Dismissed

M/S. Urc Construction Pvt. Ltd. v. M/S. Beml Limited

Karnataka HC22 Jul 2022CMP/259/2022

Case brief

AI extract

What is this about?

Civil Miscellaneous Petition filed for appointment of a sole arbitrator under Section 11 of the Arbitration Act, 1996. The Court held that the petitioner's claim regarding excess bank guarantee charges arising from the invocation of guarantees was part of the earlier arbitral proceedings and rejected the application to constitute a new tribunal.

What did the court decide?

Petition dismissed; petitioner to pursue claim in pending proceedings under Section 37.

M/S. Urc Construction Pvt. Ltd. Vs M/S. Beml Limited — Arbitration | Karnataka HC (2022)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 22^ND DAY OF JULY 2022

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BEFORE

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THE HON’BLE MR. JUSTICE B. M. SHYAM PRASAD

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CIVIL MISCELLANEOUS PETITION NO.259/2022

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BETWEEN :

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M/S. URC CONSTRUCTION PVT LTD A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956, HAVING ITS REGISTERED OFFICE AT NO 119, POWER HOUSE ROAD, ERODE 638001, TAMIL NADU AND ITS CORPORATE OFFICE AT PLOT NO 810, 1^ST CROSS, 7^TH MAIN, HAL 2^ND STAGE, INDIRANAGAR, BENGALURU 560008, REPRESENTED BY ITS MANAGING DIRECTOR MR S PALANISAMY.

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... PETITIONER

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(By SRI. APPAIAH P B., ADVOCATE)

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AND :

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M/S. BEML LIMITED A COMPANY INCORPORATED UNDER THE COMPANIES ACT 1956, HAVING ITS REGISTERED OFFICE AT "BEML SOUDHA", NO 23/1, 4^TH MAIN ROAD, SAMPANGI RAMA NAGAR, BENGALURU 560027, REPRESENTED BY

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ITS CHAIRMAN AND MANAGING DIRECTOR DR D K HOTA.

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... RESPONDENT

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(By SRI.SANDESH J. CHOUTA, SENIOR ADVOCATE FOR SRI.ISMAIL MUNEEB MUSBA, ADVOCATE)

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THIS CIVIL MISCELLANEOUS PETITION IS FILED UNDER SEC.11(5) AND (6) R/W SECTION 11(12)(b) OF THE ARBITRATION AND CONCILATION ACT, 1996 APPOINTMENT OF ARBITRATORS BY THE CHIEF JUSTICE OF KARNATAKA HIGH COURT SCHEME, 1996, PRAYING TO APPOINT SUCH PERSON AS THIS COURT DEEMS FIT AS THE SOLE ARBITRATOR TO ADJUDICATE THE DISPUTES THAT HAVE ARISEN BETWEEN THE PETITIONER AND THE RESPONDENT UNDER CLAUSE 31 OF SECTION IV (SPECIAL CONDITIONS OF CONTRACT) OF THE TENDER/CONTRACT DATED : 25/01/2012 ENTERED INTO BY AND BETWEEN THE PETITIONER AND RESPONDENT AS AT ANNEXURE-A; AWARD TO THE PETITIONER THE COSTS OF THESE PROCEEDINGS.

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THIS PETITION COMING ON FOR ADMISSION, THIS DAY, THE COURT MADE THE FOLLOWING:

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O R D E R

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The petitioner has filed this petition for the appointment of a sole arbitrator to enter reference of “ a further dispute ” with the respondent relying upon Clause 31 of Section V (Special Conditions of Contract) of the Tender/Contract dated 25.01.2012. This petition is filed after the culmination of the earlier arbitral

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proceedings in AC Nos.10/2013 and 11/2013 before the learned sole arbitrator, Sri Justice Ajit J. Gunjal, a former Judge of this Court, by the awards dated 20.08.2016 and 16.11.2016. The respective challenges to these awards, it is stated, are pending in appeals under Section 37 of the Arbitration and Conciliation Act, 1996 (for short, 't he Arbitration Act ').

