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INDEX OF AUTHORITIES

ARTICLES
 Lew, “The Law Applicable to the Form and Substance of the Clause”, ICCA
Congress Series No.14, 1998, Paris
BOOKS
 Commercial Arbitration, 1982 Edition
 Halsbury's Laws of England, Fourth Edition, Volume 2
DICTIONARY
 Black’s Law Dictionary, (Brian A. Garner ed., 7th ed., West Group, 1991)
 Judicial Dictionary 14th edition; Lexis Nexis ;(Butterworths)
STATUTES
 CIAC Rules
 Arbitration and Conciliation Act, 1996
 General clauses act,1897
FOREIGN STATUTES AND INTERNATIONAL INSTRUMENTS
 UNCITRAL
 Convention of International Sale of Goods,1980
 United Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, New York, 10 June 1958
WEBSITES
 www.manupatra.com
 www.legalpundits.com
 www.helplinelaw.com
 www.indlaw.com
 www.judis.com
 www.supremecourtonline.com
 www.ciac.in
 www.kaplegal.com
TABLE OF CASES

Union of India v. McDonnell Douglas Corp. [1993] 2 Lloyd’s Rep 48


X.L. Insurance Ltd. v. Owens Corning [2000] 2 Lloyd’s Rep 500
Deewan Singh and Ors. v. Rajendra Pd. Ardevi and Ors, AIR 2007 SC 767
Secretary to the Government, Transport Department Mashas Vs. Munuswamy AIR
1988 SC 2232
British Sugar Plc v NEI Power Projects Ltd ([1998] 87 BLR 42)
Hotel Services Ltd v Hilton International Hotels (UK) Ltd. [2004] 3 Lloyd’s Rep 35
Chiemgauer Membran Und Zeltbau Gmbh v New Millennium Experience Company
Limited, [2000] 56 BLR 31.
Hadley v Baxendale ([1854] 9 Exch 341)
Ferris v. Plaister (1994) SC NSW
Tan Poh Leng Stanely v Tang Boon Jek Jeffrey. HC (Singapore), Nov 30, 2000
Air India Ltd. v. Cochin International Airport Ltd.
STATEMENT OF FACTS

