Supreme Court of India
M/S. DURO FELGUERA, S. A.versusM/S. GANGAVARAM PORT LIMITED
- Citation
- 2017 INSC 1026
- Decided
- 10 October 2017
- Disposal
- Disposed off
- Bench
- KURIAN JOSEPH
Holding
Each separate contract and the corporate guarantee constitute independent arbitration agreements, precluding a single arbitral tribunal and necessitating separate tribunals for each agreement.
Summary
The Supreme Court examined a dispute arising from five separate contracts and a corporate guarantee between the Spanish company Mis. Duro Felguera S.A. (and its Indian subsidiary) and Mis. Gangavaram Port Ltd. (GPL). Each contract contained its own arbitration clause, and the parties argued whether a single arbitral tribunal could resolve all disputes under a composite reference, invoking a Memorandum of Understanding (MoU) and the corporate guarantee. The Court held that, under the amended Section 11(6A) of the Arbitration and Conciliation Act, 1996, the court's role is limited to determining the existence of an arbitration agreement, and each separate agreement gives rise to a distinct arbitration agreement. Consequently, a single tribunal could not be constituted; two international commercial arbitration tribunals (for the foreign company) and four domestic tribunals (for the Indian subsidiary) are required. The Court also clarified that the MoU does not incorporate the arbitration clause of the original tender document, and the corporate guarantee’s arbitration clause remains independent. The petitions were disposed accordingly.
Issues considered
- Whether a single arbitral tribunal can be constituted for all five split contracts and the corporate guarantee under international commercial arbitration.
- Whether multiple arbitral tribunals are required for each separate contract and the corporate guarantee.
- Whether the MoU incorporates the arbitration clause of the original tender document, creating a composite arbitration agreement.
- Effect of the Arbitration and Conciliation (Amendment) Act, 2015, particularly Section 11(6A), on the court's jurisdiction to examine arbitration agreements.
Legislation cited
- Arbitration and Conciliation Act, 1996 (as amended by the Arbitration and Conciliation (Amendment) Act, 2015)s. 11(6), s. 11(6A), s. 11(7), s. 11(8), s. 12(1), s. 16, s. 34, s. 37, s. 6, s. 7(5)
Subjects
ArbitrationMultiple arbitral tribunalsInternational commercial arbitrationSection 11(6A)Arbitration agreementMemorandum of UnderstandingCorporate guaranteeSplit contractsArbitration and Conciliation (Amendment) Act, 2015
Judgment
[2017] 10 S.C.R. 285
MIS. DURO FELGUERA, S. A. A
v.
MIS. GANGAVARAM PORT LIMITED
(Arbitration Petition No. 30 of2016)
OCTOBER 10, 2017 B
[KURIAN JOSEPH AND R. BANUMATHI, JJ.]
Arbitration and Conciliation (Amendment) Act, 2015: ss. 11 (6)
and 11 (6A) - GPL awarded tender work to applicant-Foreign
company and FGJ-its lndian subsidiary - Later original contract
split into five different and separate packages with different job
c
description - One contract with the applicant and four with FGl -
Each contract had separate arbitration clause - Dispute between
parties - Arbitration clause invoked - FGJ issued four arbitration
notices, applicant issued one arbitration notice whereas GPL issued
comprehensive arbitration notice consisting single arbitral tribunal D
oi1 basis of MoU - Whether there has to be a single arbitral tribunal
for International Commercial Arbitration or Multiple Arbitral
Tribunals - Held: Since the dispute between the parties arose in
2016, the instant issue is governed by the amended provision of
s. 11 (6A) as per which the power of the court is con.fined only to
E
examine the existence of the arbitration agreement - On facts, there
are five separate Letters of Award; five separate contracts awarded
to applicant and FGJ; separate suliject matters; separate and distinct
work; each containing separate arbitration clause signed by the
respective parties to the contract - Original Package split into five
different Packages, each having different works prima facie F
indicates the intention of the parties to split-up Original Package
into jive different packages - Thus, when there are five separate
contracts, one with foreign company and four with Indian subsidiary,
each having independei1t existence with separate arbitration clauses,
and Corporate Guarantee also contains an arbitration clause, there
cannot be a single arbitral tribunal for "International Commercial G
Arbitration".
Disposing of the matters, the Court
HELD: Per Banumathi, J.:
1.1 As per the amended provision of sub-section (6A) of H
285
286 SUPREME COURT REPORTS [2017] 10 S.C.R.
A Section 11 of the Arbitration and Conciliation (Amendment) Act,
2015(Act 3 of 2016), 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
B
an appointment. 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 b.v such Court".
As per sub-section (6A) of Section 11, the power of the Court
c has now been restricted only to see whether there exists an
arbitration agreement. The amended provision in sub-section (7)
of Section ll provides that the order passed under Section 11(6)
shall not be appealable and thus, finality is attached to the order
passed under this Section. [Paras 13, 17] [299-H; 300-A-B; 301-
D D-EJ
l.2 There is no dispute between the parties that the issue
at hand is governed by the amended pro,ision of sub-section
(6A) of Section 11. Even though Letters of .\ward are dated
17.03.2012 and five separate contracts were enterl:'d into between
the parties on 10.05.2012, the dispute arose between the parties
E in 2016, GPL invoked the Bank Guarantee on 07.01.2016 and
the applicant and its Indian Subsidiary-FGI issued notice of
dissatisfaction on 04.02.2016 and 07.02.2016 respectively to GPL
The applicant issued arbitration notice on 05.04.2016 for contract
relating to Package No. 4 and FGI issued four arbitration notices
F dated 07.04.2016 for contracts relating to Packages No. 6 to 9.
