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

International Airport Authority of India v. K. D. Bali (1988) 2 JT 1; AIR 1988 SC 1099

Societe Pepper Grenoble S.A.R.L. v. Union of India & Ors. AIR 2004 Delhi 235
Secretary to the Government, Transport Department Mashas Vs. Munuswamy AIR 1988
SC 2232
International Airport Authority of India Vs. K.D. Bali AIR 1988 SC 1099
S.Rajan Vs. State of Kerala AIR 1992 SC 1918
Bhupinder Singh Vs. Union of India 1995 SC 2464.
Shanghai Foreign Trade Corp. v. Sigma Metallurgical Co Pty. Ltd., Aug 6, 1996
Skandia International Insurance Co v Mercantile & General Reinsurance Co (CLOUT case
127); Court of Appeal (Hong Kong), July 7, 1995 (CLOUT case 109)
Prakash Khandre v. Vijaya Kumar Khandreb AIR 2002 SC 2345
R. D. Shetty v. International Airport Authority, (1979) 3 SCC 498 : (AIR 1979 SC 1628)
Fertilizer Corporation Kamgar Union v. Union of India, (1981) 1 SCC 568 : (AIR 1981 SC
844)
Asstt. Collector, Central Excise v. Dunlop India Ltd., (1985) 1 SCC 260 : (AIR 1985 SC 330)
Tata Cellular v. Union of India, (1994) 6 SCC 651 : (1994 AIR SCW 3344 : AIR 1996 SC 11)
Ramniklal N. Bhutta v. State of Maharashtra, (1997) 1 SCC 134 : (1997 AIR SCW 1281 : AIR
1997 SC 1236)
Raunaq International Ltd. v. I.V.R. Construction Ltd., (1999) 1 SCC 492 : (1999 AIR SCW 53
: AIR 1999 SC 393)
 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.
 REPLY TO NOTICE OF ARBITRATION

15-2-2009

Name of Claimant: BEHEMOTH INTERNATIONAL (PVT) LTD

AND

Name of Respondent: GOVERNMENT OF DELHI

In accordance with the requirements of Rule 5.1 of the arbitration rules of

the CONSTRUCTION INDUSTRY ARBITRATION COUNCIL (CIAC
ARBITRATION RULES), the Respondent hereby issues a reply to the notice of
arbitration so issued by the claimant which shall witnesseth all of which is being
referred below:

PURSUANT to Rule 5.1.a., all the facts stated in paragraphs 1 to 21 and

paragraph 24 are hereby admitted and accepted by the Government of Delhi.
But all the allegations and averments claimed in 22nd, 23rd and 25th paragraphs
are herein denied in toto. PURSUANT to Rule 5.1.b., the Government of Delhi
hereby raises the following counterclaims which are:

A. THE ARBITRAL TRIBUNAL IS COMPETENT FOR

ARBITRATING THE CURRENT DISPUTE.
The arbitral tribunal is constituted as per the agreement of the parties.

The arbitral tribunal jointly constituted by the nominees of both BEHEMOTH and GOD
along with the nominee of the Chairman of CIAC is perfectly in conformity with the
provisions of the Concession Agreement [Article 14.2(b)], which mandates that the arbitral
tribunal should have three arbitrators who are in the instant case Mr. X, Mr. Y and Mr. Z
each nominees of BEHEMOTH, GOD and Chairman of CIAC respectively. Mr. Y who is
the Chief Engineer, Public Works Department, GOD forms the member of the local
authority as mandated by the agreement.
Mr. Y’s association with the government would not bring in the element of bias in the
decision making process.
There is no evidence other than unreasonable suspicion and mere imagination on the
part of the claimants to substantiate their claim of the unindependence of Mr.Y. As held
by the Hon’ble Court there are in this country innumerable contracts which require an
official of the government to be the arbitrator. The claimant’s mere apprehension of bias
cannot justify the removal of the arbitrator. Mere imagination on the part of the
claimant cannot be an excuse for apprehending bias in the mind of the chosen arbitrator
especially when there are no solid evidence in that regard.