1. Delhi is and has been in anticipation of the Commonwealth Games which


is to be held in the city in 2010. Government of Delhi invited tenders for
the construction of a bridge over the Yamuna River connecting the
commonwealth village to main city on a public private participation. After
the evaluation of the bids, a consortium led by RMC & Co, a reputed
Indian construction company and KUTSCO, a large Korean Chaebol
having offices all over the world including Singapore won the tender. RMC
& Co, though it had vast expertise in the area did not have the
infrastructural support to complete such a large project on its own.
KUTSCO had all the necessary expertise and technology for the job. RMC
& Co and KUTSCO formed a company BEHEMOTH INTERNATIONAL
(PVT) LTD (hereinafter BEHEMOTH) for the purpose of entering into
concession agreement. Some of the political parties raised the objection
that project work was in effect being allotted to a foreign company i.e.
KUTSCO and the Indian company was merely an observer. The
Government allayed their fears by releasing a press statement that though
KUTSCO had a 60 % investment/stake in BEHEMOTH both the RMC
Group as well as the Chaebol had equal say when it came to issues of
management of the Company and running its activities.
2. Govt. of Delhi(hereinafter GOD) issued the letter of acceptance dated 9 th
December 2005 (LOA) to the consortium requiring, inter alia, their
execution of this concession Agreement within 45 days of the date thereof.
3. The Concession Agreement was entered into and signed in Singapore
between GOD and BEHEMOTH on 24 th of January, 2006. As per the
agreement, the construction of the bridge was to be undertaken by the
concessionaire in conformity with the project milestone set forth in
Schedule “A”
4. The Scope of work included performance and execution of all design,
engineering, financing, procurement, construction, completion, operation
and maintenance of the project bridge. It also included construction of
approach roads on either side of the bridge in accordance with
specification and standard and operation and maintenance thereof in
accordance with this agreement.
5. One Mr. K Chatjee was appointed as Independent Engineer by GOD on
4 th of March 2006. The concessionaire was informed of the said appointment. Mr.
Chatjee was earlier employed with KUTSCO. His
employment had been terminated on various grounds of misconduct and
hence BEHEMOTH wrote a letter to GOD questioning his ‘independence’.
GOD argued that it was difficult to find someone as qualified and
experienced as Mr. Chatjee for the job. The same was true. After a back
and forth volley of letters on this issue, GOD prevailed over BEHEMOTH
and Mr. Chatjee came to be the ‘Independent Engineer’ for the project.
6. The agreement granted the claimants a concession to design,
engineering, financing, procurement, construction, completion, operation
and maintenance of the project bridge for a term of 9 years (construction
of project is to be completed within 5 years). As per the agreement, the
construction of the bridge was to be undertaken by the concessionaire in
conformity with project milestones (Schedule “A”) set forth in the
agreement. Milestone-I was to be completed within the 6 months from the
date of the appointment (ending 24 July 2006)
7. GOD was unable to give the physical possession of the Project Site free
from Encumbrance within 30 days from the date of this Agreement. On
account of the delay on the part of Govt. of Delhi in providing certain tract
of land admeasuring 60,000 sq mts, constituting the core of the project
site, work on the project could not be started. Under these circumstances,
BEHEMOTH sought extension of 3 months ending 24 th October 2006. But
Govt. upon consideration granted only 2 months extension of time ending
24 th September 2006.
8. However, Govt. of Delhi acquired and provided the site to the
concessionaire on 20 th March 2006. The concessionaire started the work
in accordance with milestone 1 set forth in Schedule “A” viz. Construction
of temporary approaches, site inspection, building of godowns, laboratory
to check quality of material, preparation of design and drawing of bridge.
9. Meanwhile the “ECO Friendly” NGO filed a PIL in the Delhi High Court on
13 th August 2006 against the said project on the basis that it will have
adverse effect on water bodies and will deplete the resources of river. The
high court asked the Geological survey of India to submit its report within
two months ending on 15 th October 2006 and meanwhile passed a stay
order on further construction. The High Court on 25 th October 2006
allowed the construction on the report of the Geological Survey of India,
which recommended the construction subject to few restrictions, which
required change in scope of work.
10.The GOD issued notice, through the Independent Engineer, to
concessionaire regarding Changes in accordance with the order of High
Court on 2 nd November 2006 (Article 10.1). The impact and the cost to the
Concessionaire of complying with such Change of Scope Notice were intimated by
the Concessionaire to the Independent Engineer as per
Article 10.2 (b) and extension of 5 months was sought. Further, on the
report of Independent Engineer, GOD issued the Change of Scope Order
on 10 December 2006 granted the 3 months extension ending 10 th March,
2007 for completion of milestone 1.
11. The concessionaire was not able to work on the site from 14 th August
2006 to 10 th December 2006 on account of the stay order passed by the
High Court of Delhi and the change of scope notice issued by the GOD.
12. BEHEMOTH was able to achieve the target of milestone-I on 10 th April
2007 and cited “continued hindrance and obstruction from the
environment group” and said that the time extended under change of
scope order was insufficient as the reason of delay.
13. The concessionaire submitted a copy each of all Drawings of the project to
the Independent Engineer and the Steering Group for their approval on
25 th March 2007. The report of Independent Engineer dated 14 th April
2007 indicated that the Drawings are not in conformity with the
Specifications and Standards, and such Drawings shall be revised by the
Concessionaire to the extent necessary and resubmitted to Independent
Engineer for further review. The concessionaire complained to the GOD
regarding the independence of the Independent Engineer and accused
Mr. Chatjee of being vengeful. The said complaint was again ignored by
GOD.
14. The concessionaire resubmitted the drawings for approval on 22 nd April
2007. The same was approved by the Independent Engineer on 18 th May
2007.
15.The concessionaire proceeded with the work on the basis of drawings and
completed the 30% of foundation work in milestone 2 as against stipulated
work in schedule A ending on 10 th April 2008. The concessionaire asked
for an extension of 3 months ending on 10 th July 2008 and cited the
reason as delay in getting approval of drawings by the Independent
Engineer. However, GOD denied any extension to the concessionaire in
accordance with the provision of Article 7.2 (f).
16.BEHEMOTH was unable to achieve the project target of Milestone II on
10 th April 2008. Thus, Govt. of Delhi by the preliminary notice dated 12 th
April 2008 addressed to BEHEMOTH, stated that;
i. BEHEMOTH had breached the contract by “Failing and
neglecting to duly and faithfully perform their obligation”
under the agreement; ii. The intention to issue the Termination Notice and asked
BEHEMOTH as to why Govt. of Delhi should not forfeit the
bank guarantee provided as performances security.
17. The concessionaire in its reply dated 20 th April 2008 to the "Preliminary
Notice" stated that the delay was due to late approval of design by the
independent engineer and assured that the delay will be cured within two
months from the date of this reply.
18. On 25 th April 2008 Mr. Ramu B, the Chairman of the Board of Directors of
RMC & Co came out with a disclosure of widespread financial
irregularities and mal practices in the Company. He admitted that the
accounts and registers of the company were fudged. Its credit worthiness
came under the scanner of regulatory bodies.
19. In the meanwhile BEHEMOTH had won the tender to build a large mall in
South Delhi worth 5000 USD and had to take out some of its machinery
from the project site for the construction of the mall. GOD objected and did
not permit the concessionaire to take out the machinery. The reason
attributed was that the machinery could not be taken out till “contractual
formalities were completed”. As a result the concessionaire had to forego
the mall project since it did not want to fall foul of contractual stipulations
associated with that project and be subject to legal liabilities.
20. Further, GOD encashed the Performance Security with a notice to the
Concessionaire (Encashment Notice), dated 12 th May 2008.
21. The concessionaire was not able to cure the delay or furnish fresh
Performance Security in accordance with Article 3.2, within the stipulated
time mentioned in Article 11.2 (A)(1).
22. GOD, further, on 12 th August 2008 issued a termination notice on the
ground interalia that the inability of BEHEMOTH to achieve project target
of Milestone II even within the cure period, failure to furnish fresh
Performance Security and also submitted that BEHEMOTH defaulted on
its work schedules right from the outset, entitling Govt. of Delhi to
terminate the agreement. GOD also affirmed in the notice of termination
that owing to the newly disclosed malpractices and financial instability of
RMC & Co, BEHEMOTH was in no position to complete the project as per
the Schedule.
23. The contract was further given to another contractor namely AVARAM
Company.
24. BEHEMOTH contended that agreement was wrongfully terminated and
termination notice was improper and there was a violation of procedure
stated in the agreement. Further, there was no reply from GOD with
respect to grant of 2 months cure period as requested in the reply to the
Preliminary Notice (dated 20 th April 2008). Further, GOD straightaway
encashed the Performance Security and no time was given to the
concessionaire to make its representation. It also contended that the
problems associated with RMC & Co could in no way be linked to
BEHEMOTH which is a separate entity. Thus, termination was said to be
invalid and award of contract to AVARAM Company was also said to be
invalid.
25. Without prejudice to above position, BEHEMOTH also submitted that as
per the agreement provisions, Govt. of Delhi had failed to pay the
contractually stipulated termination payment. It was also claimed that
since GOD terminated the contract unilaterally, BEHEMOTH should be
entitled for damages on account of loss of profit.
26. BEHEMOTH issued a notice of Arbitration on 25 th January 2009 to Govt.
of Delhi with a copy to registrar of CIAC in which they had nominated Mr.
X as the arbitrator from the panel of arbitrators maintained by the CIAC.
As per the arbitration clause, any disputes arising out of the contract shall
be referred to an arbitral tribunal consisting of three arbitrators of which
one shall be an official of the local authority. Accordingly on 15 th
February, the GOD appointed Mr. Y, Chief Engineer, Public Works
Department, Govt. of Delhi who is also a member in the panel of
arbitrators maintained by CIAC as the nominated arbitrator. The Chairman
of the CIAC appointed Mr. Z as the presiding arbitrator. Notice was sent to
the parties on 20 th February 2009.
27. The arbitration proceedings were started on 20 th March 2009 in Delhi as
per CIAC Rules. BEHEMOTH also raised some preliminary objections as
to the competency and jurisdiction of arbitrators on the following grounds:
a. The tribunal is not constituted as per the agreement
of the parties.
b. Mr. Y’s association with the Govt. would invariably
bring in the element of bias in the decision making
process.
c. The constitution of the tribunal is not in accordance
with the Indian Law on arbitration.
d. The arbitral tribunal does not have jurisdiction to
decide the issue of damages for loss of profit.
NOTICE OF ARBITRATION

25-1-2009

Name of Claimant: BEHEMOTH INTERNATIONAL (PVT) LTD

AND

Name of Respondent: GOVERNMENT OF DELHI

In accordance with the requirements of Rule 4.1 of the arbitration rules


of the CONSTRUCTION INDUSTRY ARBITRATION COUNCIL (CIAC
ARBITRATION RULES), Claimant hereby notifies the Respondent through
this notice of arbitration which shall witnesseth all of which is being referred
below:

PURSUANT to Rule 4.1.a, demand is hereby made that the dispute


between Behemoth International Pvt. Ltd. and Government of Delhi be
referred to arbitration.

PURSUANT to Rule 4.1.c, a copy of the arbitration clause contained in


the attached concessionaire agreement located at page 25, paragraph 3 is
referenced as follows:

“14.2. Arbitration

a) All and any dispute arising out of or in connection with this contract,
including any question regarding its existence, validity or termination,
shall be referred to and finally resolved by arbitration in New Delhi in
accordance with the Arbitration Rules of the Construction Industry
Arbitration Council ("CIAC Arbitration Rules") for the time being in
force at the commencement of the arbitration, which rules are deemed
to be incorporated by reference in this clause.”

PURSUANT to Rule 4.1.d., a copy of the relevant concessionaire


agreement entered into between Behemoth International (PVT) Ltd and
Government of Delhi on 24th day of January is also attached hereto.
PURSUANT to Rule 4.1.e., Behemoth International (PVT) Ltd sets
forth a statement of the nature of the dispute and the amount involved, as
follows:

1. Delhi is and has been in anticipation of the Commonwealth Games which


is to be held in the city in 2010. Government of Delhi invited tenders for
the construction of a bridge over the Yamuna River connecting the
commonwealth village to main city on a public private participation. After
the evaluation of the bids, a consortium led by RMC & Co, a reputed
Indian construction company and KUTSCO, a large Korean Chaebol
having offices all over the world including Singapore won the tender. RMC
& Co, though it had vast expertise in the area did not have the
infrastructural support to complete such a large project on its own.
KUTSCO had all the necessary expertise and technology for the job. RMC
& Co and KUTSCO formed a company BEHEMOTH INTERNATIONAL
(PVT) LTD (hereinafter BEHEMOTH) for the purpose of entering into
concession agreement.
2. Govt. of Delhi(hereinafter GOD) issued the letter of acceptance dated 9 th
December 2005 (LOA) to the consortium requiring, inter alia, their
execution of this concession Agreement within 45 days of the date thereof.
3. The Concession Agreement was entered into and signed in Singapore
between GOD and BEHEMOTH on 24 th of January, 2006.
4. The Scope of work included performance and execution of all design,
engineering, financing, procurement, construction, completion, operation
and maintenance of the project bridge. It also included construction of
approach roads on either side of the bridge in accordance with
specification and standard and operation and maintenance thereof in
accordance with this agreement.
5. One Mr. K Chatjee was appointed as Independent Engineer by GOD on
4 th of March 2006. The concessionaire was informed of the said appointment. Mr.
Chatjee was earlier employed with KUTSCO. His
employment had been terminated on various grounds of misconduct and
hence BEHEMOTH wrote a letter to GOD questioning his ‘independence’.
GOD argued that it was difficult to find someone as qualified and
experienced as Mr. Chatjee for the job. After a back
and forth volley of letters on this issue, GOD prevailed over BEHEMOTH
and Mr. Chatjee came to be the ‘Independent Engineer’ for the project.
6. The agreement granted the claimants a concession to design,
engineering, financing, procurement, construction, completion, operation
and maintenance of the project bridge for a term of 9 years (construction
of project is to be completed within 5 years). As per the agreement, the
construction of the bridge was to be undertaken by the concessionaire in
conformity with project milestones (Schedule “A”) set forth in the
agreement. Milestone-I was to be completed within the 6 months from the
date of the appointment (ending 24 July 2006)
7. GOD was unable to give the physical possession of the Project Site free
from Encumbrance within 30 days from the date of this Agreement. On
account of the delay on the part of Govt. of Delhi in providing certain tract
of land admeasuring 60,000 sq mts, constituting the core of the project
site, work on the project could not be started. Under these circumstances,
BEHEMOTH sought extension of 3 months ending 24 th October 2006. But
Govt. upon consideration granted only 2 months extension of time ending
24 th September 2006.
8. However, Govt. of Delhi acquired and provided the site to the
concessionaire on 20 th March 2006. The concessionaire started the work
in accordance with milestone 1 set forth in Schedule “A” viz. Construction
of temporary approaches, site inspection, building of godowns, laboratory
to check quality of material, preparation of design and drawing of bridge.
9. Meanwhile the “ECO Friendly” NGO filed a PIL in the Delhi High Court on
13 th August 2006 against the said project on the basis that it will have
adverse effect on water bodies and will deplete the resources of river. The
high court asked the Geological survey of India to submit its report within
two months ending on 15 th October 2006 and meanwhile passed a stay
order on further construction. The High Court on 25 th October 2006
allowed the construction on the report of the Geological Survey of India,
which recommended the construction subject to few restrictions, which
required change in scope of work.
10.The GOD issued notice, through the Independent Engineer, to
concessionaire regarding Changes in accordance with the order of High
Court on 2 nd November 2006 (Article 10.1). The impact and the cost to the
Concessionaire of complying with such Change of Scope Notice were
intimated by the Concessionaire to the Independent Engineer as per
Article 10.2 (b) and extension of 5 months was sought. Further, on the
report of Independent Engineer, GOD issued the Change of Scope Order
on 10 December 2006 granted the 3 months extension ending 10 th March,
2007 for completion of milestone 1.
11. The concessionaire was not able to work on the site from 14 th August
2006 to 10 th December 2006 on account of the stay order passed by the
High Court of Delhi and the change of scope notice issued by the GOD.
12. BEHEMOTH was able to achieve the target of milestone-I on 10 th April
2007 and cited “continued hindrance and obstruction from the
environment group” and said that the time extended under change of
scope order was insufficient as the reason of delay.
13. The concessionaire submitted a copy each of all Drawings of the project to
the Independent Engineer and the Steering Group for their approval on
25 th March 2007. The report of Independent Engineer dated 14 th April
2007 indicated that the Drawings are not in conformity with the
Specifications and Standards, and such Drawings shall be revised by the
Concessionaire to the extent necessary and resubmitted to Independent
Engineer for further review. The concessionaire complained to the GOD
regarding the independence of the Independent Engineer and accused
Mr. Chatjee of being vengeful. The said complaint was again ignored by
GOD.
14. The concessionaire resubmitted the drawings for approval on 22 nd April
2007. The same was approved by the Independent Engineer on 18 th May
2007.
15.The concessionaire proceeded with the work on the basis of drawings and
completed the 30% of foundation work in milestone 2 as against stipulated
work in schedule A ending on 10 th April 2008. The concessionaire asked
for an extension of 3 months ending on 10 th July 2008 and cited the
reason as delay in getting approval of drawings by the Independent
Engineer. However, GOD denied any extension to the concessionaire in
accordance with the provision of Article 7.2 (f).
16.BEHEMOTH was unable to achieve the project target of Milestone II on
10 th April 2008. Thus, Govt. of Delhi sent a preliminary notice dated 12 th
April 2008 addressed to BEHEMOTH
17. The concessionaire in its reply dated 20 th April 2008 to the "Preliminary
Notice" stated that the delay was due to late approval of design by the
independent engineer and assured that the delay will be cured within two
months from the date of this reply.
18. On 25 th April 2008 Mr. Ramu B, the Chairman of the Board of Directors of
RMC & Co came out with a disclosure of widespread financial
irregularities and mal practices in the Company.
19. GOD encashed the Performance Security with a notice to the
Concessionaire (Encashment Notice), dated 12 th May 2008.
20. GOD, further, on 12 th August 2008 issued a termination notice on the
ground interalia that the inability of BEHEMOTH to achieve project target
of Milestone II even within the cure period, failure to furnish fresh
Performance Security.
21. The contract was further given to another contractor namely AVARAM
Company.
22. BEHEMOTH contended that agreement was wrongfully terminated and
termination notice was improper and there was a violation of procedure stated in the
agreement. Further, there was no reply from GOD with
respect to grant of 2 months cure period as requested in the reply to the
Preliminary Notice (dated 20 th April 2008). Further, GOD straightaway
encashed the Performance Security and no time was given to the
concessionaire to make its representation. It also contended that the
problems associated with RMC & Co could in no way be linked to
BEHEMOTH which is a separate entity. Thus, termination was said to be
invalid and award of contract to AVARAM Company was also said to be
invalid.
23. BEHEMOTH also submitted that as
per the agreement provisions, Govt. of Delhi had failed to pay the
contractually stipulated termination payment. It was also claimed that
since GOD terminated the contract unilaterally, BEHEMOTH should be
entitled for damages on account of loss of profit.
24. BEHEMOTH issued a notice of Arbitration on 25 th January 2009 to Govt.
of Delhi with a copy to registrar of CIAC in which they had nominated Mr.
X as the arbitrator from the panel of arbitrators maintained by the CIAC.
As per the arbitration clause, any disputes arising out of the contract shall
be referred to an arbitral tribunal consisting of three arbitrators of which
one shall be an official of the local authority. Accordingly on 15 th
February, the GOD appointed Mr. Y, Chief Engineer, Public Works
Department, Govt. of Delhi who is also a member in the panel of
arbitrators maintained by CIAC as the nominated arbitrator. The Chairman
of the CIAC appointed Mr. Z as the presiding arbitrator. Notice was sent to
the parties on 20 th February 2009.
25. The arbitration proceedings were started on 20 th March 2009 in Delhi as
per CIAC Rules. BEHEMOTH also raised some preliminary objections as
to the competency and jurisdiction of arbitrators on the following grounds:
a. The tribunal is not constituted as per the agreement
of the parties.
b. Mr. Y’s association with the Govt. would invariably
bring in the element of bias in the decision making
process.
c. The constitution of the tribunal is not in accordance
with the Indian Law on arbitration.
d. The arbitral tribunal does not have jurisdiction to decide the issue of damages for loss of
profit.

