Swiss Timing Ltd V. Organizing Committee Commonwealth Games

Swiss Timing Ltd V. Organizing Committee Commonwealth Games in India

Swiss Timing Ltd V. Organizing Committee Commonwealth Games [2014] Insc 275 (28 May 2014)

Court Judgment Information

  • Year: 2014
  • Date: 28 May 2014
  • Court: Supreme Court of India
  • INSC: [2014] INSC 275

Text of the Court Opinion

(Refortable) IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION ARBITRATION PETITION No. 34 OF 2013 Swiss Timing Limited .Petitioner Versus Organising Committee, Commonwealth Games 2010, Delhi. .Respondent J U D G E M E N T SURINDER SINGH NIJJAR,J.

1. This is a petition under Section 11(4) read with Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Arbitration Act”), with a prayer to appoint the nominee arbitrator of the Respondent and to further constitute the arbitral tribunal, by appointing the presiding arbitrator in order to adjudicate the disputes that have arisen between the parties.

2. The relevant facts as set out in the Arbitration Petition are as under:

3. The Petitioner is a company duly incorporated under the laws of Switzerland, having its registered office in Corgémont, Switzerland. The respondent is the Organising Committee, Commonwealth Games, 2010. It is a society registered under the Societies Registration Act, 1860 (hereinafter referred to as “the Organising Committee”), established for the primary purpose of planning, organising and delivering the Commonwealth Games, 2010 Delhi (hereinafter referred to as “Commonwealth Games”) and having its registered office in New Delhi, India.

4. The petitioner entered into an agreement dated 11th March, 2010 with the respondent for providing timing, score and result systems (“TSR systems/services”) as well as supporting services required to conduct the Commonwealth Games. According to the petitioner, Clause 11.1 of the aforesaid agreement stipulated the fees, as set out in Schedule 3, which shall be paid to the petitioner for performance of the obligations contained in the agreement. The aforesaid Schedule 3 gives details of the amounts which were to be paid, in instalments, by the Organising Committee. The service provider/Petitioner was to submit monthly tax invoices, detailing the payments to be made by the Organising Committee. These invoices were to be paid within 30 days of the end of the month in which the tax invoices were received by the Organising Committee. All payments were to be made in Swiss Francs, unless the parties agree otherwise in writing. Clause 11.5 provides that on the date of the agreement, the service provider must provide the Performance Bank Guarantee to the Organising Committee to secure the performance of its obligations under the agreement. Certain other obligations are enumerated in the other clauses, which are not necessary to be noticed for the purposes of the decision of the present petition.

5. It is also noteworthy that in consideration of the petitioner’s services as stipulated in the agreement, the petitioner was to receive a total amount of CHF 24,990,000/ (Swiss Francs Twenty Four Million Nine Hundred and Ninety Thousand only). It was also provided in Schedule 3 that payment of the 5% of the total service fees was to be made upon completion of the Commonwealth Games. Accordingly, the petitioner sent the invoice No. 33574 dated 27th October, 2010 for the payment of CHF 1,249,500 (Swiss Francs One Million Two Hundred Forty Nine Thousand Five Hundred only).

This represents the remaining 5% which was to be paid upon completion of the Commonwealth Games on 27th October, 2010. The petitioner had also paid to the Organising Committee a sum of Rs. 15,00,000/ (INR 1.5 million) as Earnest Money Deposit (EMD), for successfully completing the TSR services as provided in the agreement.

6. According to the petitioner, the respondent defaulted in making the payment without any justifiable reasons. Not only the amount was not paid to the petitioner, the respondent sent a letter dated 15th December, 2010 asking the petitioner to extend the Bank Guarantee till 31st January, 2011. The petitioner informed the respondent that the Bank Guarantee had already been terminated and released on completion of the Commonwealth Games in October, 2010. It is also the case of the petitioner that there is no provision in the service agreement for extension of the Bank Guarantee.

The petitioner reiterated its claim for the aforesaid amount. Through letter dated 26th January, 2011, the petitioner demanded repayment of Rs. 15 lakhs deposited as EMD. Instead of making the payment to the petitioner and other companies, the respondent issued a Press Communiqué

on 2nd February, 2011 declaring that part payments to nine foreign vendors, including the petitioner, have been withheld for “non-performance of the contract”. The petitioner is said to have protested against the aforesaid communiqué through letter dated 4th February, 2011. It was reiterated that the petitioner had satisfactorily performed the obligations in the service agreement of 11th March, 2010. Since the respondent was disputing its liability to pay the amounts, the petitioner served a formal Dispute Notification on the respondent under Clause 38 of the agreement.

