MAHANADI COALFIELDS LTD & ANR versus M/S IVRCL AMR JOINT VENTURE on 25 July 2022

SUPREME COURT REPORTS

[2022] 7 S.C.R.

AMAHANADI COALFIELDS LTD & ANR

v.

M/s IVRCL AMR JOINT VENTURE

(Civil Appeal No. 4914 of 2022)

BJULY 25, 2022

[DR. DHANANJAYA Y CHANDRACHUD ANDA S BOPANNA, JJ.]

Arbitration and Conciliation Act, 1996 – ss. 2(b), 7 and 11(6)– Arbitration agreement – Attributes – Contract Agreement enteredCbetween appellant (a subsidiary of CIL) and respondent on 30January 2012 – Dispute between the parties – Invocation ofjurisdiction u/s.11(6) by respondent before the High Court forappointment of arbitrator – Challenged, on ground that there wasno arbitration agreement between the parties within meaning ofDss.2(b) and 7 – Held: It was wrong on the part of the High Court toconstrue Clause 15 of the Contract Agreement dated 30 January2012 as an arbitration agreement – Clause 15 of the ContractAgreement was titled “Settlement of Disputes/Arbitration”, however,substantive part of the provision makes it abundantly clear thatthere was no arbitration agreement between the parties agreeing toErefer either present or future disputes to arbitration – Clause 15 ofthe Contract Agreement was a dispute resolution mechanism at thecompany level, rather than an arbitration agreement and did notcomport with the essential attributes of an arbitration agreement interms of s.7 as well as the principles laid down under Jagdish ChanderFcase – Policy document / communication dated 7 April 2017 issuedby CIL also cannot be construed as an arbitration agreementbetween appellants and respondent in terms of s.7 of the Act so asto compel the appellants to appoint an arbitrator, since it merelyindicates a desire on behalf of CIL to have disputes related to workcontracts settled by arbitration and requires both the parties toGarrive at a further agreement to proceed to arbitration when thedispute arises – Invocation of jurisdiction of the High Court u/s.11(6) of the Act was accordingly not valid and there being noarbitration agreement between the appellants and the respondent,no reference to arbitration could have been made – Respondent,H

however, at liberty to seek recourse to remedy available in law topursue redressal of its grievances.

Allowing the appeal, the Court

HELD:1. Section 2(b) of the Arbitration and ConciliationAct, 1996 defines an arbitration agreement to mean an agreementas referred to in Section 7. In terms of Section 7, an arbitrationagreement is an agreement by the parties to submit to arbitrationall or certain disputes which have arisen or which may arisebetween them in respect of a defined legal relationship, whethercontractual or not. Sub-section (2) of Section 7 stipulates that anarbitration agreement may be in the form of an arbitration clausein a contract or in the form of a separate agreement. In terms ofsub-section (3) of Section 7, the arbitration agreement has to bein writing. [Para 8][527-G-H; 528-A]

2. In the present case, clause 15 of the Contract Agreementis titled “Settlement of Disputes/Arbitration”. However, thesubstantive part of the provision makes it abundantly clear thatthere is no arbitration agreement between the parties agreeingto refer either present or future disputes to arbitration. Clause15 of the Contract Agreement is a dispute resolution mechanismat the company level, rather than an arbitration agreement.Consequently, in case of a dispute, the respondent was supposedto write to the Engineer-in-charge for resolving the dispute.Clause 15 does not comport with the essential attributes of anarbitration agreement in terms of section 7 of the 1996 Act aswell as the principles laid down under Jagdish Chander case. Aplain reading of the clause leaves no manner of doubt about itsimport. There is no written agreement to refer either present orfuture disputes to arbitration. Neither does the substantive partof the clause refer to arbitration as the mode of settlement, nordoes it provide for a reference of disputes between the parties toarbitration. It does not disclose any intention of either party tomake the Engineer-in-Charge, or any other person for that matter,an arbitrator in respect of disputes that may arise between theparties. Further, the said clause does not make the decision ofthe Engineer-in-Charge, or any other arbitrator, final or bindingon the parties. Therefore, it was wrong on the part of the High A

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[2022] 7 S.C.R.