GPL 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 would govern the issue, as per
which the power of the Court is confined only to examine the
existence of the arbitration agreement. ll'ara 191 [306-E-Gl
G
l.3 Original Package No.4 Tender Document for GPL
Expansion-2011 consisted of "Bulk Materiul 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
H integration of the same with the existing coal handling systems
MIS. DURO FELGUERA, S. A. v. M/S. GANGAVARAM PORT 287
LIMITED
(Package 4-"Works'J. By mutual consent and agreement of the A
parties, Original Package No.4 TD was split into five different
Packages-New Package No. 4 (awarded to the applicant (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 the applicant and FGI for various Packages. Pursuant to Letters B
of Award, parties have entered into contract agreement on
10.05.2012. There 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. All the five contracts
awarded to the applicant and FGI have independent arbitration c
clauses. 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. [Paras 20-23] [307-A-C; 308-E-G; 310-
A-B]
D
1.4 In the contract agreement, the parties have agreed
that the documents mentioned in clause (2) of the agreement will
have priority. Clauses as to the priority of the documents was
incorporated in all other contract agreements-Package No. 4
awarded to the applicant, Packages No. 6, 7, 8 and 9 awarded to
Indian subsidiary FGI. In the sequence of documents of clause E
(2) of the contract agreement, 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 F
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, G
the parties cannot go back to the. Original Package No.4 nor can
they merge them into one·. It cannot be said 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.
(Para 24] (310-B-C, F-H; 311-A] H
288 SUPREME COURT REPORTS [2017] IO S.C.R.
A 1.5 The foreign company-applicant had executed a
Corporate Guarantee dated 17.03.2012 guaranteeing the due
performance of all the works awarded to the applicant and FGI.
The Corporate Guarantee itself has its own separate and distinct
arbitration clause. In the Corporate Guarantee, the applicant has
undertaken to ensure performance of all the works both by the
B
applicant and also the contracts pertaining to Packages No. 6 to
9 awarded to FGI. The applicant 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, the applicant had
undertaken to compensate for the delay, damages to GPL which
c will be based on the overall contrart price collectively of all the
contracts. [Paras 25, 261 (311-B, E-FI
1.6 As per the terms of Corporate Guarantee, it shall cease
on issuance of the performance certificate under all the contracts.
Of course, the applicant has given the Corporate Guarantee for
D all the five contracts viz., New Package No.4, Packages No. 6 to
9. Corporate Guarantee executed by the applicant dated
17 .03.2012 also recognizes the split up of thl' 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
E
a separate arbitration clause, it cannot be contended that by virtue
of the Corporate Guarantee executed by the applicant, there has
to be a 'composite reference' of 'lnternatio11al Commercial
Arbitration' which would cover all the five Packages. The
Corporate Guarantee by the applicant cannot supersede the five
F split-up contracts and the special conditions of contract thereon.
(Para 28] (312-G-H; 313-A-B]
l. 7 The applicant and FGI have executed a tripartite
Memorandum of Understanding (Mou) on 11.08.2012 which,
according to GPL, covers all the five l'Ontracts namely New
G Package No. 4, Package No. 6, Package No. 7, Package No. 8
and Package No. 9. In the said MoV both the applicant 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 issued and final bid submitted by the
applicant and FGI. [Para 29] [313-B-C]
H
M/S. DURO FELGUERA, S. A. v. M/S. GANGAVARAM PORT 289
LIMITED
l.8 As per Section 7(5) of the Act, even though the contract A
between the parties does not contain a provision for arbitration,
an arbitration clause contained in an independent document will
be imported and engrafted in the contract between the parties,
by reference to such independent document in the contract, if
the reference is such as to make the arbitration clause in such B
document, a part of the contract. Section 7(5) requires a conscious
acceptance of the arbitration 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
document, is incorporated in the contract, is always a question of C
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. [Para 33] [315-D-.E]
l.9 In the MoU, Original Package No.4 Tender Document
is merely referred only to have more clarity on technical and D
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 E
· in its entirety but only to have Clarity in priority of the documents
in execution of the work. Original Package No.4 TD occurs as
Serial No.4 in sequence, after three other documents. There are
a number of contract agreements between the parties - GPL,
petitioner company and FGI. MoU dated 11.08.2012 itself does F
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 N o.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.
[Para 35) [317-G-H; 318-A, C-D) G
1.10 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
H
290 SUPREME COURT REPORTS [2017] lO S.C.R.
A clauses that is New Package No.4 (with foreign company) and
Packages No. 6, 7, 8 and 9 [with Indian subsidiary (FGI)) based
on MoU and C_orporate Guarantee, there cannot be a single
arbitral tribunal for "lllternational Commercia/Arbitratio11". [Para
361 [318-E-FJ
B l.ll The Corporate Guarantee dated 17.03.2012 was
executed by the foreign company undertaking to compensate for
the delay, damages to the GPL. Since the Corporate Guarantee
was by the foreign company which contains separate arbitration
clause, there has to be a separate arbitral tribunal for resolving
C the disputes arising out of the said Corporate Guarantee. [Para
38J (319-B)
1.12 New Package No. 4 TD- F.O.B. Supply of Bulk
Material Handling Equipments USD 26,666,932 has been
awarded to the foreign company-petitioner company. Since it is a
foreign company, in so far as the contract awarded to the petitioner
D company i.e. New Package No.4 and the dispute arising out of
the Corporate Guarantee executed by the foreign company is
concerned, the arbitral tribunal has to be for the international
commercial arbitration. [Para 39) [319-C)
1.13 In the instant case, all five different Packages as well
E 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.[Para 40] (319-G-H; 320-A)
Chloro Contmls India Private ltd. v. Severn Trent Water
F Purification Inc. and Ors. (2013) 1 SCC 641 : (20121
13 SCR 402 - distinguished.
1.14 The petitioner company being a foreign company, for
each of the disputes arising under New Package No.4 and
Corporate Guarantee, International Commercial Arbitration
G Tribunal are to be constituted. The petitioner has nominated
Justice D.R. Deshmukh, Former Judge of Chhattisgarh High
Court as their arbitrator. GPL has nominated Justice M. N. Rao,
Former Chief Justice of Himachal Pradesh High Court. Alongwith
the above two arbitrators Mr. Justice R.M. Lodha, Former Chief
H
MIS. DURO FELGUERA, S. A. v. MIS. GANGAVARAM PORT 291
LIMITED
Justice of India is appointed as the Presiding Arbitrator of the A
International Commercial Arbitral Tribunal. [Para 41] [320-.B-C]
1.15 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 between the parties B
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. [Para 42] [320- C
D-E]
Konkan Railway Corpn. Ltd. and Ors. v. Mehu/
Construction Co. (2000) 7 SCC 201 : [2000] 2 Suppl.