PURSUANT to Rule 4.1.f., the reliefs sought by Behemoth International


(PVT) Ltd are as follows:

THE ARBITRAL TRIBUNAL IS NOT COMPETENT FOR


ARBITRATING THE CURRENT DISPUTE

THE TERMINATION OF THE CONCESSION AGREEMENT


WAS INVALID.

PURSUANT to Rule 4.1.g., the total number of arbitrators shall be


three which shall be appointed and constituted in consonance with Article
14.2.(b) which is as affirmed below:

“The Tribunal shall consist of three arbitrators of which at least one


arbitrator shall be an official of the local authority. One arbitrator each shall
be appointed by each of the parties and the Chairman of the CIAC shall
nominate the third arbitrator.”

PURSUANT to Rule 4.1.h., the claimant, Behemoth International


(PVT) Ltd hereby nominates Mr. X as an arbitrator; the same being selected
from the panel of arbitrators so prepared by CIAC which is in compliance
with Rule 11.5.

The foregoing is not intended nor shall it be construed as a complete


recitation of the facts and events concerning the above-referenced matter, nor
shall it be construed as a waiver of any rights, remedies or claims, legal or
equitable, which Behemoth International (PVT) Ltd may have.
Sincerely,

BEHEMOTH INTERNATIONAL (PVT) LTD

QUESTIONS PRESENTED

A. WHETHER THE ARBITRAL TRIBUNAL IS NOT COMPETENT FOR


ARBITRATING THE CURRENT DISPUTE?