7. The petitioner further points out that on 7th February, 2011, the respondent called upon the petitioner to fulfil its alleged outstanding obligations under the agreement including handing over of the Legacy Boards, completion of the formalities of the material, which were required to be shipped out and to fulfil certain other requirements as set out in its earlier e-mails in order to prepare the “agreement closure report”. The respondent also stated that they were not addressing the issue of invoking the Dispute Resolution Clause as they were interested in settling the dispute amicably. The petitioner pleads that the respondent failed in its commitment for payments towards services rendered, not only towards the petitioner but also towards other international companies from Australia, Belgium, England, France, Germany, Italy, the Netherlands and Switzerland, which had provided various services to the respondent at the Commonwealth Games. It also appears that collective letters were written on behalf of various companies by the ambassadors of the concerned countries, to the Finance Minister of India indicating the default in payments of the amounts due. The petitioners, therefore, claim that they were left with no alternative but to invoke arbitration as provided under Clause 38.6 of the agreement. The petitioners have nominated the arbitrator on its behalf namely Justice S.N. Variava, former Judge of the Supreme Court of India. A notice to this effect was served on the respondent through a communication dated 22nd April, 2013. Since no response was received a reminder was issued on 29th May, 2013. Upon such failure, the petitioners have filed the present petition.

8. In the counter affidavit all the averments made by the petitioners have been denied, as being incorrect in facts and in law. The respondents have raised two preliminary objections, which are as follows: (i) The petitioner has not followed the dispute resolution mechanism as expressly provided in the agreement dated 11th March, 2010. No efforts have been made by the petitioner to seek resolution of the dispute as provided under Clause 38. On the other hand, the respondent through numerous communications invited the petitioner for amicable resolution of the dispute. The respondent relies on communications dated 3rd January, 2011, 9th January, 2011, 10th January, 2011, 1st February, 2011 and 2nd February, 2011. (ii) The contract stands vitated and is void ab initio in view of Clauses 29, 30 and 34 of the Agreement dated 11th March, 2010. Hence, the petitioner is not entitled to any payment whatsoever in respect of the contract and is liable to reimburse the payments already made. Therefore, there is no basis to invoke arbitration clause.

The respondent points out that a combined reading of Clause 29 and Clause 34 would show that the petitioner had warranted that it will never engage in corrupt, fraudulent, collusive or coercive practices in connection with the agreement. The petitioner would be liable to indemnify the Respondent against all losses suffered or incurred as a result of any breach of the agreement or any negligence, unlawful conduct or wilful misconduct. The respondent may terminate the agreement whenever it determines that the petitioner had engaged in any corrupt, fraudulent, collusive or coercive practice in connection with the agreement. The respondent seeks to establish the aforesaid non-liability clause on the basis of registration of Criminal Case being CC No. 22 of 2011 under Section 120-B, read with Sections 420, 427, 488 and 477 IPC and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act against Suresh Kalmadi, the then Chairman of the Organising Committee and other officials of the respondent alongwith some officials of the petitioner, namely Mr. S. Chianese, Sales &

Marketing Manager, Mr. Christophe Bertaud, General Manager and Mr. J. Spiri, Multi Sports Events & Sales Manager.

9. It is further the case of the respondent that due to the pendency of the criminal proceedings in the trial court, the present petition ought not to be entertained. In case the arbitration proceeding continues simultaneously with the criminal trial, there is real danger of conflicting conclusions by the two fora, leading to unnecessary confusion.

10. I have heard the learned counsel for the parties.

11. The submissions made in the petition as well as in the counter affidavit have been reiterated before me by the learned counsel. I have given due consideration to the submissions made by the learned counsel for the parties.

12. The learned counsel for the petitioners has relied on an unreported Order of this Court dated 11th April, 2012 in Commit. Commonwealth Game. 2010, wherein the dispute in almost identical circumstances have been referred to arbitration.

13. On the other hand, learned counsel for the respondent has Maestro Engineers & Ors.[1] He has also relied upon Guru Reliance is also placed on India Household and Healthcare

14. The procedure for Dispute Resolution has been provided in Clause 38 of the agreement, which is as under: “38. Dispute Resolution

38.1 If a dispute arises between the parties out of or relating to this Agreement (a “Dispute”), any party seeking to resolve the Dispute must do so strictly in accordance with the provisions of this clause. Compliance with the provisions of this clause is a condition precedent to seeking a resolution of the Dispute at the arbitral tribunal constituted in accordance with this clause 38.