SCR 563; Konkan Railway Corpn. Ltd. & Am:. v. Rani
Construction Pvt. Ltd. (2002) 2 SCC 388 : [2009) 10 D
SCR 373; S.B.P & Co v. Patel Engineering Ltd and
Anr. (2005) 8 SCC 618 : [2005) 4 Suppl. SCR 688;
National Insurance Company Limited v. Boghara
Pol;jab Private Limited (2009) 1 SCC 267 : [2008) 13
SCR 638; Shree Ram Mills Ltd. v. Utility Premises (P) E
Ltd, (2007) 4 SCC 599 : [2007) 4 SCR 279; Arasmeta
Captive Power Company Private Limited and Anr. v.
Lafarge India Private Limited (2013) 15 SCC 414 :
[2013] 17 SCR 496; MR. Engineers and Contractors
Pvt. Ltd. v. Som Datt Builders Ltd. (2009) 7 SCC 696 :
[2009) 10 SCR 373 - referred to. F
Per Kurian, J. (Supplementing):
1.1 The submission that the Memorandum of Understanding
(MoU) has subsumed all the separate agreements and therefore
and thereafter there can only be one agreement and, if so, only G
one Arbitral Tribunal for all the disputes emanating from the five
different agreements and the Corporate Guarantee, is
misconceived. The whole purpose of the MoU is evident from
its text. 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
H
292 SUPREME COURT REPORTS [2017] 10 S.C.R.
A reference to Original Package No. 4 Tender Document is only
for better clarity on technical and execution related matters. 7.
The said finding is wholly in line with Section 7(5) of the 1996
Act, which 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
B
the intention to incorporate the arbitration clause. The detailed
analysis of Section 7(5) in M.R. Engineers case fortifies the
conclusion that the MoU does not incorporate an arbitration
clause. [Para 5, 6, 7]
1.2 The submission that it is expedient that a single Arbitral
C Tribunal is constituted, 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 from them
only in accordance with law. [Para 9J
1.3 The scope of the power under Section 11 (6) of the 1996
D Act was considerably wide in view of the decisions in SBP and
Co. and Boghara Poly/ab cases. 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
E is essentially to minimize the Court's intervention at the stage of
appointing the arbitrator and this intention as incorporated in
s. 11 (6A) ought to be respected. [Para 13]
1.4 Jn the instant case, there are six arbitrable agreements
(five agreements for works and one Corporate Guarantee) and
F 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-petitioner and four for the
domestic. [Para 14]
G
M.R. Engineers and Contractors Pvt. Ltd v. Som Datt
Builders Ltd. (2009) 7 SCC 696 : [2009) 10 SCR 373;
S.B.P & Co v. Patel Engineering Ltd and Anr. (2005) 8
SCC 618 : [20051 4 Suppl. SCR 688; Konkan Railway
Corpn. Ltd. and Ors. v. Mehul Construction Co. (2000)
H 7 SCC 201 : [2000) 2 Suppl. SCR 563; Konkan Railway
MIS. DURO FELGUERA, S. A. v. MIS. GANGAVARAM PORT 293
LIMITED
Corpn. Ltd. & Anr. v. Rani Construction Pvt. Ltd (2002) A
2 SCC 388 : [2009) 10 SCR 373; National Insurance
Company Limited v. Boghara Polyfab Private Limited
(2009) 1 SCC 267 : (2008) 13 SCR 638 - referred to.
Case Law Reference
In the .Judgment of Banumathi2 J : B
[2000) 2 Suppl. SCR 563 refer.red to Para 14
[2009) 10 SCR 373 referred to Para 14
[2005] 4 Suppl. SCR 688 referred to Para 15
[2008) 13 SCR 638 referred to Para 16
c
[2007) 4 SCR 279 referred to Para 16
(2013] 17 SCR 496 referred to Para 16
[2012] 13 SCR 402 distinguished Para 40
D
[2009) 10 SCR 373 referred to Para 34
In the Judgment of Kurian 2 J.:
[2009] 10 SCR373 referred to Para 7
E
[2005) 4 Suppl. SCR 688 referred to Para 11
[2000] 2 Suppl. SCR 563 referred to Para 11
[2009) 10 SCR 373 referred to Para 11
[2008] 13 SCR 638 referred to Para 12 F
CIVIL ORIGINAL JURISDICTION : Arbitration Petition No.
30 of2016
WITH
Arbitration Petition No. 31 of2016
G
T. C. (C) No.25 of2017
T. C. (C) No.26 of2017
T. C. (C) No.27 of2017
T. C. (C) No.28 of2017 H
294 SUPREME COURT REPORTS [2017] 10 S.C.R.
A Mukul Rohatgi, Raju Ramachandran. Sunil Gupta, Dr. Abhishek
Manu Singhvi, Sr. Advs., Ms. Anitha Shenoy, Ms. Rashmi Nandakumar,
Ms. Srishti Agnihotri, Ms.Hamsini Shankar, lshwar Mohanty. Tarun
Dua, Ms.Geetanjali Sethi, Faisal Sherwani,A. Paul, Ms.Sumati Sharma.
Advs. for the appearing parties.
B The Judgment of the Court was delivered by
BANUMATHI, J. Arbitration Petition No.30 of 2016 has been
filed by Mis Duro Felguera, S.A. under Section I l(6)(a) read with
Sectiion I! ( l 2)(a) of the Arbitration and Conciliation Act, l 996 (for short,
'the Act·) to appoint the nominee arbitrator on behalf of the respondent
c (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 l 0.05.2012. T.C. No.25 of 2017, T.C. No.26of2017, T.C. No.27
of2017 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
D pertaining to the contract 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
E 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 pa1ties and issues in both the arbitration petitions and the
transfeJTed cases are one and the same, both arbitration petitions and
F the transferred cases shall stand disposed of by this common order. For
convenience, parties arc referred to as per their array in Arbitration
Petition No.30of2016.
3. BriefFacts: The Respondent-Gangavaram Port Limited (GPL)
developed a green-field, ultra-modern, all-weather sea-port near
G 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 Pm1 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
H
MIS. DURO FELGUERA, S. A. v. M/S. GANGAVARAM PORT 295
LIMITED [BANUMATHI, J.]
associated works and integration of the same with the existing coal A
handling systems etc. For this purpose, on 08.08.2011, Gangavaram Port
Limited invited a tender/bid. In response to the 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-Mis. Felguera Gruas India Private Limited (FGI) submitted a B
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 c
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-Mis Duro Felguera), Package No. 6-
design, manufacture, supply, installation, erection, testing, commissioning
of Bulk Material Handling Equipments and all other activities related D
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 E
Letters of Award (dated 17.03.2012) for five different Packages were
issued to Mis Duro Felguera, S.A. and the Indian Subsidiary-FGI forthe
above said work respectively.
5. Five different contracts were entered into on 10.05.2012 for
five split-up Packages with different works viz. namely New Package F
No. 4 with foreign company-Mis Duro Felguera and Packages No. 6, 7,
8 and 9 with FGI. Each of the Packages has special conditions of contract
as weU 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 G
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 FGihave executed a tripartite Memorandum
of Understanding (MoU) with Mis Gangavaram Port Limited (GPL) on H
296 SUPREME COURT REPORTS [2017] 10 S.C.R.
A 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
ofGPL 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)
B
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 Mis. Gangavaram Port Limited is that the petitioner-
M/s Duro Felguera, S.A. and its Indian Subsidiary-FGI failed to perform
c their obligations, including their obligation to attend and rectify faulty
works and complete the pending works etc. Further grievance ofGPL
is that though the works were scheduled to be completed at the latest by
16.03.2014, the petitioner-Mis Duro Fclgucra, S.A. and its Indian
Subsidiary (FGI) caused inordinate delay in execution of the work and,
D therefore, GPL was constrained to invoke the Bank Guarantee on
07.01.2016 given by petitioner-Mis Duro Felguera. GPL had also issued
Notices of Termination dated 31.01.2016 to the Foreign Company-Mis
Duro Felguera and its Indian Subsidiary(FGI). Mis Duro Felguera, S.A.
and its Indian Subsidiary (FGI) issued notice of dissatisfaction on
04.02.2016 and 07.02.2016 to GPL. Subsequently Mis. Duro Felguera
E 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 Mis. Duro Felguera and FG I have
separately nominated Mr. Justice D.R. Deshmukh (Former Judge,
Chhattisgarh High Court) as their nominee arbitrator for each of the five
F contracts.
8. GPL issued a comprehensive arbitration notice on l 3.04.2016
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.
G 4 Tender Document". Contention ofGPL is that "Original Package No.
4 (TD) and the Corporate Guarantee by Mis. 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, Package No. 8 and Package No.
9 as well as the Corporate Guarantee. Further case ofGPL is that five
individual arbitration notices issued by Mis. Duro Felguera and FGI are
H
MIS. DURO FELGUERA, S. A. v. MIS. GANGAVARAM PORT 297
LIMITED [BANUMATHI, J.]
untenable and since Duro Felguera-the foreign company has guaranteed A
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. RajuRamachandran, learned Senior B
Counsel for Mis 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 arc separate arbitrations for each of the
packages, and separate arbitration for New Package No. 4 and the c
Corporate Guaritntee 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 pa1iics, huge wastage of time, D
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 contents of the Letters of Award and the Contracts. It was,
therefore, submitted that the arbitration clause covered under sub-clause E
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 F
and collectively covered the Corporate Guarantee executed by Duro
Fclguera 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 G
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. H
298 SUPREME COURT REPORTS [2017] I0 S.C.R.
A JO. 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 co~ditions as
well as general conditions of contract. It was further submitted that the
B
Corporate Guarantee dated 17.03.2012 executed by Duro Felgucra
g1,1aranteeing 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.
c 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
D the five new split-up Packages followed by five different Letters of
Award and five difforent 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
E far as New Package l'-io.4 and the issues J'ertaining 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.
II. Reiterating the above submissions, Mr. Singhvi, the learned
F 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 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
G · 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,
H the aggrieved party would have to invoke the respective arbitration clauses
'
MIS. DURO FELGUERA, S. A. v. M/S. GANGAVARAM PORT 299
LIMITED [BANUMATHI, J.]
in the respective contracts in question and cannot invoke the MoU dated A
11.08.2012. It was further submitted that the Corporate Guarantee dated
17 .03 .2012 was executed by Duro Felguera under which it had
gtiaranteed 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
B
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 pat1ies 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' C
by invoking MoU.
12. Considering the facts and circumstances and rival contentions
of the pat1ies, the following points arise for determination:
(1) Whether Gangavaram Port Limited (GPL) is right in
contending that Memorandum of Understanding (MoU) D
dated 11.08.2012 and Original Package No. 4 Tender
Document and Corporate Guarantee dated I 7 .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 E
for "International ·Commercial Arbitration" covering all
the five different Packages and also the Corporate
-. Guarantee executed by Duro Fclguera?
(2) Whether there have to be 'mult1]J/e arbitral tribunals' for
each of the five different Packages of Work awarded to F
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? G
13. The Arbitration and Conciliation (Amendment) Act, 2015
(w.e.f. 23.10.2015) has brought in substantial changes in the provisions
of the Arbitration and Conciliation Act, 1996. After the Amendment Act
3 of2016, as per the amended provision of sub-section (6A) of Section 11,
H
300 SUPREME COURT REPORTS [2017] IO S.C.R.
A 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.
