Jharkhand High Court Dismisses JUVNL's Appeal, Upholds Sole Arbitrator Appointment In Dispute With M/s Rites

The Court emphasized that it is the High Court's duty to reject petitions or defenses based on purely technical grounds aimed at gaining an unfair advantage.

The Division Bench, comprising Acting Chief Justice Shree Chandrashekhar and Justice Navneet Kumar, noted, “…except for a broad proposition that the High Court should not exercise its powers in teeth of the provisions under the AC Act, we are not shown any decision that in a situation like the present one no order for referring the parties to arbitration could have been made by the writ Court. The submission that the exercise of power under Article 226 of the Constitution to accept the proposal of an aggrieved party for arbitration notwithstanding refusal by the other party shall open floodgates cannot be countenance in law."

Referencing the Supreme Court's decision in "Butu Prasad Kumbhar v. Steel Authority of India Ltd." 1995 Supp (2) SCC 225, the bench noted, “the Hon'ble Supreme Court refused to accept “opening of the floodgates” argument that similar writ petitions shall start pouring. The cases of the present nature are relatively few and arise only when the other party takes an unfair stand. To conclude, this is the duty of the High Court to reject a petition or the defence that is based on a purely technical stand to gain unfair advantage over the other parties.”

The Jharkhand State Electricity Board (JSEB), now represented by JUVNL, issued a Notice Inviting Tender (NIT) for electrifying 4923 villages on a turnkey basis. Rites Limited won the contract for about Rs. 300 crores with a twelve-month completion period. However, JSEB later reduced the scope to 1848 villages valued at Rs. 110.88 crores.

With JSEB's consent, Rites assigned the contract to M/s Ramjee Power Construction Limited (RPCL), which received payments directly from JSEB. Rites requested an arbitration clause, which was incorporated into the contract. Due to various disputes, including delays and bank guarantee issues, Rites invoked the arbitration clause, and Mr. B.S. Meena was appointed as the arbitrator, later replaced by Dr. Santokh Singh and subsequently by Dr. Gita Rawat.

Rites filed claims for various payments and losses, while JUVNL made counter-claims. The sole Arbitrator awarded Rs. 89.2 crores with interest to Rites. On appeal, the award was increased to Rs. 327.76 crores with interest of Rs. 416.96 crores. JUVNL challenged the award under Section 34 of the Arbitration and Conciliation Act, but the case was dismissed, as awards by the Permanent Machinery of Arbitration are not subject to Section 34 challenges.

In the petition brought by M/s Rites, the Court referred to the arbitration clause in Article 9 of the contract agreement and a precedent from a 2016 Supreme Court case. The Court decided that the disputes should be resolved by a sole arbitrator.

The Court pointed out that the arbitration clause was included in the contract at Rites' request. Although there was no disagreement about the existence of an arbitration agreement in Article 9, complications arose because the arbitration was conducted through the Permanent Machinery of Arbitration, which excluded the application of the Arbitration and Conciliation Act, 1996.

The Court clarified that the true intention of the parties should be determined by the substance of their actions and agreements, not just the wording of legal documents or contract provisions.

In response to JUVNL's argument, the Court acknowledged that Article 226 of the Constitution of India, which allows for judicial review, should not contradict the statutory provisions of the Arbitration and Conciliation Act. However, the Court emphasized that Article 226 is meant to ensure justice, equity, and good conscience, especially in matters of larger public interest, and is not restricted by limitations.

The Court further stated, "By raising technical objections, a party to litigation cannot be permitted to frustrate the basic object and purpose behind the writs… Before the sole Arbitrator, no objection was taken by the JUVNL that the claims raised by the Rites cannot be decided through arbitration."

The Court continued, "Now taking refuge in a situation where the awards made by the Permanent Machinery of Arbitration are not enforceable, the JUVNL has raised a host of technical objections. There may be a substance in the proposal that the Rites may approach the civil Court, but then, why the Rites? The JUVNL, which approached the Commercial Court to challenge the awards dated 19th January 2011 and 19th September 2011, would have instead gone to the civil Court."

Consequently, the Court upheld the previous decision and dismissed the appeal.

Case Title: Jharkhand Urja Vikas Nigam Limited v. M/s Rites Ltd. and Ors.

LL Citation: 2024 LiveLaw (Jha) 91