B.WHETHER THE TERMINATION OF THE CONCESSION AGREEMENT IS


VALID?
SUMMARY OF ARGUMENTS

A. THE ARBITRAL TRIBUNAL IS NOT COMPETENT FOR ARBITRATING THE


CURRENT DISPUTE.

A1. The Tribunal is not constituted as per the Agreement of the parties.
A2. Mr. Y’s association with the Government would invariably bring in the
element of bias in the decision making process.
A3. The constitution of the Tribunal is not in accordance with the Indian Law
on Arbitration.

B.THE TERMINATION OF THE CONCESSION AGREEMENT IS INVALID.


B1. The Agreement was wrongfully terminated, the Termination was not
proper and there was a violation of procedure for Termination stated in the
Agreement.
B2. Problems associated with RMC & Co. could in no way be linked to
BEHEMOTH as RMC & Co. is a separate entity.
B3. Award of contract to Avaram Company is invalid.
ARGUMENTS ADVANCED

A. THE ARBITRAL TRIBUNAL IS NOT COMPETENT FOR ARBITRATING


THE CURRENT DISPUTE.

The contention here is that (A1) the Tribunal is not constituted as per the
Agreement of the parties; (A2) Mr. Y’s association with the Government would
invariably bring in the element of bias in the decision making process; (A3) the
constitution of the Tribunal is not in accordance with the Indian Law on
Arbitration; and (A4) the Arbitral Tribunal does not have jurisdiction to decide
the issue of damages for loss of profit.

A1. The Tribunal is not constituted as per the agreement of the parties.
An arbitration clause in a commercial contract is an Agreement subsumed
within an Agreement.1 Disputes pertaining to the Agreement to arbitrate need
not necessarily be subject to the same laws as those applicable to the
commercial bargain itself or those governing the arbitral proceedings.2 Thus,
an express stipulation by the parties that a particular provision shall apply to
the appointment of arbitrators shall reign supreme.3

The appointment of arbitrators is the primary parameter to be adhered to, to


ensure judicious and unbiased arbitration. The appointment of arbitrators as
agreed to in the Concession Agreement between the parties ensure proper
deliverance of justice. The Claimant and Respondent had formerly agreed
upon to resolve any dispute by way of arbitration and the Concession

1
Union of India v. McDonnell Douglas Corp. [1993] 2 Lloyd’s Rep 48
2
X.L. Insurance Ltd. v. Owens Corning [2000] 2 Lloyd’s Rep 500
3
Lew, “The Law Applicable to the Form and Substance of the Clause”, ICCA Congress Series No.14,
1998, Paris
Agreement had express mentioning about the appointment of arbitrators
which was agreed upon by the parties.

Article 14.2(b) of the Concession Agreement requires that one of the


Arbitrators should be a member of the local authority and each party shall
nominate one arbitrator each and the presiding arbitrator shall be nominated
by the Chairman of CIAC. The Arbitrators nominated by BEHEMOTH, Mr.
X, and the Chairman of CIAC, Mr. Z, are not members of a local authority.
The Arbitrator nominated by GOD, Mr. Y, happens to be the Chief Engineer
of the Public Works Department, Delhi. As per the General Clauses Act, 1897
Section 3(31) “local authority” means a municipal committee, district or board,
board of port commissioners or other authority legally entitled, or entrusted
by the Government with the control or management of a municipal or local
fund.4 The distinctive attributes and characteristics of a municipal committee
district board or body of port commissioners are:
1. The authorities must have separate legal existence as corporate bodies.
2. They must function in a defined area and must be elected by the inhabitants
of the area.
3. The authority may not be complete and the degree of dependence may vary
considerably but an appreciable measure of authority must be there.
4. They must have power to raise funds for the furtherance of their activities
and the fulfillment of their projects by levying taxes, rates, charges or fees.

Public works department is a mere government agency which cannot be


attributed the qualities of a local authority. It does not satisfy any of the
conditions necessary for a local authority.

The Claimants were the first to nominate their arbitrator, Mr. X, to the arbitral
tribunal5. For the constitution of the arbitral tribunal to be in conformity with
the Concession Agreement it was the responsibility of GOD to have nominated
4
Deewan Singh and Ors. v. Rajendra Pd. Ardevi and Ors, AIR 2007 SC 767
5
Statement of Facts
an arbitrator who is a member of the local authority, which they have failed to
accomplish. Thus evidently the constitution of the arbitral tribunal is
inconsistent with the Concession Agreement.

A2. Mr. Y’s association with the Government would invariably bring in the
element of bias in the decision making process.
Reasonable apprehension of bias in the mind of a reasonable man can be a
ground for removal of the arbitrator. A predisposition to decide for or against
one party, without proper regard to the true merits of the dispute is bias. There
must be reasonable apprehension of that predisposition. The reasonable
apprehension must be based on cogent materials6. The observations of Mustill
and Boyd describe that the test for bias is whether a reasonable intelligent man,
fully appraised of all the circumstances, would feel a serious apprehension of
bias7.

