Supreme Court Appoints Arbitrator in IBI Consultancy vs. DSC Limited Dispute (2018)

Introduction

Date of the Judgment: April 16, 2018

Citation: Not Available

Judges: R.K. Agrawal, J. and S. Abdul Nazeer, J.

When parties have a contract with an arbitration clause, what happens when they can’t agree on an arbitrator? The Supreme Court of India recently addressed this in a case between IBI Consultancy India Private Limited and DSC Limited. The core issue was whether the court should appoint an arbitrator when a dispute arises and the parties fail to agree on one. The Supreme Court clarified its role in such appointments, focusing on the existence of a valid arbitration agreement. This judgment was delivered by a two-judge bench of Justices R.K. Agrawal and S. Abdul Nazeer.

Case Background

IBI Consultancy India Private Limited, an Indian subsidiary of the IBI Group based in Canada, provides system integration and maintenance services for toll and traffic management systems. DSC Limited, a company registered under the Companies Act, 1956, has two subsidiary companies: Lucknow Sitapur Expressway Limited (LSEL) and Raipur Expressway Limited (REL). LSEL and REL had concession agreements with the National Highways Authority of India (NHAI) for highway projects.

In February 2010, DSC Limited sent a Request for Proposal (RFP) to IBI Consultancy for their LSEL and REL projects. IBI Consultancy submitted a proposal in June 2010 to execute a contract for installing toll collection and traffic control equipment. DSC Limited accepted the proposal, and a contract agreement was executed on August 30, 2010, for Rs. 1,55,20,700.00. In total, IBI Group and IBI Consultancy entered into six separate contracts with DSC Limited for the LSEL and REL projects.

During the project execution, DSC Limited allegedly defaulted on payments to IBI Consultancy and the IBI Group. Despite several communications, the outstanding payments were not released. On September 6, 2012, a legal notice was sent to DSC Limited for the recovery of these outstanding payments. A reminder was sent on June 12, 2013.

On April 24, 2014, IBI Consultancy sent a legal notice to DSC Limited invoking the arbitration clause and proposing Mr. Debashish Moitra as the sole arbitrator. However, DSC Limited did not respond. Consequently, IBI Group and IBI Consultancy filed petitions under Section 11 of the Arbitration and Conciliation Act, 1996, before the High Court of Delhi. The High Court disposed of the petitions, stating that since one party was incorporated outside India, the arbitration would be an ‘international commercial arbitration,’ requiring an application before the Supreme Court under Section 11(9) of the Act.

Timeline:

Legal Framework

The core of this case revolves around the Arbitration and Conciliation Act, 1996. Specifically, Section 11 of the Act deals with the appointment of arbitrators. The Supreme Court noted that for appointing an arbitrator under Section 11, there must be an existing arbitration agreement between the parties and a dispute that needs to be referred to arbitration.

The court emphasized that its role under Section 11(6) read with Section 11(9) is limited to determining the existence of an arbitration agreement. The court also highlighted the amendment to Section 11 with the insertion of sub-section 6(A) on October 23, 2015, which further confines the examination to the existence of the arbitration agreement.

The relevant provisions from the contract agreement dated August 30, 2010, are as follows:

• Article-1: Contract Documents
  
  “The following document shall constitute the Contract between the client and the contractor, and each shall be read and construed as an integral part of the Contract; (i) This Contract Agreement and Appendices hereto (ii) Letter or indent ref no. No LSEL/Tolling/IBI/HO-2 dated 14th June 2010…..”
• Clause 3.14: Arbitration (as mentioned in ref. No LSEL/Tolling/IBI/HO-1 dated 14th June 2010)
  
  “1. In the event of any dispute or difference arising out or touching upon any of the terms and conditions of this contract and /or in relation to the implementation or interpretation hereof, the same shall be resolved initially by mutual discussion and conciliation but in the event of failure thereof, the same shall be referred to an independent arbitrator mutually agreed by the two parties. The decision of the arbitrator shall be final and binding upon the parties. The arbitration shall be in Delhi and the arbitrator shall give his award in accordance with “The Arbitration and conciliation Act, 1996”. 2. In the event of arbitrator dying, neglected or refusing to act or resigning or being unable to act for any reason or his award being set aside by the court for any reason the parties will mutually agree another to act as Arbitrator.”

