TBS India Telematic & Biomedical Services Private Limited Vs Commissioner of Health and Family Welfare (Andhra Pradesh High Court)
Held that Manual issued by the Government suggesting settlement of dispute by arbitration would not amount to execution of arbitration agreement between the parties. Application u/s 11(4) & 11(6) dismissed as no arbitration agreement exists between the parties.
Facts- After dispute between the parties, the appellant filed a writ petition against the respondent. The respondent, thereafter, issued a notice of termination of the agreement. Being aggrieved by the action of the respondent, the petitioner filed another writ petition against the notice of the respondent.
It is in its counter-affidavit filed in the above writ petition that the respondent contended that since the agreement between the parties does not have any provision for its termination, recourse can be taken to the guidelines issued by the Government of India, i.e., Manual for Procurement of Goods, 2017 (the Manual).
Thereafter, the petitioner issued a notice to the respondent to amicably settle the dispute in terms of Clause 9.9 of the Manual. The respondent again replied with a show cause notice as to why the agreement should not be terminated. Consequently, the petitioner served the respondent with the notice of arbitration in terms of Clause 9.9 of the Manual.
On refusal of the respondent for arbitration, the petitioner approached the Court under Section 11 of the A&C Act for the appointment of the arbitrator.
Conclusion- A bare reading of the clause 9.9 of the Manual would make it clear that it is only a suggestion in the Manual that the conditions governing the contract should contain suitable provisions for settlement of such disputes or differences binding on both the parties and the mode of settlement of such disputes should be through arbitration. However, this, by itself, shall not amount to an arbitration clause. Since the law is well settled that an arbitration clause by itself is a separate agreement different than the main agreement between the parties, there cannot be an implied arbitration agreement in some other document, which is not signed by the parties. Apart from the fact that the Manual is only a guideline framed by the Central Government, it remains a fact that this document has never been executed as an agreement between the parties. Therefore, clause 9.9 in the Manual suggesting settlement of dispute by arbitration would not amount to execution of arbitration agreement between the parties.
This Court, thus, finds that there is no agreement between the parties so as to construe that an arbitration agreement exists between the parties in terms of Section 7 of the Act of 1996. Therefore, this application under Section 11(4) & 11(6) preferred by the applicant for appointment of an arbitrator, deserves to be, and is hereby, dismissed.
FULL TEXT OF THE JUDGMENT/ORDER OF ANDHRA PRADESH HIGH COURT
The applicant has preferred this application under Section 11(4) & 11(6) of the Arbitration and Conciliation Act, 1996 (for short, “the Act of 1996”) seeking to appoint an arbitrator in terms of the Manual for Procurement of Goods, 2017, to adjudicate the claims and settle the disputes between the parties arising out of the agreement dated 04.11.2015.
2. The Andhra Pradesh Medical Services Infrastructure Development Corporation issued tender No.7.1/APMSIDC/2015-16 dated 25.07.2015 for service and maintenance of biomedical assets and equipment within the State, followed by a Request for Proposal (RFP). The applicant being a successful bidder, an agreement dated 04.11.2015 was entered between the applicant and the respondent for providing biomedical equipment maintenance, repair and other connected services in Andhra Pradesh. According to the applicant, RFP was duly signed, stamped and was intended to be the agreement, which listed various terms, conditions and obligations for both the parties. The applicant started providing services from November 2015 itself. However, in April 2018, the respondent started withholding payment of applicant’s invoices and, thereafter, a public interest litigation being W.P. (PIL) No.126 of 2018 was filed before this Court, due to which payments were withheld, compelling the applicant to prefer W.P.No.33672 of 2018, wherein interim order was passed in its favour. When the interim order was not complied with, the applicant filed another writ petition, i.e. W.P.No.44442 of 2018, seeking compliance of the interim order dated 26.09.2018, in which an interim order was again passed on 14.03.2019. The respondent again failed to comply the order and issued notice dated 13.09.2019 for termination of agreement, against which applicant filed another writ petition, i.e. W.P.No.15939 of 2019.
3. It is the case of the applicant that the respondent, in its counter-affidavit filed in the above writ petition, stated that since the agreement between the parties did not have a provision for early termination of the agreement, they had relied upon the guidelines issued by the Government of India, i.e. Manual for Procurement of Goods, 2017 (for short, “the Manual”). This Court recorded the respondent’s contention and in its interim order dated 13.12.2019, observed that there is no dispute with regard to the application of the Manual for procurement of goods to the contract, as the same is admitted in the counter-affidavit. It was also stated by the respondent that due to certain allegations against the applicant, an enquiry is being conducted by the Anti-Corruption Bureau.
4. The applicant issued a communication dated 24.12.2019 in terms of Clause 9.9 of the Manual for a meeting to amicably resolve the dispute between the parties, which remained unanswered. On 09.01.2020, the respondent again issued a show-cause notice as to why the agreement should not be terminated. Thereafter, the applicant invoked Clause 9.9 of the Manual vide its communication dated 18.01.2020 captioned as “notice of arbitration”. After eight months, i.e. on 21.09.2020, the respondent issued an interim reply couched as “Termination Order”, terminating the agreement, at the same time rejecting the proposal for appointment of an arbitrator.
5. In the above background, the applicant contended that the respondent, having admitted in its counter-affidavit filed in the writ petition stated above, that Manual is applicable, it is bound by the arbitration clause contained in Clause 9.9 thereof and since there exists dispute and refusal on the part of the respondent for arbitration, application is preferred for appointment of an arbitrator.