38.2 During a Dispute, each party must continue to perform its obligations under this Agreement.

38.3 A party seeking to resolve the Dispute must notify the existence and nature of the Dispute to the other party (“the Notification”). Upon receipt of the Notification the Parties must use their respective reasonable endeavours to negotiate to resolve the Dispute by discussions between Delhi 2010 (or a person it nominates) and the Service Provider (or a person it nominates). If the Dispute has not been resolved within 10 Business Days of receipt of the Notification (or such other period as agreed in writing by the parties) then the parties must refer the Dispute to the Chairman of Delhi 2010 and the Chief Executive Officer or its equivalent) of the Service Provider.

38.4 If the Dispute has not been settled within 5 Business Days of referral under Clause 38.3, the Dispute shall be settled by arbitration in accordance with the following clauses.

38.5 For any dispute arising after 31 July, 2010, the relevant period in clause 38.3 is 48 hours and the relevant period in clause 38.4 is 24 hours.

38.6 The Dispute shall be referred to a tribunal consisting of three Arbitrators, one to be nominated by each party, with the presiding Arbitrator to be nominated by the two arbitrators nominated by the parties. The Arbitrators shall be retired judges of the Supreme Court or High Courts of India. However, the Presiding Arbitrator shall be a retired Supreme Court Judge.

38.7 The place of arbitration shall be New Delhi. All arbitration proceedings shall be conducted in English in accordance with the provisions of the Arbitration and Conciliation Act, 1996 as amended from time to time.

38.8 The arbitration award will be final and binding upon the parties, and each party will bear its own costs of arbitration and equally share the fees of the arbitral tribunal unless the arbitral tribunal decides otherwise.

38.9 This clause 38 will not affect each party’s rights to seek interlocutory relief in a court of competent jurisdiction.”

15. I am unable to agree with the submission made by the learned counsel for the respondent that the petitioner has not satisfied the condition precedent under Clause 38.3. A perusal of the correspondence placed on the record of the petition clearly shows that not only the petitioner but even the ambassadors of the various governments had made considerable efforts to resolve the issue without having to take recourse to formal arbitration. It is only when all these efforts failed, that the petitioner communicated to the respondent its intention to commence arbitration by letter /notice dated 22nd April, 2013. This was preceded by letters dated 4th February, 2011, 14th March, 2011 and 20th April, 2011 which clearly reflect the efforts made by the petitioner to resolve disputes through discussions and negotiations before sending the notice invoking arbitration clause.

16. It is evident from the counter affidavit filed by the respondents that the disputes have arisen between the parties out of or relating to the agreement dated 11th March, 2010. On the one hand, the respondent disputes the claims made by the petitioner and on the other, it takes the plea that efforts were made to amicably put a “closure to the agreement”. I, therefore, do not find any merit in the submission of the respondent that the petition is not maintainable for non-compliance with Clause 38.3 of the Dispute Resolution Clause.

17. The second preliminary objection raised by the respondent is on the ground that the contract stands vitiated and is void ab-initio in view of Clauses 29, 30 and 34 of the agreement dated 11th March, 2010. I am of the considered opinion that the aforesaid preliminary objection is without any substance.

Under Clause 29, both sides have given a warranty not to indulge in corrupt practices to induce execution of the Agreement. Clause 34 empowers the Organising Committee to terminate the contract after deciding that the contract was executed in breach of the undertaking given in Clause 29 of the Contract. These are allegations which will have to be established in a proper forum on the basis of the oral and documentary evidence, produced by the parties, in support of their respective claims. The objection taken is to the manner in which the grant of the contract was manipulated in favour of the petitioner. The second ground is that the rates charged by the petitioner were exorbitant. Both these issues can be taken care of in the award. Certainly if the respondent is able to produce sufficient evidence to show that the similar services could have been procured for a lesser price, the arbitral tribunal would take the same into account whilst computing the amounts payable to the petitioner. As a pure question of law, I am unable to accept the very broad proposition that whenever a contract is said to be void-ab-initio, the Courts exercising jurisdiction under Section 8 and Section 11 of the Arbitration Act, 1996 are rendered powerless to refer the disputes to arbitration.

18. However, the respondent has placed strong reliance on the judgment of this Court in N. Radhakrishnan (supra). In that case, disputes had arisen between the appellant and the respondent, who were partners in a firm known as Maestro Engineers. The appellant had retired from the firm.

Subsequently, the appellant alleged that he continued to be a partner. The respondent filed a Civil Suit seeking a declaration that the appellant is not a partner of the firm.

In this suit, the appellant filed an application under Section 8 of the Arbitration Act seeking reference of the dispute to the arbitration. The plea was rejected by the trial court and the High Court in Civil Revision. This Court also rejected the prayer of the appellant for reference of the dispute to arbitration. This Court found that subject matter of the dispute was within the ambit of the arbitration clause. It was held as under :

“14. The learned counsel for the respondents further argued that the subject-matter of the suit being OS No. 526 of 2006 was a different one and it was not within the ambit of the arbitration clause of the partnership deed dated 7-4-2003 and that the partnership deed had ceased to exist after the firm was reconstituted due to the alleged retirement of the appellant. Therefore, the trial court was justified in not referring the matter to the arbitrator.

15. The appellant had on the other hand contended that the subject-matter of the suit was within the ambit of the arbitration clause since according to him the dispute related to his retirement and the settlement of his dues after he was deemed to have retired according to the respondents. Further, it was his contention that the partnership deed dated 6-12-2005 was not a valid one as it was not framed in compliance with the requirements under the Partnership Act, 1932. Therefore, the argument of the respondents that the subject-matter of the suit did not fall within the ambit of the arbitration clause of the original partnership deed dated 7-4-2003 cannot be sustained. We are in agreement with the contention of the appellant to this effect.

16. It is clear from a perusal of the documents that there was a clear dispute regarding the reconstitution of the partnership firm and the subsequent deed framed to that effect.

The dispute was relating to the continuation of the appellant as a partner of the firm, and especially when the respondents prayed for a declaration to the effect that the appellant had ceased to be a partner of the firm after his retirement, there is no doubt in our mind that the dispute squarely fell within the purview of the arbitration clause of the partnership deed dated 7-4-2003. Therefore, the arbitrator was competent to decide the matter relating to the existence of the original deed and its validity to that effect. Thus, the contention that the subject-matter of the suit before the Ist Additional District Munsiff Court at Coimbatore was beyond the purview of the arbitration clause, cannot be accepted.”

19. Having found that the subject matter of the suit was within the jurisdiction of the arbitration, it was held that the disputes can not be referred to arbitration. This Court approved the finding of the High Court that since the case relates to allegations of fraud and serious malpractices on the part of the respondents, such a situation can only be settled in court through furtherance of detailed evidence by either parties and such a situation can not be properly gone into by the arbitrator. In my opinion, the aforesaid observations runs counter to the ratio of the law laid down Midway Petroleums[4], wherein this Court in Paragraph 14 observed as follows:

“If in an agreement between the parties before the civil court, there is a clause for arbitration, it is mandatory for the civil court to refer the dispute to an arbitrator. In the instant case the existence of an arbitral clause in the agreement is accepted by both the parties as also by the courts below. Therefore, in view of the mandatory language of Section 8 of the Act, the courts below ought to have referred the dispute to arbitration.” 20. In my opinion, the observations in Hindustan Petroleum Corpn.

Ltd. (supra) lays down the correct law. Although, reference has been made to the aforesaid observations in N.

Radhakrishnan (supra) but the same have not been distinguished. A Two Judge Bench of this Court in P. Anand earlier considered the scope of the provisions contained in Section 8 and observed as follows: “8. In the matter before us, the arbitration agreement covers all the disputes between the parties in the proceedings before us and even more than that. As already noted, the arbitration agreement satisfies the requirements of Section 7 of the new Act. The language of Section 8 is peremptory. It is, therefore, obligatory for the Court to refer the parties to arbitration in terms [pic]of their arbitration agreement. Nothing remains to be decided in the original action or the appeal arising therefrom.

There is no question of stay of the proceedings till the arbitration proceedings conclude and the award becomes final in terms of the provisions of the new Act. All the rights, obligations and remedies of the parties would now be governed by the new Act including the right to challenge the award. The court to which the party shall have recourse to challenge the award would be the court as defined in clause (e) of Section 2 of the new Act and not the court to which an application under Section 8 of the new Act is made. An application before a court under Section 8 merely brings to the court’s notice that the subject-matter of the action before it is the subject-matter of an arbitration agreement. This would not be such an application as contemplated under Section 42 of the Act as the court trying the action may or may not have had jurisdiction to try the suit to start with or be the competent court within the meaning of Section 2(e) of the new Act.”

21. This judgment was not even brought to the notice of the Court in N. Radhakrishnan (supra). In my opinion, judgment in N.

Radhakrishnan (supra) is per incuriam on two grounds:

Firstly, the judgment in Hindustan Petroleum Corpn. Ltd.

(supra) though referred has not been distinguished but at the same time is not followed also. The judgment in P. Anand Gajapathi Raju & Ors. (supra) was not even brought to the notice of this Court. Therefore, the same has neither been followed nor considered. Secondly, the provision contained in Section 16 of the Arbitration Act, 1996 were also not brought to the notice by this Court. Therefore, in my opinion, the judgment in N. Radhakrishnan (supra) does not lay down the correct law and can not be relied upon.

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