ACourt to construe clause 15 of the Contract Agreement as anarbitration agreement. [Paras 10, 13][530-E; 531-D-G]

Jagdish Chander v. Ramesh Chander (2007) 5 SCC719 : [2007] 5 SCR 720 – relied on

3. On 7[th] April, 2017, CIL issued a policy document to itsBGeneral Managers for the settlement of disputes or differencesarising out of works and services contracts through arbitration.The communication dated 7 April 2017 however merely indicatesa desire on behalf of CIL to have disputes related to work contractssettled by arbitration. It requires both the parties to arrive at aCfurther agreement to proceed to arbitration when the disputearises. Therefore, in view of the principles laid down in JagdishChander case, following a line of precedent, clause 5 in theaforesaid communication cannot be construed as an arbitrationagreement between the appellants and the respondent in termsof section 7 of the 1996 Act so as to compel the appellants toDappoint an arbitrator. [Paras 14 and 17][531-H; 532-A; 533-B-C]

4. The invocation of the jurisdiction of the High Court underSection 11(6) of the 1996 Act was not valid and there being noarbitration agreement between the appellants and the respondent,no reference to arbitration could have been made. The respondentEwould, however, be at liberty to seek recourse to the remedyavailable in law to pursue the redressal of its grievances. [Para19][533-E-F]

K. K. Modi v. K. N. Modi (1998) 3 SCC 573 : [1998]1 SCR 601; Bharat Bhushan Bansal v. U.P. SmallFIndustries Corpn. Ltd. (1999) 2 SCC 166 : [1999]1 SCR 181; Bihar State Mineral Development Corpnv. Encon Builders (I) (P) Ltd. (2003) 7 SCC 418 : [2003]2 Suppl. SCR 812; State of Orissa v. Damodar Das(1996) 2 SCC 216 : [1995] 6 Suppl. SCR 800 and IBGValley Transport, Vijay Laxmi (P) Ltd. v. MahanadiCoalfields Ltd. (2014) 10 SCC 630 – referred to.

Case Law Reference

[2007] 5 SCR 720

relied on

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MAHANADI COALFIELDS LTD & ANR v. M/s IVRCL AMR

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4914of 2022.

From the Judgment and Order dated 29.11.2019 of the High Courtof Orissa at Cuttack in ARBP No. 44 of 2018.

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K. K. Venugopal, AG, Soumyajit Pani, Siddharth Jain, Advs. forthe Appellants.

S. Niranjan Reddy, Sr. Adv., Polanki Gowtham, Amitabh Sinha,Sanjay Mishra, Ajit Yadav, Ms. Divya Roy, Advs. for the Respondent.

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The Judgment of the Court was delivered by DR DHANANJAYA Y CHANDRACHUD, J.

1. Leave granted.

2. The appellant, Mahanadi Coalfields Ltd., is a subsidiary of CoalIndia Limited[1]. The respondent, IVRCL AMR Joint Venture, is a jointventure of engineering contractors engaged in the business ofinfrastructure development. On 11 October 2010, the appellant floatedan e-tender for the work of strengthening and widening of a coaltransportation road at the Talcher Coalfields in the State of Orissa. Therespondent was the successful bidder and was awarded a work orderon 14 December 2011. A ‘Contract Agreement’ was entered intobetween the parties on 30 January 2012, in terms of which the workorder was to be executed between 16 January 2012 and 14 January2015.

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3. In a meeting held on 28 June 2012, the appellant advised therespondent to expedite the mobilization of resources to start the workimmediately. Later, the appellant sent a series of letters to the respondentrequesting it to expedite the work as per the work schedule. In 2013 and2014, the appellant served several notices to the respondent when the G

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Alatter failed to adhere to the work schedule. Ultimately, the appellantterminated the work order on 15 May 2014 allegedly on account ofdelay in completing the work and the inability of the respondent to meetthe work schedule.

4. Thereafter, on 12 October 2017 the respondent raised a claimBof Rs. 128,65,12,688 enumerating the latches and delays on the part ofthe appellant. The claim was rejected by the appellant on 18 December2017. Subsequently, the respondent issued a notice of arbitration to theappellant by a letter dated 9 April 2018 in terms of clause 15 of theContract Agreement. Through the said arbitration notice, the respondentcalled upon the appellant to give its consent to the appointment of JusticeCAsok Kumar Ganguly as the sole arbitrator. Having received no responsefrom the appellant to the arbitration notice within 15 days, the respondentfiled an application under Section 11(6) of the Arbitration and ConciliationAct, 1996[2] before the High Court of Orissa.

5. On 29 November 2019, a Single Judge of the High Court ofDOrissa allowed the application under Section 11 of the 1996 Act byappointing a sole arbitrator. The relevant extracts of the High Court’sdecision read as follows:

“3. Learned counsel for both the sides do not dispute the fact thatClause 15 of the contract agreement provides for “Settlement ofEdispute/Arbitration” in case there is any dispute or differencebetween the parties.