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Sri P.B.Appaiah, the learned Counsel for the petitioner, and Sri Sandesh J. Chouta, the learned Senior Counsel for the respondent, are categorical that the facts and circumstances for the purposes of this petition would be mostly undisputed, and because of the respondent's defense, this Court will have to consider the following questions:

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[a] W hether the dispute now proposed by the petitioner is part of the earlier arbitral proceedings in AC No. 11/2013 and therefore, the subject matter of the award dated 20.08.2016 therein, and

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[b] If the proposed dispute is not subject matter of the award dated 20.08.2016, whether the same is time barred.

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Sri P.B.Appaiah and Sri Sandesh J. Chouta

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submit that if this Court could opine that the “ proposed dispute” is neither the subject matter of the award dated 20.08.2016 in AC No. 11/2013 nor time barred, a former Judge of this Court be appointed as the sole arbitrator to enter reference of the proposed dispute. Sri P.B.Appaiah submits that if the petition is so favoured, this Court could appoint any former Judge of this Court but Sri Justice Ajit J. Gunjal [ the learned arbitrator ] to avoid controversies over possible bias because the larger gamut of the controversy is already considered by the learned arbitrator. On the question of law, Sri P.B.Appaiah and Sri Sandesh J. Chouta are unanimous that the scale to apply to decide the above questions is the Deadwood Scale with Sri. Appaiah emphasizing that this Court must follow the settled proposition that, the

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Courts, when in doubt, must refer the dispute to arbitration with all questions to be decided there.

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The respondent has issued 'Work orders' to

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the petitioner for Pre-engineered Building System for an Industrial Facility [ PEBS ] proposed by the respondent

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and for certain Civil Works. The petitioner, in compliance with the contractual terms, has furnished respective Bank Guarantees for Rs.3,47,20,775/[which is associated with the Work Order for PEBS and is hereafter referred to as ' PEB Bank Guarantee'] and Rs.3,84,32,425/- [which is associated with the Work Order for Civil Works ]¹ . The larger dispute between the petitioner and the respondent, relating to the petitioner’s claim under the Work Orders for PEBS and Civil Works, is commenced with the exchange of legal notices in the year 2012 and the learned arbitrator is

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1 The petitioner’s claim with regard to this Bank Guarantee is admittedly pending in the proceedings under Section 37 of the Arbitration Act.

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appointed in CMP Nos.19/2013 and 20/2013 as the sole arbitrator to enter reference of the dispute.

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During the pendency of these arbitral

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proceedings i.e., in the month of December 2013, the respondent has issued letters invoking PEB Bank Guarantee as also the other Bank Guarantee which has spurred the petitioner to file application under Section 9 of the Arbitration Act in AA No.921/2013 for restraining the Bank [M/s. SBI] from making any payments under these Bank Guarantees. The concerned civil Court has granted ad interim order restraining the respondent from invoking the PEB Bank Guarantee and M/s. SBI from making payments to the respondent. But there is no interim order insofar as the other Bank Guarantee.

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The petitioner contends that the civil Court's office did not list interim application for injunction against invoking PEB Bank Guarantee for civil Court’s

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orders owing to an inadvertent error on its part. The respondent therefore could encash the other Bank Guarantee, and insofar as the PEB Bank Guarantee, M/s SBI, because of the temporary injunction, drew up a Demand Draft in favour of the respondent but did not hand over the same to the respondent. The petitioner's “ proposed dispute ”, according to the petitioner relates to certain charges deducted by M/s. SBI towards this PEB Bank Guarantee.