CIAC is a body of arbitrators which maintains a panel of selected arbitrators for


attending cases requiring arbitration in matters pertaining to the construction
industry. The very purpose of maintaining a selected panel of arbitrators is to
ensure unbiased arbitration and further assure to both parties of the dispute
that justice shall be done. In spite of this the respondents have managed to find
an arbitrator, Mr. Y, Chief Engineer of PWD, Delhi, having very close
association with them. This invariably affects the independence of the
arbitrator. There is enough reasons for the claimants to legitimately doubt the
independence of Mr.Y. Independence in the present context implies to a person
capable of thinking independently without fear or favour. It is this very
condition that is not fulfilled in the case of Mr.Y. He being a mere employee of
GOD shall obviously have reasonable apprehension of possible repercussions
and this shall deeply influence his capacity of independent decision making.
Moreover there is also the possibility of Mr.Y being considerate and lenient

6
Secretary to the Government, Transport Department Mashas Vs. Munuswamy AIR 1988 SC 2232
7
Commercial Arbitration, 1982 Edition, page 214. Halsbury's Laws of England, Fourth Edition,
Volume 2, para 551, page 282
towards his employer, GOD. Thus it is very important to question Mr.Y’s
independence.

As mentioned above, the Hon’ble Supreme Court has itself justified “reasonable
apprehension of bias.” Thus Mr.Y would invariably bring in the element of bias in
the decision making process, by virtue of his non independence. Thus
disqualifying him from constituting the arbitral tribunal.

A3. The constitution of the Tribunal is not in accordance with the Indian Law
on Arbitration.

The Concession Agreement under Article 1.1 defines ‘Arbitration act’ as the
Arbitration and Conciliation act,1996 which shall include modifications to or
any re enactment thereof as in force from time to time. The Arbitration and
Conciliation act,1996 is one of the governing legislations in matters pertaining
to arbitration in India.

The fact that Behemoth and GOD have chosen the place of arbitration as India
makes the arbitration and conciliation act yet more important. There are
express provision in the act wherein the issue of appointment of arbitrators are
dealt with.

The Concession Agreement under the title ‘Dispute resolution’ in Article 14.2
provides for an alternate mode of appointment of arbitrators in conformity
with the CIAC rules. The alternate procedure agreed upon by the parties
mandates that one of the arbitrators should be a member of the local authority.
Unfortunately in the instant case the respondents have failed to fulfill this
requirement. Thus evidently the alternate procedure agreed upon by the parties
have failed. It is in this context that Section 11 of the Arbitration and
Conciliation Act, 1996 comes to the limelight.
Section 11(2) states that-
“Subject to sub-section (6), the parties are free to agree on a procedure for
appointing the arbitrator or arbitrators”
Section 11(2) permits the parties to agree on an arbitrator or arbitrators. But in
the instant case the Agreement for appointment of arbitrators has been
violated. The respondents have failed to appoint an arbitrator who is a member
of the local authority. Thus, herein the procedure previously agreed upon is
inactive.
B. THE TERMINATION OF THE CONCESSION AGREEMENT IS INVALID.
B1. The Agreement was wrongfully terminated and there was a violation of
procedure for termination stated in the Agreement.
According to Article 11.2 (A) (1) of the Concession Agreement GOD shall be
entitled to terminate this Agreement by issuing a termination notice due to an
event of default by from the part of the Concessionaire. The Event of Default,
explained from Articles 11.1 (a) (1) to 11.1 (a) (9), is an event executed by the
concessionaire unless it is an event of default of GOD or a Force Majeure event.
Whereas a force Majeure event is an event which (1) is beyond the reasonable
control and not arising out of the fault of the concessionaire and the
concessionaire (2) has been unable to overcome such act or event by the exercise
of due diligence and reasonable efforts, skill and care, and (3) has a Material
Adverse Effect on the project.8

On the outset of the project, GOD who was entitled to give the physical
possession of the Project Site free from Encumbrance within 30 days from the
date of the Agreement had failed to do so. After the delayed acquisition of the
Project Site from GOD the concessionaire had initiated the work to achieve mile
stone 1 within the prescribed time but was restricted from working due to a stay
order from the High Court of Delhi, which was provoked by a PIL from the NGO
“Eco Friendly” alleging that the Project would have adverse effects on water
bodies and will deplete the resources of the river even though, through Article
2.8 of the Concession Agreement, GOD had affirmed that the Project/Project Site
had been granted clearances relating to environmental protection and
conservation. The above mentioned events had caused great delay in attaining
Milestone 1 by the Concessionaire. At the same time, the Independent Engineer
appointed, had failed to furnish the report regarding the Drawings of the Project
(as per Article 7.1) within 15 (fifteen) days of the receipt of the Drawings in
accordance to Article 7.2 (b) of the Concession Agreement. The Concessionaire
had resubmitted the Drawings on 22-04-2007 for approval to the Independent

8
Article 13 of the Concession Agreement
Engineer who, for the second time, failed to furnish the report regarding the
Drawings within 15 (fifteen) days.