B Position prior to Amendment Act 3 of 2016
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
c 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 20 l, it was held that the powers
ofthe ChiefJustice 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.
D 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,
E (2005) 8 sec 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 ofindia. The Court further held that in deciding
the appointment of an arbitrator, the Chit:f Justice could first by way of
F 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 is not
barred by limitation".
16. The judgment in SBP and Co. (supra) was further clarified
G in National /11s11rance Company Limited v. Boghara Poly/ab Private
Limited, (2009) l 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
H
MIS. DURO FELGUERA, S. A. v. MIS. GANGAVARAM PORT 301
LJMITED [BANUMATHI, J.]
SBP & Co. (2005) 8 SCC 618. This Court identified and A
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 B
choose to decide; and (iii) issues which should be left to
the Arbitral Tribunal to decide."
The judgments in Shree Ra111 Mills Ltd. v. Utility Premises (P) Ltd,
(2007) 4 SCC 599 and Aras111eta Captive Power Co111pany Private
Limited and Another v. Lafarge India Private Limited, (2013) 15
sec 414, are on the same line pertaining to the issues which have to be c
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 II (6) of the Act "the Chief.Justice D
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
persoi1 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) ofScction 11 provides that the order passed E
under Section I I (6) shall not be appealable and thus finality is attached
to the order passed under this Section. The amended Section 11 reads
as under:-
"11. Appointment of arbitrators.- (I) A person of any
nationality may be an arbitrator, unless otherwise agreed by the F
paiiies.
(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
G
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-
H
302 SUPREME COURT REPORTS (2017] 10 S.C.R.
A (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,
B 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 suclt 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
c 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 *[tlte Supreme Court or, as
the cme may be, the High Court or any person or institution
designated by such Court}.
D (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
E
(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 tlte case may
be, the High Court or any person or institution designated
F by such Court] to take the necessary measure, unless the
agreement on the appointment procedme 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-
G 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
H Supreme Court or, as the case may be, the High Court, for
M/S. DURO FELGUERA, S. A. v. M/S. GANGAVARAM PORT 303
LIMITED [BANUMATHI, J.]
the purposes of this section .~/tall not be regarded as a A
delegation of judicial power by the Supreme Court or tlte
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, tlte High Court or the person or i11Stitution B
desig11ated by such Court is final and no appeal including
Letters Patent Appeal shall lie ag1dnst such decision].
*[(8) The Supreme Court or, as the case may be, the High
Court or the perso11 or i11stitution designated by such Court,
before appointing an arbitrator, shall seek a disclosure in c
writing from the prospective arbitrator i11 terms ofsub-sectio11 _
(1) of sectio11 12, and have due regard to- -
(a) any qualifications required of the arbitrator by the
agreeme11t of the parties; a11d
(b) the co11te11ts ofthe disclosure and other co11Siderations D
as are likely to secure the appointment of a11
independe11t and impartial arbitrator.]
(9) In the case of appointment of sole or thii:_d arbitrator in an
international commercial arbitration, *[the Supreme Court or
the person or institution designated by that Court} may appoint - E
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- F
section (4) or sub-section (5) or sub-section (6), to it.]
( 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 G
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 refere11ce to the H
304 SUPREME COURT REPORTS [2017] JO S.C.R.
A "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) a11d sub-section (10) arise in any other arbitration,
B the reference to "the Supreme Court or, as the l'a.se may be,
the Higlt 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(/) of section 2 is situate, a11d where the High Court
itself is tlte Court referred to i11 tltat clause, to tltat Higlt
c Court.]
*{(13) An application made under tltis section for
appoint111ent of an arbitrator or arbitrators sltal/ be disposed
of by the Supreme Court or the High Court or lite person or
institution designated by such Court, as the case may be, as
D expeditiously as possible and an endeavour shall be made
to dispose of the matter within a period of sixty days fro111
the date of service of notice on the opposite party.
(14) For the purpose of determination of the fees of the
arbitral tribu11al and the ma1111er ofits payment to the arbitral
E 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
F commercial arbitration and in arbitrations (other than
international commercial arbitration) in case where parties
ltave agreed for determination of fees as per tlte rules of an
arbitra/ institution.]"
*Substituted by Act 3 of 2016 (w.e.f. 23.10.2015)
G
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 Co11ciliatio11 by Dr. P. C.
Markanda", which reads as under:-
"The changes made by the Amending Act are as follows:
H
M/S. DURO FELGUERA, S. A. v. M/S. GANGAVARAM PORT 305
LIMITED [BANUMATHI, J.]
1. The words 'Chief Justice or any person or institution designated A
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.
B
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 C
Engineering Ltd., (2005) 8 SCC 618; and National Insurance·
Co. Ltd. V. Boghara Poly/ab 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 D
(6-B) that designation ofany 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 E
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 F
and impartiality of the arbitrator. Before appointing any arbitrator,
a disclosure in writing has to be obtained in terms of section
12( l) of the Act. This is to ensure that the appointed arbitrator
shall be independent and impaitial and also harmonizes the
provisions of sections 11and12 of the Act. G.
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 H
306 SUPREME COURT REPORTS [2017] l 0 S.C.R.
A 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
B 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
c 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
D 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
E 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 Mis. Dura Felguera and its Indian Subsidiary-FGI issued notice of
dissatisfaction on 04.02.2016 and 07.02.2016 respectively to Gangavaram
F Port Limited. Mis. Dura 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
G which the power of the Court is confined only to examine the existence
of the arbitration agreement.
Whether there has to be a Single Arbitral Tribunal for
'International Commercial Arbitration' or 'Multiple Arhitral
Tribunals'?
H
M/S. DURO FELGUERA, S. A. v. MIS. GANGAVA'RAM PORT 307
LIMITED [BANUMATHI, J.]
