Members Of Joint Venture Cannot Invoke Arbitration Clause In Their Individual Capacity: Delhi High Court

The Single Bench of Justice Mini Pushkarna reiterated that when there is an agreement with a consortium, it is never the intention of the parties that one of the members of the consortium can separately invoke the arbitration clause.

A notice inviting tender was issued by the respondent- National Highways Authority of India (NHAI), for providing consultancy services.

To participate in the tender process, the petitioner- Consulting Engineers Group Limited, formed a joint venture with M/s Aecom Asia Company Ltd. An MoU was entered into between the parties, where M/s Aecom was specified as the lead partner and the petitioner as the associate partner.

Subsequently, a Letter of Award (LoA) was issued by NHAI to the Joint Venture consisting of the petitioner and M/s Aecom, and a Consultancy Agreement was executed between the said Joint Venture and NHAI.

After an accident occurred in the construction site, the NHAI passed a debarment order, citing laxity by the petitioner in monitoring of quality control measures. The NHAI debarred the petitioner from participating in all the tenders floated by NHAI and other executing agencies of the Ministry of Road, Transport and Highways.

Against this, the petitioner filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Delhi High Court, seeking an order staying the operation of the debarment order.

The respondent NHAI submitted before the Court that a consultancy agreement, containing an arbitration clause, was executed between NHAI and the Joint Venture, consisting of M/s Aecom and the petitioner.

The respondent added that there was no valid and existing arbitration clause between the petitioner in its individual capacity and the NHAI. The NHAI further averred that the MoU between the petitioner and its consortium partner did not confer any express or implied authority on the petitioner to pursue any contractual matters, including invocation of the arbitration clause, in its individual capacity without the participation or consent of its lead partner, i.e., M/s Aecom.

The Court noted that as per the MoU between the parties to the Joint Venture, M/s Aecom was specified as the lead partner while the petitioner was the associate partner.

Further, the Court observed that as per the consultancy agreement between the Joint Venture and the NHAI, it was not the petitioner in its individual capacity, but the consortium of petitioner and M/s Aecom, who were referred to as the "consultants".

Additionally, perusing the terms of the consultancy agreement, the bench held that it was M/s Aecom, and not the petitioner, who was the lead member or authorized representative of the consortium.

While noting that the LoA was specifically addressed to M/s Aecom, being the lead partner and authorized representative of the consultants, the Court ruled that the MoU between the consortium partners did not confer any express or implied authority on the petitioner to invoke the arbitration clause contained in the consultancy agreement, in its individual capacity.

Holding that the petitioner is not a party to the Consultancy Agreement in its individual capacity, the bench ruled that the term "party", as contained in the arbitration clause, referred to the consortium of the petitioner and M/s Aecom, along with NHAI, and not to the petitioner alone.

"Thus, in view of the aforesaid it is seen that only the consultants, i.e., M/s Aecom in association with the petitioner can invoke the disputes resolution clause. It is the consultants and not the petitioner in his individual capacity who are referred to as "parties" in the arbitration agreement as contained in the Consultancy Agreement. Petitioner not being a party to the arbitration agreement in its individual capacity, cannot take recourse to the arbitration clause in its individual capacity, or approach this Court in individual capacity", the Court said.

Referring to the judgment of the Delhi High Court in Geo Miller & Co. Pvt. Ltd. versus Bihar Urban Infrastructure Development Corporation Limited and Anr. (2016), the Court reiterated that when there is an agreement with a consortium, it is never the intention of the parties that one of the members of the consortium can separately invoke the arbitration agreement.

Further, the bench noted that the Supreme Court in Gammon India Ltd. versus Commissioner of Customs (2011) had recognized the Joint Venture as a legal entity and had ruled that an action by only one of the constituents of the Joint Venture was not acceptable and legally tenable.

Observing that there was no contrary intention expressed in the consultancy agreement or the MoU, to the effect that one of the members of the consortium could separately invoke the arbitration agreement, the Court held that the petition filed by the petitioner was not maintainable.

"The Consultancy Agreement dated 05.12.2018 was executed between respondent and joint venture of M/s Aecom and petitioner herein. Thus, in the present case the joint venture consisting of M/s Aecom and petitioner herein alone has the authority to invoke the dispute resolution clause. Petitioner in his individual capacity cannot solely and independently approach this Court by taking recourse to the Dispute Settlement Clause", the Court ruled.

Hence, the Court dismissed the petition.

Case Title: Consulting Engineers Group Limited versus National Highways Authority of India (NHAI)

Citation: 2022 LiveLaw (Del) 942

Counsel for the Petitioner: Mr. Arvind Nayar, Sr. Advocate with Ms. Nandadevi Deka, Mr. Sudhir Yadav, Mr. Savyasachi Rawat and Mr. Akshay Joshi, Advocates

Counsel for the Respondent: Ms. Gunjan Sinha Jain, Advocate

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