The constitution of the tribunal is in accordance with the Indian law on arbitration.
BEHEMOTH and GOD had agreed into a definite procedure for appointment of arbitrators
in conformity with the CIAC rules in Article 14.2 of the Concession Agreement, this
procedure has neither failed nor is inactive. In fact the appointment of arbitrators has taken
place in conformity with the above mentioned mutually agreed procedure, which itself is
testimony to the fact that the impugned procedure is active. Thus in the prevailing
circumstances wherein the parties have come to a consensus regarding an alternative mode
of appointment of arbitrators the procedure given under section 11(3) is not attracted.
The Arbitral Tribunal does have jurisdiction to decide the issue of Damages for Loss
of Profit.
There exists a valid arbitration agreement between the Claimant and the
Respondent. The agreement is not null and void, inoperative or incapable of being
performed. Also, the parties' intent to arbitrate is clear. The arbitration clause is
sufficiently broad to embrace “all disputes arising out of or in connection” with the
present contract. This should be construed to encompass all arbitrable claims arising in
relation to the contract, whether inherently contractual, tortious or statutory.

B. THE TERMINATION OF THE CONCESSION AGREEMENT

WAS VALID.
The Agreement was not wrongly terminated, the Termination Notice was not improper
and there was no violation of procedure as stated in the Agreement.
 The Concessionaire had failed to perform their obligation when it failed to achieve
Milestone 2 of the Project Completion Schedule, in spite of, it receiving ample time. The
respondent resolved the delay faced by the Concessionaire, by extending the time of
completion of Milestone 1. This delay in achieving Milestone 1 further delayed the
Concessionaire in achieving Milestone 2 of the Project Schedule. Even then, the
Concessionaire sought for an extension of 3 months for achieving Milestone 2 citing the
reason as delay in getting the approval of Drawings, which could have been prevented
by the Concessionaire if it had submitted Drawings pertaining to the Specifications and
Standards. Thus the Concessionaire had failed to fulfill its obligation and had caused a
Material Breach of the Agreement which entitled the GOD to terminate the Agreement.
Thus the respondent wishes to claim that the Termination was proper.

B2. Problems associated with RMC & Co. could in no way be linked to BEHEMOTH, as
RMC & CO. is a separate entity.

Though RMC & Co. had only less than 40% stake in the Consortium it had an equal role
to play and had equal say when it came to the issues of management of the Consortium
and running its activities. In a Consortium since the members had an integral role, the
status of the individual members has to be taken into consideration. Since RMC & Co.
had been disclosed by one of its Directors to be financially irregular and since the
Company was under the surveillance of regulatory bodies, it was natural for the stake
holders of the Company to withdraw their shares and wind up the Company as the
market value of the shares would stoop down and the GOD did apprehend such a
scenario. According to Article 11.2 (a) (4) of the Concession Agreement such a situation
would lead to an Event of Default of the Concessionaire which entitled the GOD to
terminate the agreement.

B3. Award of contract to Avaram Company is valid.

 The Concession Agreement gave BEHEMOTH the right to design, engineer, construct
and maintain the bridge, but the GOD had found reasons for it to severe the relation
between BEHEMOTH by terminating the Agreement. But the fact of the matter is that
the GOD is perfectly entitled with the right to enter into new contracts as it had
terminated the older Agreement according to the provisions stipulated in the
Agreement. Since the Termination of the Agreement is valid then so is the award of
Contract to Avaram Company.

B4. God has not violated the agreement provisions as it did not pay the contractually
stipulated Termination Payment and BEHEMOTH is not entitled for damages on
account of loss of profit.

The Termination Payment supposedly to be paid by the GOD to the Concessionaire

was to be paid within 30 days of demand being made by the Concessionaire with
the necessary particulars duly certified by the Statutory Auditors. Here, the entity
who has failed to do its responsibility is the Concessionaire itself, who has claimed
for the Termination Payment because they had failed to demand for the Termination
Payment with the necessary particulars duly certified by the Statutory Auditors.
Since the Concessionaire hadn’t filed in the demand for the Termination Payment,
the GOD was not able to furnish the same. Hence it is claimed that God has not
violated the agreement provisions, as it did not pay the contractually stipulated
Termination Payment.