4. Mr. R Sharma, learned counsel for the opposite party has takendifferent contentions on merit. He has also brought to the noticeof this Court clause 19 of the letter dated 14.12.2011 (Annexure-F3), which reads as under:

“19. That matters relating to any dispute or difference arisingout of the tender, work order and subsequent contractagreement entered into, based on this tender and work ordershall be subject to the jurisdiction of District Court, AngulGonly.”

5. However, in view of the decisions of the Hon’ble SupremeCourt in the case of Mayavati Trading Private Limited vs. PradyuatDeb Burman, reported in (2019) 8 SCC 714, the Court has to look into the arbitration clause. In that view of the matter, the matter isrequired to be referred to the arbitrator.”

6. Mr K K Venugopal, learned Attorney General for India, appearson behalf of the appellants, while Mr S Niranjan Reddy, learned SeniorCounsel, appears on behalf of the respondent.

7. The submission which has been urged on behalf of the appellantsby the learned Attorney General is that clause 15 of the ContractAgreement dated 30 January 2012 does not constitute an arbitrationagreement. Hence, it has been urged that in the absence of an arbitrationagreement within the meaning of Sections 2(b) and 7 of the 1996 Act,the very invocation of the jurisdiction under Section 11(6) was not valid.In order to appreciate the submission, it would be necessary to extractclause 15 of the Contract Agreement. The provision reads as follows:

“15.Settlement of Disputes/Arbitration:

15.1It is incumbent upon the contractor to avoid litigation anddisputes during the course of execution. However, if suchdisputes take place between the contractor and thedepartment, effort shall be made first to settle the disputesat the company level. The contractor should make requestin writing to the Engineer-in-Charge for settlement of suchdisputes/claims within 30 (thirty) days of arising of the caseof dispute/claim failing which no disputes/claims of thecontractor shall be entertained by the company.

15.2If differences still persist, the settlement of the dispute withGovt. Agencies shall be dealt with as per the Guidelinesissued by the Ministry of Finance, Govt. of India in thisregard. In case of parties other than Govt. Agencies, theredressal of the disputes may be sought in the Court ofLaw.”

8. Section 2(b) of the 1996 Act defines an arbitration agreementto mean an agreement as referred to in Section 7. In terms of Section 7,an arbitration agreement is an agreement by the parties to submit toarbitration all or certain disputes which have arisen or which may arisebetween them in respect of a defined legal relationship, whethercontractual or not. Sub-section (2) of Section 7 stipulates that an arbitrationagreement may be in the form of an arbitration clause in a contract or inthe form of a separate agreement. In terms of sub-section (3) of Section A

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A7, the arbitration agreement has to be in writing. Sub-section (4) of Section7 then stipulates that:

“(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 oftelecommunication including communication throughelectronic means which provide a record of the agreement;or B

(c) an exchange of statements of claim and defence in whichCthe existence of the agreement is alleged by one party andnot denied by the other.”

9. In Jagdish Chander v. Ramesh Chander,[3] a two-judge benchof this Court, while relying upon the earlier decisions in K. K. Modi v.K. N. Modi,[4]Bharat Bhushan Bansal v. U.P. Small IndustriesDCorpn. Ltd,[5]Bihar State Mineral Development Corpn v. EnconBuilders (I) (P) Ltd.,[6] and State of Orissa v. Damodar Das,[7]enumerated the principles governing what constitutes an arbitrationagreement. Justice R V Raveendran, speaking on behalf of the bench,held that the words used in an arbitration agreement should disclose adetermination and obligation on behalf of parties to refer disputes toEarbitration. This court held:

“8 (i) The intention of the parties to enter into an arbitrationagreement shall have to be gathered from the terms of theagreement. If the terms of the agreement clearly indicate anintention on the part of the parties to the agreement to refer theirFdisputes to a private tribunal for adjudication and a willingness tobe bound by the decision of such tribunal on such disputes, it isarbitration agreement. While there is no specific form of anarbitration agreement, the words used should disclose adetermination and obligation to go to arbitration and notmerely contemplate the possibility of going for arbitration.GWhere there is merely a possibility of the parties agreeing 3 (2007) 5 SCC 7194 (1998) 3 SCC 5735 (1999) 2 SCC 1666 (2003) 7 SCC 418H7 (1996) 2 SCC 216

to arbitration in future, as contrasted from an obligation torefer disputes to arbitration, there is no valid and bindingarbitration agreement.