Arguments

The petitioner, IBI Consultancy, argued that a valid arbitration agreement existed between the parties. They pointed to Article-1 and Clause 3.14 of the contract agreement dated August 30, 2010, along with the letter of indent dated June 14, 2010, to support their claim. They contended that the letter dated June 14, 2010, was an integral part of the contract and contained the arbitration clause.

The respondent, DSC Limited, argued that there was no valid arbitration agreement between the parties. Their contention was that the arbitration clause was not explicitly part of the main contract agreement and therefore, was not binding.

The Supreme Court noted that the issue was whether the arbitration clause, which was contained in the letter dated June 14, 2010, could be considered as part of the contract.

Issues Framed by the Supreme Court

The primary issue framed by the Supreme Court was:

• Whether a valid arbitration agreement existed between the parties.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following:

• Section 11 of the Arbitration and Conciliation Act, 1996: This section deals with the appointment of arbitrators by the court when parties fail to agree on the procedure.
• Section 11(6) and 11(9) of the Arbitration and Conciliation Act, 1996: These provisions specify the procedure for appointing arbitrators and the jurisdiction of the Supreme Court in international commercial arbitrations.
• Section 2(1)(f) of the Arbitration and Conciliation Act, 1996: This section defines ‘international commercial arbitration’.
• Section 12 of the Arbitration and Conciliation Act, 1996: This section deals with the grounds for challenging the appointment of an arbitrator.

Judgment

The Supreme Court held that the letter dated June 14, 2010, was an integral part of the contract, and the arbitration clause contained within it was binding on both parties. The Court rejected the respondent’s argument that the arbitration clause was not part of the main contract agreement.

The Court considered the following authorities:

• Section 11 of the Arbitration and Conciliation Act, 1996: The court used this provision to appoint an arbitrator due to the parties’ failure to agree.
• Section 11(6) and 11(9) of the Arbitration and Conciliation Act, 1996: The court clarified its limited role in appointing arbitrators under these provisions.
• Section 2(1)(f) of the Arbitration and Conciliation Act, 1996: The court referred to this section to determine the nature of the arbitration as an ‘international commercial arbitration’.
• Section 12 of the Arbitration and Conciliation Act, 1996: The court stated that the appointed arbitrator must comply with the disclosure requirements under this section.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the existence of a valid arbitration agreement between the parties. The court emphasized that the letter dated June 14, 2010, was an integral part of the contract and thus, the arbitration clause contained within it was binding. The court’s reasoning focused on the interpretation of the contract documents and the relevant provisions of the Arbitration and Conciliation Act, 1996. The court also stressed that its role in appointing an arbitrator is limited to cases where a valid arbitration agreement exists and the parties fail to agree on an arbitrator.

Key Takeaways

• A valid arbitration agreement is essential for invoking arbitration proceedings.
• All documents that are considered an integral part of the contract must be carefully reviewed as they may contain the arbitration clause.
• The Supreme Court’s role in appointing arbitrators is limited to cases where a valid arbitration agreement exists and the parties fail to agree.
• Parties must clearly define the scope and terms of the arbitration clause to avoid disputes.

Directions

The Supreme Court appointed Justice Amitava Roy, a former Judge of the Supreme Court, as the sole arbitrator to adjudicate the disputes between the parties. The appointment was subject to the necessary disclosures under Section 12 of the Arbitration and Conciliation Act, 1996.

Development of Law

The ratio decidendi of this case is that if a document is an integral part of the contract, the arbitration clause contained within it is binding on the parties. This clarifies that arbitration clauses do not necessarily need to be in the main contract document to be valid, provided they are included in documents that are explicitly made part of the contract.

Conclusion

The Supreme Court’s judgment in the case of IBI Consultancy India Private Limited vs. DSC Limited emphasizes the importance of a valid arbitration agreement for initiating arbitration proceedings. The court clarified that its role under Section 11 of the Arbitration and Conciliation Act, 1996, is limited to appointing an arbitrator when such an agreement exists and the parties fail to agree on an arbitrator. The decision ensures that disputes are resolved efficiently through arbitration, as intended by the parties.