PURSUANT to Rule 5.1.c., the Government of Delhi accepts to move in

compliance with Article 14.2.(b) of the concessionaire agreement so invoked by
Behemoth International (PVT) Ltd in consonance with Rule 4.1.g. in the notice of
arbitration.

PURSUANT to Rule 5.1.d., the Respondent, Government of Delhi hereby

nominates Mr. Y 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 or reply to the same concerning the above-
referenced matter, nor shall it be construed as a waiver of any rights, remedies or
claims, legal or equitable, which Government of Delhi may have.

Sincerely,

GOVERNMENT OF DELHI

QUESTION PRESENTED
A. WHETHER THE ARBITRAL TRIBUNAL IS COMPETENT FOR
ARBITRATING THE CURRENT DISPUTE?

B. WHETHER THE TERMINATION OF THE CONCESSION

AGREEMENT WAS VALID?
 SUMMARY OF ARGUEMENTS
A. THE ARBITRAL TRIBUNAL IS COMPETENT FOR
ARBITRATING THE CURRENT DISPUTE.

A1. The arbitral tribunal is constituted as per the agreement of the parties.
A2. Mr. Y’s association with the government would not bring in the element of bias in
the decision making process.
A3. The constitution of the tribunal is in accordance with the Indian law on arbitration.
A4. The Arbitral Tribunal does have jurisdiction to decide the issue of Damages for
Loss of Profit.

B. THE TERMINATION OF THE CONCESSION AGREEMENT WAS

VALID.

B1. The Agreement was not wrongly terminated, the Termination Notice was not
improper and there was no violation of procedure as 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 valid.

B4. God has not violated the agreement provisions as it did not pay the contractually
stipulated Termination Payment and BEHEMOTH is not entitled for damages on
account of loss of profit.
 ARGUMENTS ADVANCED

A.THE ARBITRAL TRIBUNAL IS COMPETENT FOR

ARBITRATING THE CURRENT DISPUTE.

A1. The arbitral tribunal is constituted as per the agreement of the parties.

The Concession Agreement between BEHEMOTH and GOD has a well defined arbitration
clause. The Concession Agreement under the title ‘dispute resolution’ speaks about the
modes of dispute resolution in the event of a dispute. Article 14.1 clearly says that any
dispute shall be “finally settled by binding arbitration under the rules of Construction Industry
Arbitration Council.1” Article 11 of the CIAC rules deals with the procedure for constituting
the arbitral tribunal, which says under Article 11.4 that-
“If 3 arbitrators are to be appointed, the name of the candidate proposed by each party in the Notice
of Arbitration and the Response shall constitute the parties’ nomination. If a party fails to make a
nomination, the Chairman may proceed to appoint the arbitrator on its behalf. The third arbitrator,
who would be the presiding arbitrator, shall be appointed by the Chairman2”.

This very same procedure has been adopted while appointing the arbitrators by the
parties3. The constitution of the arbitral tribunal has been done in conformity with the
requisites laid down in Article 14.4 of CIAC rules.

1
Concession Agreement
2
Arbitration rules of CIAC, I edition
3
Statement of Facts, para 26
Article 14.2(b) of the Concession Agreement which speaks about the constitution of the
arbitral tribunal states that-
“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.”

The arbitral tribunal jointly constituted by the nominees of both BEHEMOTH and GOD
along with the nominee of the Chairman of CIAC is perfectly in conformity with the
provisions of the Concession Agreement [Article 14.2(b)], which mandates that the arbitral
tribunal should have three arbitrators who are in the instant case Mr. X, Mr. Y and Mr. Z
each nominees of BEHEMOTH, GOD and Chairman of CIAC respectively. Mr. Y who is
the Chief Engineer, Public Works Department, GOD forms the member of the local
authority as mandated by the agreement.

PWD being a body entrusted by state with such governmental functions and duties as are
usually entrusted to municipal bodies, such as those connected with providing amenities
to the inhabitants of the locality like health and education services, water and sewage,
town planning and development of roads, markets, transportation, social welfare services,
etc4. Broadly it may be said that it is a body entrusted with the performance of civic duties
and functions which would otherwise be governmental functions and duties. Which makes
PWD well within the ambit of ‘local authority.’

