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Case Reviews, The Law

Galaxy Infra and Engineering Pvt Ltd vs. Pravin Electricals (ARB.P. 674/2018)

The Delhi High Court held that the draft agreement exchanged by email reflects the existence of an arbitration agreement between the parties and squarely falls within the ambit of Section 7(4)(b) of the Act.

By: Nishtha Srivastava, 4th Year, BBA LLB, Corporate Law, UPES Dehradun.

Background:

The petitioner filed for the appointment of a sole arbitrator for adjudication of the dispute between the parties under section 11(6) of the Arbitration and Conciliation Act, 1996 in this case due to no response from the defendant even after receiving the notice of payment of dues.

Facts:

  1. The respondent had applied for tender given out by the Chief Engineer of South Bihar Power Distribution Company Limited regarding the appointment of an implementing agency to strengthen, improve and augment the capacity of 20 towns of Patna. 
  2. Subsequently, after the execution of various business undertakings between them under an agreement on 07/07/2014, the petitioner served a draft consultancy agreement via email to the respondent on 15.07.2014 which contained an arbitration clause. 
  3. During the negotiation between the parties, the petitioner was informed that the execution of the project in case the contract materializes between them, shall be taken over by the Process Construction and Technical Services Private Limited (PCTSPL), the joint venture of the respondent as per the terms and conditions of consultancy agreement for which 75,000 rupees was paid to the petitioner as the fees.
  4. While on one hand, the responded received two awards of contract from SBPDCl on 22.09.2014 and entered into an agreement, the petitioner got a payment of 25,59,000 rupees on raising an invoice of Rupees 25 lakh plus service tax on 27/09/2014 under consultancy agreement against PCTSPL, as the latter was concerned with the execution of the project.
  5. As per the consultancy agreement, a second invoice shall only be raised when the mobilization funds get advanced on the Joint venture/respondent depending upon the bank guarantees being tendered to SBPDCL but failure in furnishing bank guarantees delayed the fees of the petitioner
  6. Furthermore, after requesting the petitioner to raise an invoice of Rs 20 lakh plus service tax instead of Rs 1 crore for the present, it was paid an amount of 18 lakh along with Rs 4,75,500 after frequent follow-up.
  7. On 01.07.2017, when the petitioner raised the final invoice for the balance payment of Rs. 5,54,14,318, the respondent refused to pay even after receiving the notice. This resulted in sending a demand notice to him on 09/03/2018 for which he sought a copy of the consultancy agreement on 22/03/2013.
  8. The petitioner invoked the arbitration clause of the agreement, the respondent denied the existence of any such clause.

Arguments Advanced:

Petitioner:

The petitioner contended that he had regularly complied with all the requirements and directions given by the respondent as per the Consultancy agreement. But when he raised the final invoice for the balance payment of Rs. 5,54,14,318, the respondent refused to pay even after receiving such notice of payment. After this, when the demand notice was served on the respondent on 09/03/2018 for which he sought a copy of the consultancy agreement on 22/03/2013,

the arbitration clause was invoked by the petitioner under Article 14 of the agreement because neither the call for payment was heeded to nor for an amicable settlement.

Respondent:

On the other hand, the respondent denied the existence of any arbitration agreement between the parties and instead stated that the consultancy agreement referred to by the petitioner was a draft agreement which required certain changes as intimated to the other party via email and thus wasn’t the final one.

It neither was written nor had written signatures of the respondent violative of section 7(4)(b)1 to make a valid arbitration agreement.

Furthermore, the payment that was earlier made to the petitioner on the raising of the first invoice was made by another entity, PCTSPL and even though a reference had been made to the latter in one such invoice, the respondent never got a direct communication of the same from the petitioner. Lastly, even after a repeated request for supplying with the agreement as relied upon by the petitioner, the use of the arbitration clause shows mala fide on the part of the opposite party.

Issues:

Whether there was an arbitration agreement between both the parties to bind the respondent?

Rules:

 Section 7(4)(b) and Section 11 of the Arbitration and Conciliation Act, 1996.

Judgment:

On the contention of the validity of an agreement between both the parties, the court said that the emails exchanged between them on various occasions wherein they had decided upon the payment terms and procedures for raising an invoice indicated that there was an existence of agreement upon which the parties had acted.

Moreover, the action of the Department in sending the email for the award of the contract to both the parties wherein the petitioner had sent an email for draft acceptance, also shows that there existed a contract between them.

The invoices were directly related to the respondent itself because it was he who was awarded the tender for which the petitioner was the consulting agency.

Secondly, no issue was raised by the respondent upon the reception of the Draft Consultancy agreement via email from the petitioner which contained Article 14 as the Arbitration clause.

Also, the signature of the parties isn’t always mandatory for the existence of such agreements if the conduct and exchanges are in positive tones.

Thus, by holding the existence of the arbitration agreement valid, the court-appointed a sole arbitrator for adjudication of the dispute and held Article 14 of the agreement as valid.

Precedents:

1.Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman2

2.DuroFelguera, SA v. Gangavaram Port Ltd3 

3.Trimex International FZE Limited, Dubai v. Vedanta Aluminium Limited, India4

4.Caravel Shipping Services Pvt. Ltd. vs. M/s. Premier Sea Foods (2019) 11 SCC 4615

Endnotes:

1.Arbitration and conciliation Act,1996

2. (2019) 8 SCC 714

3. (2017) 9 SCC 729: (2017) 4 SCC (Civ) 764

4. (2010) 3 SCC 1

5. (2010) 3 SCC 1

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