20. Original Package No.4 Tender Document for Gangavaram A
Port Limited Expansion-2011 consisted of "Bulk Material Handling
Systems including Engineering, Design, Procurement of Materials,
Manufacturing, Supply erection, testing and coriunissioning of bulk
material handling systems including all other 0:5sociated works and
integration of the same with the existing coal handling systems B
(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, ~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 C
into contract agreement on 10.05.2012. These split-up contracts have
Volume I-Conditions of Contract; Volume II-Employer's Requirement,.
Scope ofWork, Specifications and Drawings; and Volume Ill-Schedule
of Prices. Five different Packages, the Letters of Award and the contract
awarded to Duro Fclguera and FGI and the Scope of Work and the
D
value thereof, read as under:
Package & L.0.A. Date of Contract & Value/Price
Parties (2) the Scope of Work (4)
(ll 13)
No.4 17.o3.2012 10.5.12 USO 26,666,932
GPL-DF f.O.B. SUPPLY
(Spain) Of BULK E
MATERIAL
HANDLING
EQUIPMENTS
No.6 17.03.2012 10.5.12 Rs.208 ,66 ,53 ,65 7
GPL-FGI Design,
(India) manufacture,
supply,
installation, F
erection, testing,
commissioning of
Bulk Material
Handling
Equipments and all
other activities
related therewith G
No.7 17 .03.2012 10.5 .12 Rs.59,14,65,706
GPL-FGI Civil works and all
(India) other activities
related therewith
No.8 17.03.2012 10.5.12 Rs.9,94,38,635
GPL-FGI International
(India) Transportation of
Bulk Material H
308 SUPREME COURT REPORTS [2017] IO S.C.R.
A
Handling
Equipments and
Parts through sea
including
insurance and all
related activities
B No.9 17.03.2012 10.5.12 Rs.29,52,85,558
GPL-FGI Installations,
(India) testing, Some works
commission of deleted & price
ship Unloaders reduced to
and other Rs. 12,63,03,095
c activities.
25.7.14
Variation of
Contract
THECORPORATEGUARANTEECONTRACf
GPL-DF 17.03.2012 ..... .... Arbitration
D (Spain) Corporate Oanse-Cl.8
Guarantee
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
E
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 sec arc five
separate Letters of Award; five separate Contracts; separate subject
matters; separate and distinct work; each containing separate arbitration
F clause signed by the respective parties to the contract.
22. All the above five contracts awarded to Duro Fclguera and
FGI have independent arbitration clauses. Mr. Sunil Gupta and Mr.
A.M. Singh vi, learned Senior Counsel have taken us through the contract
agreements in New Package No. 4 awarded to Mis Duro Felgucra and
G 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
"Supp~v 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
H
MIS. DURO FELGUERA, S. A. v. MIS. GANGAVARAM PORT 309
LIMITED [BANUMATHI, J.)
commissioning of Bulk Material Handling Equipments and all other A
activities related therewJth ". 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 B
which was entered into between Mis. Duro Fclgucra 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 c
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 D
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 E
arbitration clause. 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
F
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 mbitrators
one by each party and a presiding arbitrator to be appointed by
the said arbitrators. Any such arbitration proceeding shall be G
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."
H
310 SUPREME COURT REPORTS [2017] IO S.C.R.
A 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.
8
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:-
C "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;
D
(c) Special Conditions of Contract (Conditions of Particular
Applications)
(d) General Conditions of Contract;
(e) the Employer's Requirements, Scope ofWork, Specifications
E and Drawings;
(t) the Schedule of Prices;
(g) the Tender to the extent annexed herewith."
Similar clauses as to the priority of the documents was incorporated in
F all other contract agreements-Packages No. 6, 7, 8 and 9 awarded to
Indian subsidiary 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.
G 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
H Original Package No. 4 was split into five different contracts, the parties
MIS. DURO FELGUERA, S. A. v. MIS. GANGAVARAM PORT 311
LIMITED [BANUMATHI, J.]
cannot go back to the Original Package No.4 nor can they merge them A
into one. We do not find merit in the submissions ofGPL 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 B
the works awarded to Duro Fclguera andFGI. 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 c
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 D
and binding on the Corpoi:ate 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." E
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, F
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 G
obligations and duties as per package 6 to package 9,
failing which the corpora_te 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
H
312 SUPREME COURT REPORTS [2017] 10 S.C.R.
A 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
B
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
c 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
D and any other contract that may be entered into by and
between the employer and the corporate company or
FGI .......... "
27. Content10n of GPL is that as per the Corporate Guarantee,
the Spanish Company has inter alia undertaken to compensate GPL for
E delay damages, based on the overall contract price collectively of all the
Contracts awarded to both Duro Fclguera 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 awarded to the Indian
F Subsidiary and therefore as per terms of Corporate Guarantee executed
by Duro Fclguera, 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,
G 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
H established in one of the five contracts. Since the Corporate Guarantee
MIS. DURO FELGUERA, S. A. v. M/S. GANGAVARAM PORT 313
LIMITED [BANUMATHI, J.]
by itself has a separate arbitration clause, it cannot be contended that by A
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 hy Duro Felguera cannot supersede the five split-up contracts
and the special conditions of contract thereon.
B
29. Duro Felguera and FGI have executed a tripartite
Memorandum ofUnderstanding (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 c
the Original Package No.4 Tender Document 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 •h August 2012 by and D
between:
Mis Gangavaram Port Limited.....
And
Mis Duro Felguera Plantas lndusfries, S.A ....... ., E
Mis 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 tQ as the Parties. All the captive
F
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 G
loading system, conveyors, transfer towers, electrical and
control works, civil works, etc1 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. H
314 SUPREME COURT REPORTS [2017] lOS.C.R.
A 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.I to 4 (in the descending
B order) issued by the Employer to the Original Package
4 Tender Document.
4. The Original Package 4 Tender Document issued by
the Employer.
c 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
D (dated 11.08.2012) collectively covers all the five Packages and MoU
shall prevail over the arbitration clauses contained in fi vc 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 ofMoU. In support of their contention, learned Senior
E
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.