Here, the claimant claims the above incidents as Force Majeure Events, as the
above events satisfy the requirements of a Force Majeure Event, delaying the
Concessionaire from achieving Milestone 2 and leading the GOD to terminate the
Agreement without an Event of Default of the Concessionaire whereas the
Agreement was subject to Termination by the GOD only upon the occurrence of a
Concessionaire Event of Default.

Since the delay in achieving Milestone 2 of the Project was caused due to Force
Majeure Events and at the same time it being not an Event of Default of the
Concessionaire, the claimant claims that the Agreement was wrongly terminated
by the GOD and the Termination was not proper.

B2. Problems associated with RMC & Co. could in no way be linked to
BEHEMOTH as RMC & Co. is a separate entity.
BEHEMOTH INTERNATIONAL (PVT) LTD is a consortium incorporated under
the Companies Act, 1956 and is led by RMC & Co. a reputed Indian construction
company and KUTSCO a large Korean Chaebol. The claimant claims that even
though RMC & Co forms an integral part of the consortium it is itself still a
registered company. If it were the same entity, then there would not have arisen a
need for BEHEMOTH to register. So the claimant claims that RMC & Co. is a
separate entity. Even if RMC & Co. had not been a separate entity when related
with BEHEMOTH, the allegations against RMC & Co. ought not been considered
for Termination of the Agreement by the GOD because; even though Mr. Ramu
B., Chairman of the Board of Directors of RMC & Co. had disclosed of the
financial irregularities in the company, the regulatory bodies did not recommend
or command for dissolving the company, but only placed the company for
surveillance. This meant that the company was able to continue to exist even in
the light of the disclosure and the surveillance of the regulatory bodies. Thus the
problems faced by RMC & Co. in no way would have had any influence in the
running of the Consortium. Thus the claimant claims that problems associated
with RMC & Co. could in no way be linked to BEHEMOTH as RMC & Co. is a
separate entity.

B3. Award of contract to Avaram Company is invalid.


In Air India Ltd. v. Cochin International Airport Ltd.9 it was held that,

“In awarding a contract the State, its corporations, instrumentalities and agencies have
the public duty to be fair to all concerned.” [Emphasis added]

There is no prohibition placed upon GOD refraining it from forming a new


contract with another. The only condition that is required is that the currently
existing Agreement, if any, has to be properly terminated in order to form a new
contract. Here, the Agreement between BEHEMOTH and GOD had been
terminated wrongly and the termination was not valid. Since there is an
Agreement still subsisting, the claimant claims that the award of contract to
Avaram Company is also invalid.

B4. GOD has violated the provisions of the Agreement as it has failed to pay
the contractually stipulated Termination Payment and BEHEMOTH should be
entitled for damages on account of loss of profit.

Article 11.4 stipulates about the Termination Payment, pursuant to Article 11,
which is to be paid by the GOD to the Concessionaire after Termination of the
Concession Agreement. Article 11.4 states that,
“The Termination Payment pursuant to Article 11 as the case may be, shall be payable to
the Concessionaire by GOD within thirty days of demand being made by the
Concessionaire with the necessary particulars duly certified by the Statutory Auditors. If
GOD fails to pay Termination Payment in full within the said period of 60 days, the

9
AIR 2000 SC 801
amount remaining unpaid shall be paid along with interest @ SBI PLR plus two percent
from the Termination Date till payment.”
Here; after the Termination Process was completed, the GOD had failed to
furnish the Termination Payment to the Concessionaire. The Termination
Payment, supposed to be paid within 30 days, by the GOD on demand of the
Concessionaire was not paid even after the Concessionaire had demanded for
payment. Thus it is a violation of Article 11.4 of the Concession Agreement. At
the same time, the claimant has claimed that the Termination was unilateral so
the Concessionaire is entitled for damages for loss of profit.
PRAYER FOR RELIEF

In light of the above submissions, Counsel respectfully requests the Tribunal to find that:

A. THE ARBITRAL TRIBUNAL IS NOT COMPETENT FOR ARBITRATING THE


CURRENT DISPUTE.

A1. The Tribunal is not constituted as per the Agreement of the parties.
A2. Mr. Y’s association with the Government would invariably bring in the
element of bias in the decision making process.
A3. The constitution of the Tribunal is not in accordance with the Indian Law
on Arbitration.

B.THE TERMINATION OF THE CONCESSION AGREEMENT IS INVALID.


B1. The Agreement was wrongfully terminated, the Termination was not
proper and there was a violation of procedure for Termination stated in the
Agreement.
B2. Problems associated with RMC & Co. could in no way be linked to
BEHEMOTH as RMC & Co. is a separate entity.
B3. Award of contract to Avaram Company is invalid.

Signed Counsel for the Claimant

____________ ____________ ___________

Aneesh S Basil Ajith Syamnath JG