specific reference to the arbitration clause, as laid down by the Supreme Court, are not applicable in this case due to the customized nature of their contracts.

ANALYSIS BY THE COURT:-

The observations made by the court in this case include:

1. The court observed that the Contract Agreement makes specific references to the Notice Inviting Tender (NIT), the Letter of Intent (LOI), and the Work Order, all of which contain identical arbitration clauses. The court noted that the Contract Agreement encompasses these documents without any restriction, clearly indicating an intention to incorporate the arbitration agreements by reference.

2. The court observed that the Contract Agreement complies with the Indian Stamp Act and is sufficiently stamped. It explained that Section 4 of the Indian Stamp Act, which deals with stamping in cases of multiple instruments in a single transaction, does not apply to the present case, as the Contract Agreement does not fall within the categories addressed by Section 4.

3. The court emphasized the role of the Calcutta High Court in resolving the arbitration agreement incorporation and stamping issues. It highlighted that the court's role is to preserve the intention of the parties to arbitrate and ensure a seamless transition when a later contract becomes the arbitration agreement.

The court's observations ultimately support its decision to appoint a Sole Arbitrator and resolve the disputes in favor of the petitioners, dismissing the objections raised by the respondents, BHEL.

JUDGMENT:-

The judgment delivered by the court in this case involves the following key points:-

1. The court has ruled in favor of the petitioners and appointed Mr. S. Muralidhar, a former Chief Justice of the Orissa High Court, to act as the Sole Arbitrator. This decision aims to resolve the disputes that arise from the same contract but at different stages, considering that the previous arbitrator's mandate had been terminated.

2. The judgment instructs that the court's decision and order should be communicated to the appointed arbitrator within three days of the judgment. The arbitrator is also expected to communicate their consent to the Registrar Original Side of the Court within three weeks from the date of such communication, following the prescribed format under the 1996 Act and its schedules.

3. The petitioner is directed to provide the particulars of their contact person to the appointed arbitrator.

4. The judgment notes that urgent photostat certified copies of the judgment will be supplied to the parties upon application and the fulfillment of requisite formalities.

In summary, the court's judgment appoints a Sole Arbitrator and outlines the next steps in the arbitration process, including communication and consent details. It also addresses the issuance of certified copies of the judgment to the parties involved.

CONCLUSION:-

In conclusion, the Calcutta High Court ruled in favor of the petitioners in this case, appointing a Sole Arbitrator, Mr. S. Muralidhar, to resolve the disputes arising from the same contract at different stages. The court rejected the objections raised by the respondents, Bharat Heavy Electricals Limited (BHEL), related to the incorporation of the arbitration agreement and the stamping of documents.

The court's judgment emphasized the proper incorporation of the arbitration agreement by reference within the Contract Agreement and found that the Contract Agreement complied with the Indian Stamp Act's requirements. The court also highlighted its role in preserving the intention of the parties to arbitrate and ensuring a seamless transition when a later contract becomes the arbitration agreement.

The judgment included instructions for communication between the parties, the appointed arbitrator, and the court, and addressed the issuance of certified copies of the judgment. This case illustrates the court's role in resolving complex arbitration and contract-related matters and upholding the integrity of arbitration agreements.