31. Per contra, the learned Senior Counsel for Duro Felguera and
FGI submitted that merely because MoU refers to Original Package
F
No.4 Tender Document, such mere reference cannot lead to an inference
of arbitration clause being incorpo,rated as it only depends upon the
intention of the Pa11ies. 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
G 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 obligafions 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.
H
MIS. DURO FELGUERA, S. A. v. MIS. GANGAVARAM PORT 315
LIMITED [BANUMATHI, J.]
32. In light of the above contentions, the point falling for A
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 because 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) B
Act, 2015 reads as under:-
"7. Arbitration agreeme11t.-(l) .....
(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 C
arbitration clause part of the contract."
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 an independent document will be imported and engrafted in
the contract between the parties, by reference to such independent D
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 arbitration 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 E
question whether or not the arbitration clause contained in another'
document, is incorporated in the contract, is always a question of
construction of document in reference to intention of the pmiies. The
terms of a contract may have to be ascertained by reference to more
than one document.
F
34. In M.R. Engineers tind 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, G
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 parties docs not contain a provision for
H
316 SUPREME COURT REPORTS [2017] JO S.C.R.
A arbitration, an arbitration clause contained in an independent
document will be imported and engrafted in the contract between
the pa11ies, 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.
B
22. A general reference to another contract will riot 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
c 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
D adopt the same.
24. The scope and intent of Section 7( 5) of the Act may therefore
be summarised thus:
E (i) An arbitration clause in another document, would get
incorporated into a contract by reference, if the following
conditions arc fulfilled:
(1) the contract should contain a clear reference to the
documents containing arbitration clause,
F
(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
G contract and s~ould 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
H
M/S. DURO FELGUERA, S. A. v. M/S. GANGAVARAM PORT 317
LIMITED [BANUMATHI, J.]
the referred document into the contract between the parties. A
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 B
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.
c
(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
ofa trade association or architects association) will bind them
or apply to the contract, such standard form of terms and D
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. E
( v) Where the contract between the paiiie's 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 F
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 G
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
H
318 SUPREME COURT REPORTS [2017) IO S.C.R.
A incorporated in its entirety but only to have clarity in 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 I to the Letter of Award issued j(Jr Package
B No. 4 Contract: and (ii) Annexure fl! lo the Letter of Award
issued for Packages No. 4, 6, 7, 8 and Y contracts; and
(iii) Clarifications!Addendwns No. 1 to 4 (in the descending
order) issued hy the Employer to the Original Package No.
4 Tender Document. "
c 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
D No.4 TD is incorporated in the MoU.
36. The submission of GPL is that since referene..: to Original
Package No.4 TD is made in MoU, the arbitration dause is incorporated
in th..: MoU and ther..: has to be a 'composite reference· for settling the
disputes under different contracts by constitution of single arbitral tribunal
E 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
F Package No.4 (with foreign company Duro Felguera) and Packages
No. 6, 7, 8 and 9 [with Indian subsidiary (FGI)] based on MoU and
Corporate Guarantee, there cannot be a single arbitral tribuna I for
''international Commercial Arbitration".
37. It was submitted that if the reque~t (1f GPL is accepted and all
G Packages arc considered under the sam.: rdcr..:ncc, they shall be treated
as international commercial arbitrations, then FGI may lose the opportunity
of challenging the award under Section 34(2A) of th..: 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-FG!,
though Section 34(2A) is not applicable to international commercial
H
MIS. DURO FELGUERA, S. A. v. M/S.•GANGAVARAM PORT 319
LIMITED [BANUMATHI, J.]
arbitration. Such a concession is against the provisions and specific A
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 B
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 Equipments USD 26,666,932 has been awarded to the foreign
company-Duro Felguera. Since Duro Felguera is a foreign company, in c
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 D
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., E
ratio of Chloro Co11trols may not be applicable to the case in hand. In
Cltloro 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 F
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 parties/non-signatories had to fall in line with the
principal agreement. In such factual background, it was held that all G
agreements pertaining to the entire disputes are to be settled by a
''.composite reference". The case in band 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 H
320 SUPREME COURT REPORTS [20 l 7J JO S.C.R.
A 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 Tribunai arc to be constituted. Mi
B s. Duro Felguera has nominated Mr. Justice D.R. Deshmukh (Former
Judge of Chhattisgarh High Court) as their arbitrator. Gangavaram
Port Limited (GPL) has nominah:d Mr. Justice M.N. Rao (Former
Chief Justice of Himachal Pradesh High Court). Alongwith the above
two arbitrators Mr. Justice R.M. Lodha, Former ChiefJustice oflndia is
appointed as the Presiding Arbitrator of the International Commercial
c Arbitral Tribunal.
42. Package No.6 (Rs.208,66.53.657/-); Package No.7
(Rs.59,14,65,706/-); Package No.8 (Rs.9.94.38.6351-); and Package No.9
(Rs.29,52,85, 5581-) have been awarded to the Indian company-FOi.
Since the issues arising between the parties are inter-related. the same
D arbitral tribunal, Justice R.M. Lodha, Former Chief Justice oflndia,
Justice D.R. Deshmukh, Former Judge of Chhattisgarh High
·Court and Justice M. N. Rao, Former Chit:f Justice of Himachal
Pradesh High Court, shall separately constitl<IL Domestic Arbitral
Tribunals for resolving each of the disputes pertaining to Packages No.6,
E 7, 8 and 9.
43. Arbitration Petition No. 30 of 2016 filed by Duro Felguera
shall stand allowed and Arbitration Petition No.31 of2016 filed by GPL
shall stand disposed of in the same line. Transfer Case No. 25/2017,
Transfer Case No. 26/2017, Transfer Case No. 2712017 and Transfer
F Case No. 28/2017 filed by FGI shall also stand disposed of in the above
lines. Parties shall bear their respective costs.
KURIAN, J.: I. 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 thl.' j •c1dgment.