6. Per contra, stand of the respondent in the counter-affidavit to the application is that the agreement was proposed to be for a period of five years together with performance bank guarantee for the same time period. Instead of submitting performance bank guarantee for a period of five years at Rs.11.47 crores, which is a mandatory requirement to treat the agreement for a period of five years as contemplated in the RFP, the applicant paid bank guarantee of Rs.1.91 crore treating the agreement for one year only. The Government of Andhra Pradesh vide G.O.Rt.No.660 HM&FW(E2) Department dated 04.11.2015 issued permission for entering into agreement for a period of one year and there is no Government Order in existence for extending the period of agreement for one year to five years, as claimed by the applicant. It is also stated that criminal case is registered by the CID in FIR No.07 of 2021 into the affairs of the programme.
7. It is further stated in the counter-affidavit that Section 2 of RFP clearly provides that RFP is not an agreement and the parties to the RFP have to provide necessary information to the interested parties and that detailed terms specified in the draft agreement shall have overriding effect, to which the applicant has agreed that it will enter into an agreement in accordance with the draft provided to it. In substance, it has been stated that the so-called agreement dated 04.11.2015 is nothing but a judicial stamp receipt annexed to it bearing the signature of the then Commissioner and the service provider. However, the document is not in sync with the standard format used for agreement purposes as communicated by the APMSIDC to the Commissioner’s Office dated 18.10.2015. In the official records, there is no document, which can be treated as agreement between the parties.
8. In respect of applicability of the Manual, it is stated that the same has been issued by the Government of India for procurement of goods generically, which is broad in nature and States have been given liberty to design standard bidding documents and standard agreements depending upon their suitability.
9. For termination of agreement and invocation of jurisdiction under Section 11 of the Act of 1996 with the aid of the provisions in the Manual, it has been stated that in the absence of specified and agreed procedure for termination of agreement, aid of the provisions in the Manual has been taken, but that would not make the Manual as binding agreement between the parties. It is further stated that there was no consensus ad idem between the parties to introduce Clause 9.9 to form part of agreement (or) a new arbitration agreement, as such, there is no concluded agreement between the parties containing arbitration clause; neither there is any specific mention of Clause 9.9 of the Manual to be part of the agreement. Referring to the rejoinder filed by the applicant in W.P.No.15939 of 2019, it is stated in the counter-affidavit filed to the present application that the applicant itself has refused to treat the Manual as a tool to invoke termination clause. Therefore, the applicant cannot aprobate and reprobate. In its rejoinder in the writ petition, the applicant has clearly stated that the respondent (State of A.P.) is bound to adhere to the terms of agreement and cannot take aid of other document to suit its convenience and justify their act of termination of agreement.
10. It is highlighted in the counter-affidavit that the High Court in its order passed in W.P.No.15939 of 2019, has clearly held that the argument of Additional Advocate General with regard to invocation of arbitration clause need not be taken for discussion, as it is not within the scope of this application (writ petition) and there is no argument extended by the petitioner’s counsel regarding invocation of arbitration clause. Thus, it is submitted that the order passed in W.P.No.15939 of 2019 is not binding, because invocation of arbitration clause was not an issue before the writ court.
11. It is next contended that clause 9.9 of the Manual, does not satisfy the mandate of Sections 10 and 11 of the Indian Contract Act, 1872 and, as such, it cannot be treated as an arbitration agreement under Section 7 of the Act of 1996.
12. The respondent would contend that ACB enquiry ordered by the High Court in W.P. (PIL) No.126 of 2018 and registration of consequential FIR No.07 of 2021, prima facie, establishes commission of fraud by the applicant. Therefore, it is not a case where the matter should be referred to arbitration. Moreover, there being no arbitration clause in the agreement, provisions in the Manual cannot be resorted to for invoking arbitration. It is highlighted that High Court in W.P. (PIL) No.126 of 2018 observed in its order dated 31.07.2019 that the averments in the report, prima facie, disclose commission of cognizable offence, having regard to the nature of allegations made on reply of 12th respondent and in view of the law laid down by this Court, ACB authorities were directed to enquire into the allegations made in the complaint and proceed in accordance with law. This Court also observed that in the report submitted by the Director General, ACB, various irregularities have been mentioned, based on which the crime has been registered.
13. Mr. Anish Dayal, learned senior counsel appearing for the applicant, has strenuously urged that in the writ proceedings before this Court, the respondent has placed reliance on the provisions of the Manual to justify the termination of the agreement; therefore, having admitted the applicability of the Manual which contains an arbitration clause, as such, the respondent cannot be allowed to aprobate and reprobate. The respondent cannot cherry-pick terms of the Manual by applying the provisions which suit it and deny those containing arbitration clause. According to him, pendency of a criminal case does not arrest the jurisdiction of the Court to appoint an arbitrator. It is also submitted that at this stage, the Court is only required to examine whether there exists an arbitration clause or not. After amendment in the Arbitration and Conciliation Act, 1996 by Arbitration and Conciliation (Amendment) Act, 2015, exercise of jurisdiction under sub-section (4), (5) or (6) of Section 11 would confine to the examination of existence of an arbitration agreement and nothing more, nothing less.
14. Learned senior counsel appearing for the appellant has referred to the following judgments rendered by the Hon’ble Supreme Court:
