Case Note & Summary
The case arises from a subcontract agreement between Khurana Constructions (petitioner/contractor) and IOT Infrastructure and Energy Services Ltd. (respondent/employer) for civil and underground piping work at IOCL's Gujarat Refinery. Disputes arose and were referred to arbitration. The sole arbitrator rejected Khurana's claims (Claim Nos. 3 to 10) on the ground that they were not notified as required by Clause 6.6.1.0 of the General Conditions of Contract (GCC), which the arbitrator held formed part of the subcontract. Khurana challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. The High Court examined the subcontract documents: the Letter of Intent, formal agreement dated 28 February 2005, and special conditions of work. None of these documents incorporated the GCC. The LOI expressly stated that the subcontract was governed by the special conditions and the formal agreement. The formal agreement listed the documents forming the contract, which did not include the GCC. The special conditions also did not refer to the GCC. The court held that the arbitrator's finding that the GCC was incorporated was perverse and not a plausible view. The award was set aside for patent illegality, and the matter was remitted to the arbitrator for fresh consideration of the claims on merits.
Headnote
A) Arbitration - Arbitrability - Incorporation of Terms - General Conditions of Contract (GCC) - The arbitral tribunal held that the GCC between IOCL and IOT formed part of the subcontract between IOT and Khurana, and that claims not notified under Clause 6.6.1.0 were not arbitrable. The High Court found this finding perverse and patently illegal, as the subcontract documents (LOI, formal agreement, special conditions) did not incorporate the GCC. The court held that the arbitrator's interpretation was not a plausible view and that the award suffered from patent illegality. (Paras 5-10)
B) Arbitration - Patent Illegality - Section 34 of the Arbitration and Conciliation Act, 1996 - The court set aside the award under Section 34 as it was based on a finding that no reasonable person could arrive at. The arbitrator's conclusion that the GCC was incorporated was contrary to the clear terms of the subcontract and the evidence on record. (Paras 11-13)
Issue of Consideration
Whether the general conditions of contract (GCC) between the principal employer and the main contractor formed an integral part of the subcontract between the main contractor and the subcontractor, and consequently, whether the subcontractor's claims were non-arbitrable for want of notification under Clause 6.6.1.0 of the GCC.
Final Decision
The court allowed the petition, set aside the arbitral award, and remitted the matter to the arbitrator for fresh consideration of the claims on merits.
Law Points
- Arbitration
- Contract Interpretation
- Incorporation of Terms
- Patent Illegality
- Arbitrability
Case Details
2019 LawText (BOM) (02) 159
Commercial Arbitration Petition No. 12 of 2015
Mr. Rohan Shah with Lopa Munim, Srisabari Rajan I/b. Rajesh Kothari & Co. for Petitioner; Mr. L.M. Acharya with Anish Khandekar I/b. S.B. Lolage for Respondents.
IOT Infrastructure and Energy Services Ltd. & Anr.
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Nature of Litigation
Challenge to an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996.
Remedy Sought
Petitioner sought setting aside of the arbitral award rejecting its claims as non-arbitrable.
Filing Reason
The arbitrator held that the petitioner's claims were not arbitrable for want of notification under Clause 6.6.1.0 of the GCC, which the arbitrator found to be part of the subcontract.
Previous Decisions
The arbitral tribunal rejected Claim Nos. 3 to 10 of the petitioner on the ground of non-arbitrability.
Issues
Whether the General Conditions of Contract (GCC) between IOCL and IOT formed an integral part of the subcontract between IOT and Khurana.
Whether the arbitrator's finding that the GCC was incorporated is perverse and patently illegal.
Whether the award is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996.
Submissions/Arguments
Petitioner argued that the GCC was not incorporated in the subcontract; the subcontract documents (LOI, formal agreement, special conditions) did not refer to or include the GCC.
Respondent argued that the GCC formed part of the subcontract and that claims not notified under Clause 6.6.1.0 were not arbitrable.
Ratio Decidendi
An arbitral award can be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 for patent illegality if the arbitrator's finding is perverse, i.e., no reasonable person could arrive at such a conclusion. In this case, the arbitrator's finding that the GCC was incorporated in the subcontract was contrary to the clear terms of the subcontract documents and the evidence on record, and thus constituted patent illegality.
Judgment Excerpts
The main controversy before the arbitral tribunal was whether or not the general conditions of contract ('GCC') forming part of the original bid package as between IOCL and IOT, formed an integral part of the subcontract between Khurana and IOT.
It is this rejection, which is challenged in the present petition.
At the heart of the controversy in the present matter lies the question of arbitrability of claim Nos.3 to 10.
Procedural History
The dispute arose from a subcontract agreement dated 28 February 2005 between Khurana Constructions and IOT Infrastructure and Energy Services Ltd. The matter was referred to arbitration. The sole arbitrator passed an award rejecting Claim Nos. 3 to 10 of Khurana as non-arbitrable. Khurana filed Commercial Arbitration Petition No. 12 of 2015 under Section 34 of the Arbitration and Conciliation Act, 1996 before the Bombay High Court challenging the award.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 34