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The petitioner’s larger claim, including certain claims because the respondent invoked the other Bank Guarantee, is decided in AC No. 11/2013 by the award dated 20.08.2016. After this award, on an application, the learned sole arbitrator has passed further award dated 16.11.2016 holding that the petitioner would not be entitled to any interest on the value of the PEB Bank Guarantee [for Rs.3,47,20,775/] and reiterating the direction that the respondent must return the original

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Bank Guarantee to the petitioner. In the meanwhile, the petitioner has pursued with M/s. SBI to credit the amount of Rs.3,72,40,775/- covered under PEB Bank Guarantee. M/s. SBI, with the petitioner's repeated insistence, has credited certain amount after deducting certain charges in the month of September 2016. Hence, the petitioner has issued legal notice dated 11.05.2020 for commencement of the arbitral proceedings raising a claim leading to the “ proposed dispute ”. The petitioner’s claim is for the following:

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1.	Excess Bank Commission Paid	Guarantee	Rs.2,29,92,872.00
2.	Interest Incurred Bank Guarantee Paid	on Excess Commission	Rs.2,16,12,603.23
3.	Excess Bank Commission Paid	Guarantee	Rs.1,93,97,944.80
	Total		Rs.6,40,03,420.03

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Sri P.B.Appaiah submits that the petitioner,

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because of the interim order in AA No.921/2013 [which continued until 19.8.2016 when the application in AA

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No.921/2013 was disposed of], and because the petitioner could not have known about the deductions by M/s. SBI, could not have made any claim earlier as now raised. The petitioner had only referred to, as part of supplementary claim statement in AC 11/2013, certain losses that the petitioner suffered because of the respondent wrongly invoking the Bank Guarantee. Indisputably, the petitioner’s claim for Rs.6,40,03,420/is not part of the claim that is adjudicated in AC No.11/2013² .

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On the other hand, Sri. Sandesh J.Chouta submits, taking this Court through the amended statement of claim filed by the petitioner in AC 11/2013, that the petitioner has claimed a sum of Rs.3,32,88,56,00,000/-³ in the earlier proceedings . This

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2 It is admitted that the learned Arbitrator’s decision on the petitioner’s claim as regards the Bank Guarantees [both PEB and Civil Works Bank Guarantees] is in answering Claim No. 2 in AC No.10/ 2013 and Claim No.6 in AC No. 11/2013.

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3 Mentioned as Rs.33288.56 lakhs

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amount is computed as losses and damages that the petitioner has suffered because the respondent invoked both the PEB Bank Guarantee (for Rs.3,47,20,775/-) and the other bank Guarantee (for Rs.3,84,32,425/-). The petitioner asserted that it has suffered a loss of Rs.3,32,88,56,00,000/- inter alia because M/s SBI refused concessional Bank Guarantee charges of 1.56% p.a. and instead applied charges at the rate of 2.10% p.a., and the petitioner also had to suffer interest losses.

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Sri. Sandesh J.Chouta argues that the

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learned sole arbitrator, considering such detailed, elaborate and all-encompassing claims, has refused to grant any relief except for a direction to return the original PEB Bank Guarantee observing that the petitioner’s claim for Rs.3,32,88,56,000/- is speculative. These circumstances would undeniably establish that the petitioner has raised all claims in the earlier proceedings. If the petitioner is aggrieved, it must

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necessarily pursue its remedy as contemplated under the provisions of the Arbitration Act and it cannot seek re-agitation of the same issue by initiating separate arbitral proceedings.

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Sri P.B.Appaiah in rejoinder, submits that the respondent's defense that the petitioner's “ proposed dispute ” is part of the earlier proceedings is based entirely on a reading of the annexure to the supplementary claim statement filed in AC No.11/2013. The petitioner cannot dispute that it has computed losses because M/s SBI refused concessional rate of 1.56% and loss towards interest, but it cannot be held that the “ proposed dispute ” is part of the earlier proceedings only because there is a reference to Rs.3,47,20,775/- in the Annexure to the Amended Statement of Claim. Sri P B Appaiah argues that such annexure would not be part of the substantive pleadings.

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This Court, before considering the question whether the “proposed dispute” could be part of the claim in the earlier proceedings in AC No.11/2013, must record that if this Court is to conclude that the proposed dispute is indeed part of the claim in the earlier arbitral proceedings, the question of limitation will not arise for examination and the parties must workout their grievances in this regard in the pending proceedings as against the awards in the earlier proceedings.

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The petitioner has issued legal notice dated 11.05.2020 before commencement of these proceedings. The petitioner is categorical that the immediate cause of action for the proposed dispute is the respondent’s factually incorrect and unlawful demand for payment under the PEB Bank Guarantee. The petitioner has quantified the claim in a sum of Rs.6,40,03,420.03.

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The petitioner has computed this amount as Excess Bank Guarantee Commission paid and Interest on Excess Bank Guarantee Commission and Excess Cash Credit . The petitioner is specific that M/s. SBI was levying charging at the rate 1.365 % per annum at a concession rate, however, with the respondent invoking the PEB Bank Guarantee and the other Bank Guarantee, M/s. SBI enhanced the charges to 2.10% per annum withdrawing concession. Consequentially, the respondent has paid excess commission of Rs.2,29,92,872/- for the Bank Guarantees availed from M/s. SBI from that period and has incurred interest on account of the excess Commission paid to M/s.SBI.

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The petitioner also asserts that M/s SBI prepared a Demand Draft for Rs.3,47,20,775/- and debited interest to its Cash Credit Account because the respondent wrongly invoked the PEB Bank Guarantee. M/s SBI, because the proceedings were pending in AA

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No. 921/2013 did not re-credit the amount of Rs.3,47,20,775/- until September 2016 and continued to charge certain interest and is therefore entitled to Rs.1,93,97,944.80.

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The petitioner’s claim for Rs.6,40,03,420.03⁴ must necessarily be seen, as asserted on behalf of the respondent, in the light of the petitioner's supplementary claim in AC Nos.11/013 for Rs.3,32,88,56000/[Rs.33288.56 lakhs] and the

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prayer. The petitioner has sought for additional prayer which reads:

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‘Direct the respondent to pay to the claimant a sum of Rs.33288.56 lakhs as per the Supplementary Particulars of Claim annexed to this Amended Claim Statement together whether interest thereon

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4 Rs.2,29,92,872.00 towards Excess Bank Guarantee Commission Paid.

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Rs.2,16,12,603.23 towards Interest Incurred on Excess Bank Guarantee Commission Paid.

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Rs.1,93,97,944.80 towards Excess Cash Credit Interest

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at such rate and for such period as the learned sole arbitrator may be pleased to award till the date of passing of the arbitral award.”

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The details of Rs.3,32,88,56000/- is based on the total amount of 7,31,53,200/- [Rs. 3,47,20,775/- + Rs.3,84,32,425/-]. The details of these claims⁵ are as

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follows:

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5 The annexure appended to the Amended Statement of Claim in A.C. No.11/2013.

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It is obvious from this computation annexed to the supplementary claim that the petitioner has raised a claim for the ‘ Withdrawal of Concessions in the Bank Guarantee Charges ’ not just because the Civil Works Bank Guarantee is invoked but also because the PEB Bank Guarantee is invoked. The other claims are towards increase in Cash Margin deposit for future BGs and interest at the rate of 24% per annum on certain alleged Base Amounts as borrowed funds . This Court must opine that it is rather clear, without room for any doubt and further enquiry, that the petitioner’s claim for Rs.3,32,88,56,000/- in the Amended Statement of Claim encompasses the claim based on M/s SBI withdrawing a certain concessional Bank Guarantee charges and levying 2.10% per annum and consequential loss of interest.

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The learned Arbitrator examining this claim has found as follows:

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In so far as the supplementary claim of Rs.332.88 crores on the basis of exhibit P 28 is concerned it is to be stated that the claimant is not entitled for the relief as sought for. The amended claim of Rs.332.88 crores is calculated on the basis of various aspects which according to me are very speculative. The circumstances under which Rs.332.88 crores is sought is on the ground of withdrawal of concessions on the bank guarantee charges and it is calculated at Rs.498.75 lakhs, increase in cash margin deposit for future bank guarantees, interest at the rate of 12.20% on borrowed funds to make additional funds deposit for obtaining future bank guarantees, interest at 24% on borrowed funds required immediately to regularise CC amount, loss due to difference in rate of interest between margin money deposit and CC account, at additional deposit, including loss of business due to nonavailability of short-term tenders, nonavailability of funds, nonavailability of bank guarantees on short notice. This is coupled with loss of reputation and goodwill with State Bank of India claimant has earned

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during the past 30 years. To my mind has stated it is a speculative claim and cannot be granted. In support of such a claim two documents of forthcoming and no substantial evidence has been Latin. Thus, I am not inclined to grant the said claim of Rs.3 32.88,00,00,000s and the same is rejected.

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The learned arbitrator, for reasons as aforesaid, as found the petitioner’s claim in this regard speculative. The petitioner cannot regurgitate the same because it has quantified the loss differently after correspondences with M/S SBI and upon the conclusion of the arbitral proceedings by the award dated 20.08.2016, or upon the later award dated 16.11.2016.

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The rejoinder submission that the details of the claim on withdrawal of the concessional Bank Guarantee charges and the consequential interest loss as regards the PEB Bank Guarantee may be furnished in the annexure to the Amended Statement of Claim but

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that cannot be part of substantive pleadings in the earlier proceedings is too specious in the light of the specific prayer in the supplementary claim for a direction to the respondent to pay a sum of Rs.3,32,88,56,000/- as per the annexed statement of claims.

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The petitioner’s claim for a sum of Rs.1,93,97,944.80 [towards Excess Cash Credit Interest] is based on the assertion that the petitioner was not aware that M/s SBI had drawn a Demand Draft for a sum of Rs. 3,47,20,775/- favouring the respondent and debit of interest to its Cash Credit Account for the period between December 2013 and September 2016 until M/s SBI furnished the details of the same after repeated correspondence and on closure of the arbitral proceedings.

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The petitioner’s claim as against PEB Bank Guarantee, including the claim in the Amended Statement of Claim for a sum of Rs.3,32,88,56,000/-, is founded in the allegation that the respondent has erroneously and illegally invoked the Bank Guarantees. Every claim as arising from such cause, would necessarily be part of the original claim, especially when detailed claims under specific heads are mentioned referring to Cash Credit Account [CC A/c]. If it is not, it must stand eclipsed and the principle that no one should be vexed twice over the same cause of action, the underlying principle in Order II Rule 2 of CPC, must have its full play. However, these aspects will have to be considered in the pending proceedings, and for the present, it would suffice to opine that this claim cannot be construed as a separate and distinct claim to justify constitution of another arbitral Tribunal.

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For the foregoing, this Court must opine that

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every claim arising from the respondent invoking the PEB Bank Guarantee would be part of the claim decided in AC No. 11/2013. The first question must be answered accordingly, and with this conclusion, the second question, as stated earlier, will not arise for consideration. As such, the petition must be disposed of with liberty to the petitioner, if it is permissible in law, to pursue its claim against the respondent in the pending proceedings under Section 37 of the Arbitration Act. This Court must also observe that, given the nature of canvass in the present proceedings and the consideration of such canvass, the petitioner’s cause, if any, against M/s SBI cannot be prejudiced by this order.

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The petition stands disposed of accordingly.

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Sd/JUDGE

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SA*, Ct: sr

M/S. Urc Construction Pvt. Ltd. v. M/S. Beml Limited

Case brief

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M/S. Urc Construction Pvt. Ltd. v. M/S. Beml Limited

Case brief

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