(ii) Even if the words “arbitration” and “Arbitral Tribunal (orarbitrator)” are not used with reference to the process of settlementor with reference to the private tribunal which has to adjudicateupon the disputes, in a clause relating to settlement of disputes, itdoes not detract from the clause being an arbitration agreement ifit has the attributes or elements of an arbitration agreement. Theyare: (a) The agreement should be in writing. (b) The parties shouldhave agreed to refer any disputes (present or future) betweenthem to the decision of a private tribunal. (c) The private tribunalshould be empowered to adjudicate upon the disputes in animpartial manner, giving due opportunity to the parties to put forththeir case before it. (d) The parties should have agreed that thedecision of the private tribunal in respect of the disputes will bebinding on them.

(iii) Where the clause provides that in the event of disputes arisingbetween the parties, the disputes shall be referred to arbitration, itis an arbitration agreement. Where there is a specific and directexpression of intent to have the disputes settled by arbitration, it isnot necessary to set out the attributes of an arbitration agreementto make it an arbitration agreement. But where the clauserelating to settlement of disputes, contains words whichspecifically exclude any of the attributes of an arbitrationagreement or contains anything that detracts from anarbitration agreement, it will not be arbitration agreement.For example, where an agreement requires or permits anauthority to decide a claim or dispute without hearing, orrequires the authority to act in the interests of only one ofthe parties, or provides that the decision of the authoritywill not be final and binding on the parties, or that if eitherparty is not satisfied with the decision of the authority, hemay file a civil suit seeking relief, it cannot be termed as anarbitration agreement.

(iv) But mere use of the word “arbitration” or “arbitrator”in a clause will not make it an arbitration agreement, if itrequires or contemplates a further or fresh consent of the

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Aparties for reference to arbitration. For example, use of wordssuch as “parties can, if they so desire, refer their disputes toarbitration” or “in the event of any dispute, the parties may alsoagree to refer the same to arbitration” or “if any disputes arisebetween the parties, they should consider settlement by arbitration”in a clause relating to settlement of disputes, indicate that theBclause is not intended to be an arbitration agreement. Similarly, aclause which states that “if the parties so decide, the disputesshall be referred to arbitration” or “any disputes between parties,if they so agree, shall be referred to arbitration” is not an arbitrationagreement. Such clauses merely indicate a desire or hope toChave the disputes settled by arbitration, or a tentativearrangement to explore arbitration as a mode of settlementif and when a dispute arises. Such clauses require theparties to arrive at a further agreement to go to arbitration,as and when the disputes arise. Any agreement or clausein an agreement requiring or contemplating a furtherDconsent or consensus before a reference to arbitration, isnot an arbitration agreement, but an agreement to enterinto an arbitration agreement in future.”

10. In the present case, clause 15 of the Contract Agreement istitled “Settlement of Disputes/Arbitration”. However, the substantivepart of the provision makes it abundantly clear that there is no arbitrationagreement between the parties agreeing to refer either present or futuredisputes to arbitration.

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F11. Clause 15.1 contains a reference to the steps to be taken forsettlement of disputes between the parties. Clause 15.2 stipulates that ifdifferences still persist, the settlement of the disputes with governmentagencies shall be dealt with in accordance with the guidelines of theMinistry of Finance. In the case of parties other than governmentagencies, the redressal of disputes has to be sought in a court of law.G

12. A clause similar to clause 15 of the Contract Agreement in thepresent case was considered by a bench of this Court in IB ValleyTransport, Vijay Laxmi (P) Ltd. v. Mahanadi Coalfields Ltdconsisting of J Chelameswar and A. K. Sikri, JJ.[8] In the said case, the H8 (2014) 10 SCC 630.

clause was interpreted as an alternative remedy at the company level tobe exhausted before taking recourse to other suitable legal remedies. Itwas observed:

“10. From the aforesaid narration of facts, it becomes clear thatClause 12 of the general terms and conditions provides fora mechanism of dispute resolution before resorting to thelegal remedies. This clause specifically states that it is incumbentupon the contractor to avoid litigation and disputes during the courseof execution. If any dispute takes place between thecontractor and the department, effort shall be made first tosettle the disputes at the company level. Further, this clausestates that the contractors should make request in writingto the Engineer Incharge for settlement of such dispute/claim within 30 days of arising of cause of dispute/claim.”

13. The above extract makes it abundantly clear that clause 15 ofthe Contract Agreement is a dispute resolution mechanism at the companylevel, rather than an arbitration agreement. Consequently, in case of adispute, the respondent was supposed to write to the Engineer-in-chargefor resolving the dispute. Clause 15 does not comport with the essentialattributes of an arbitration agreement in terms of section 7 of the 1996Act as well as the principles laid down under Jagdish Chander (supra).A plain reading of the above clause leaves no manner of doubt about itsimport. There is no written agreement to refer either present or futuredisputes to arbitration. Neither does the substantive part of the clauserefer to arbitration as the mode of settlement, nor does it provide for areference of disputes between the parties to arbitration. It does notdisclose any intention of either party to make the Engineer-in-Charge, orany other person for that matter, an arbitrator in respect of disputes thatmay arise between the parties. Further, the said clause does not makethe decision of the Engineer-in-Charge, or any other arbitrator, final orbinding on the parties. Therefore, it was wrong on the part of the HighCourt to construe clause 15 of the Contract Agreement as an arbitrationagreement.

14. However, it has been urged on behalf of the respondent byMr S Niranjan Reddy that the first appellant is a subsidiary of CIL. Ithas been submitted that on 7 April 2017, CIL issued a policy document

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Ato its General Managers for the settlement of disputes or differencesarising out of works and services contracts through arbitration. Clause 5of the above communication provides as follows:

“Past/existing work order/contract:

5. With regards to dispute/differences cropping up in existingBwork order/contract, employer (department) shall adoptprocedure for settlement of the same, through arbitrationprocess. As you are aware that neither the CIL Manualsnor contract document at present contains any clauseregarding arbitration, therefore, dispute/differences cannotCbe referred to arbitration straight away. Hence, beforereferring the matter to arbitration, consent of the other party(contractor) is necessary for redressal of dispute/differences through arbitration. Once, the contractor agreesfor settlement of dispute/differences arising out of contractsthrough arbitration, an agreement may be signed betweenDemployer and contractor for referring the dispute/differences to Sole Arbitration by a person appointed byCompetent Authority of CIL/CMD of Subsidiaries (as thecase may be). The rest of the procedure shall be as per theArbitration and Conciliation Act, 1996 as amended byEAmendment Act of 2015 and also as per instructionincorporated in clause “Settlement of Disputes throughArbitration”.”

15. Hence, it is urged that the first appellant being a subsidiary ofCIL and being a public sector undertaking may well consider as to whetherFthe disputes which have arisen between the appellants and the respondentshould be referred to arbitration. In this context, the appellants and therespondent placed reliance on an order dated 20 July 2018 of the ChiefJustice of the High Court of Orissa in Arbitration Petition No 59 of 2016.

16. We are unable to subscribe to the submission which has beenGurged on behalf of the respondent based on the policy letter dated 7April 2017. The communication which has been issued by CIL refers tothe possibility of a consensual resolution of disputes or differences througharbitration as neither the CIL manuals nor the contract document, at thetime, contained a clause regarding arbitration. However, it has beensubmitted that once the contractor has agreed to settle a dispute through H

arbitration, the agreement may be signed between the employer and thecontractor for reference to arbitration, by a person to be appointed bythe competent authority of CIL or, as the case may be, the Chairmanand Managing Director of the subsidiaries.

17. The communication dated 7 April 2017 merely indicates adesire on behalf of CIL to have disputes related to work contracts settledby arbitration. It requires both the parties to arrive at a further agreementto proceed to arbitration when the dispute arises. Therefore, in view ofthe principles laid down in Jagdish Chander (supra), following a line ofprecedent, clause 5 in the aforesaid communication cannot be construedas an arbitration agreement between the appellants and the respondentin terms of section 7 of the 1996 Act so as to compel the appellants toappoint an arbitrator.

18. The order of the Chief Justice of the High Court of Orissadated 20 July 2018 proceeds on an understanding that the learned counselfor both the sides did not dispute the fact that clause 15 of the ContractAgreement and clause 5 of the policy decision 7 April 2017 taken byCIL provide for appointment of an arbitrator in case there is any disputeor difference between the parties. The order has, therefore, proceededon an understanding of counsel, which in any event cannot be regardedas a binding statement of law on the existence of an arbitrationagreement.

19. For the above reasons, we have come to the conclusion thatthe invocation of the jurisdiction of the High Court under Section 11(6)of the 1996 Act was not valid and there being no arbitration agreementbetween the appellants and the respondent, no reference to arbitrationcould have been made. We accordingly allow the appeal and set asidethe impugned judgment and order of the High Court dated 29 November2019. The respondent would, however, be at liberty to seek recourse tothe remedy available in law to pursue the redressal of its grievances.

20. Pending application, if any, stands disposed of.

Bibhuti Bhushan Bose(Assisted by : Rakhi, LCRA)

Appeal allowed.

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