G
2. What is the effect of the change introduced by the Arbitration
and Conciliation (Amendment) Act, 2015 (hereinafter reforred to as .. the
2015 Amendment") with particular reference to Section 11(6) and the
newly added Section I 1(6A) of the Arbitration and Conciliation Act.
1996 (hereinafter referred to as .. the 1996 Act") is the crucial question
H arising for consideration in this case.
M/S. DURO FELGUERA, S. A. v. M/S. GANGAVARAM PORT 321
LIMITED [KURIAN, J.]
3. Section 11(6A) added by the 2015 Amendment, reads as A
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 B
examination of the existence of an arbitration agreement."
(Emphasis Supplied)
From a reading of Section l 1(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 C
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 D
are five distinct contracts pertaining to five different works. No doubt c
that all the works put together are for the expansion of facilities at
Gangavaram Port. However, the pa1iies took a 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, E
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,
F
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 G
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
H
322 SUPREME COURT REPORTS [2017] IO S.C.R.
A 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 Ill to the Letter of Award issued for Package 4, 6,
B 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.
C 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)
D
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
E
Act. Section 7 which deals with arbitration agreement reads as follows:-
"7. Arbitration agreement.-( I) 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 respeti of a defined legal relationship,
F whether contractual or not.
(2) An arbitration agreement may be in the form of an arbit1:ation
clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
G (4) An arbitration agreement is in writing if it is contained in -
(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
H
M/S. DURO FELGUERA, S. A. v. M/S. GANGAVARAM PORT 323
LIMITED [KURIAN, J.]
(c) an exchange of statements of claim and defence in which A
the existence of the agreement is alleged by one party and not
denied by the other.
(filhe 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 B
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 c
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 D
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 E
legislative intent was to import an arbitration clause from another
document. merely on reference to such document in the 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: F
"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 G
19. Sub-section (5) of Section 7 merely reiterates these well-
scttled 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
1
(2009) 7 sec 696 H
324 SUPREME COURT REPORTS (2017] I0 S.C.R.
A 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
B 22. A general reference to another contract will not be sufficient
to incomorate 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
c 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.
D xxx
xxx xxx
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
E incorporated into a contract by reference, if the following
conditions arc 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
F 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.
G (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 incomorated into
H
MIS. DURO FELGUERA, S. A. v. MIS. GANGAVARAM PORT 325
LIMITED [KURIAN, J.]
the contract (where such reference is made), only by a specific A
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 B
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.
c
(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, D
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 E
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." F
(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.
G
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 arc free to
agree to anything for their convenience but once suc'li tcnns arc reduced
to an agreement, they can rcsilc from them only in accordance with law.
H
326 SUPREME COURT REPORTS [20 I 7] IO S.C.R.
A 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 l 1(6A).
11. This Court in S.B.P & Co v. Patel Engineering Ltd and
B 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 I 1 is a judicial power and not a mere
administrative function. The conclusion in tne decision as summarized
by Balasubramanyan, J. speaking for the majority reads as follows:
c
"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 oflndia under Section 11 (6) of the Act is not
an administrative power. It is a judicial power.
D (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.
(iii) In case of designation of a Judge of the High Court or of the
E 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 ChiefJustice or the designated Judge will have the right
to decide the preliminmy aspects as indicated in the earlier part
of this judgment. These will be his own jurisdiction to entertain
F
the request. the existence of a valid arbitration agreement, the
existence or otherwise of a Ii ve claim, the existence of the
condition for the exercise of his power and on the qualifications
of the arbitrator or arbitrators. The ChiefJustice or the designated
Judge would be entitled to seek the opinion of an institution in the
G matter ofnominating an arbitrator qualified in terms of Section
I 1(8) of the Act if the need arises but the order appointing the
arbitrator could only be that of the ChiefJustice or the designated
Judge.
'(2005J s sec 618
' (2000J 1 sec 201
H ·1 (2002) 2 sec 388
M/S. DURO FELGUERA, S. A. v. M/S. GANGAVARAM PORT 327
LIMITED [KURIAN, J.]
(v) Designation of a District Judge as the authority under Section A
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 B
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 9f the High
Court or by the designated Judge of that Court is a judicial order, c
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 entertaining an application under Section 11 (6) of the Act. D
(ix) In a case where anArbitral 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 E
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 oi· Arbitral Tribunals thus far made, are to be treated
as valid, all objections being left to be decided under Section 16
F
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
G
appointment orders thus far made by them will be treated as
valid;, but applications ifany pending before them as on this date
will stand transferred, to be dealt with by the ChiefJustice of the
High Court concerned or a Judge of that Court designated by
the Chief Justice.
H
328 SUPREME COURT REPORTS [2017] IOS.C.R.
A (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 Limited5 To quote:
B
"22. Where the intervention of the court is sought for appointment
ofanArbitral Tribunal under Section 11, the duty of the Chief
Justice or his designate is defined in SBP & Co. This Cou11
identified and segregated the preliminary issues that may arise
for consideration in an application under Section 11 of the Act
c 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
D designate will have to decide are:
(a) Whether the party making the application has approached
the appropriate High Court.
(h) Whether there is an arbitration agreement and whether
the party who has applied under Section l l of the Act, is a
E
party to such an agreement.
22.2. The issues (second categmy) which the Chief Justice/his
designate may choose to decide (or leave them to the decision
of the Arbitral Tribunal) are:
F (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.
G 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 the arbitration clause (as
for example, a matter which is reserved for final decision of a
H '(2009J 1 sec 261
MIS. DURO FELGUERA, S. A. v. MIS. GANGAVARAM PORT 329
- LIMITED [KURIAN, J.]
departmental authority and excepted or excluded from A
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 B
brought about in 201 S. After the amendment, all that the Courts need to
see is whether a~ 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. c
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 agreemenL While the
arbitrators can be the same, there has to be six Tribunals - two for D
international commercial arbitration involving the Spanish Company-
M/s Duro Felguera, S.A. and four for the domestic.
Nidhi Jain Matters disposed ot:
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