The Concession Agreement as per Article 14.2(b) does not entrust the burden of
nominating a member of the local authority to any one of the parties. Either BEHEMOTH
or GOD can nominate a member of the local authority. In the current arbitration
BEHEMOTH nominated Mr. X from the panel of arbitrators maintained by CIAC.
BEHEMOTH could have selected an arbitrator who was a member of the local authority
although Mr. X’s membership in a local authority is not expressly stated. BEHEMOTH has

4
General Clauses Act 1897,section 3(31)
failed to accomplish this. It is in this context that GOD nominated Mr. Y(a member of the
local authority).

Thus the arbitral tribunal is constituted as per the agreement.

A2. Mr. Y’s association with the government would not bring in the element of bias in
the decision making process.

The Concession Agreement agreed upon by BEHEMOTH and GOD in Article 14.1 under
the title ‘dispute resolution’ clearly states that any dispute “shall be finally settled by binding
arbitration under the rules of Construction Industry Arbitration Council.”

Article 11.5 of the CIAC rules expressly states that-

“An arbitrator to be appointed under these Rules shall be a person on the CIAC Arbitration
Panel as at the date of the appointment.5”

The CIAC maintains a selected list of arbitrators in its panel6. It is out of this selected panel
of arbitrators that Mr.Y was chosen. Thus the selection made by GOD cannot be viewed as
one with purposeful intention to cause bias. Moreover the CIAC rules does not speak
anything about the independence of arbitrators.

It was held by the Hon’ble Supreme Court in the case of International Airport
Authority of India v. K. D. Bali7, that –

“there must be reasonable evidence to satisfy that there was a real likelihood of bias. Vague
suspicions of whimsical, capricious and unreasonable people should not be made the standard to
regulate normal human conduct. In this country in numerous contracts with the Government,

5
Arbitration rules of CIAC, I edition
6
Statement of Facts, para 26.
7
(1988) 2 JT 1; AIR 1988 SC 1099
 clauses requiring the Superintending Engineer or some official of the Govt. to be the arbitrator
are there. It cannot be said that the Superintending Engineer, as such, cannot be entrusted with
the work of arbitration and that an apprehension, simpliciter in the mind of the contractor
without any tangible ground, would be a justification for removal. Mere imagination of a
ground cannot be an excuse for apprehending bias in the mind of the chosen arbitrator.”

There is no evidence other than unreasonable suspicion and mere imagination on the part
of the claimants to substantiate their claim of the unindependence of Mr.Y. As held by the
Hon’ble Court there are in this country innumerable contracts which require an official of
the government to be the arbitrator. The claimant’s mere apprehension of bias cannot
justify the removal of the arbitrator. Mere imagination on the part of the claimant cannot
be an excuse for apprehending bias in the mind of the chosen arbitrator especially when
there are no solid evidence in that regard. Moreover as stated before the arbitrators have
been chosen from a selected list of arbitrators maintained by the CIAC8 who are assumed
to be unbiased. To doubt the honesty of the arbitrator appointed from the panel
maintained by CIAC is equivalent to doubting the credibility and integrity of CIAC.

Moreover as held by the court in a plethora of cases any reasonable apprehension of bias
must be based on cogent materials. Also it was expressly held that mere association with
the government cannot be a valid reason for apprehending bias.

In the very celebrated judgement of Societe Pepper Grenoble S.A.R.L. v. Union of India
& Ors.9 the Supreme Court had upheld the appointment by the Chief Engineer, who had
appointed the Superintending Engineer (Irrigation), as an Arbitrator. The Court noticed
that the term "State Public Works Department" would include within its ambit several
departments including Department of Irrigation. This did not mean that the
8
Supra n.6
9
AIR 2004 Delhi 235. See also Secretary to the Government, Transport Department Mashas Vs. Munuswamy AIR
1988 SC 2232, International Airport Authority of India Vs. K.D. Bali AIR 1988 SC 1099, S.Rajan Vs. State of
Kerala AIR 1992 SC 1918 and Bhupinder Singh Vs. Union of India 1995 SC 2464.
Superintending Engineer (Irrigation) was not competent to adjudicate upon the disputes.
All that was required was that he should not be connected with the actual work in
question(emphasis added). Even the appointment of first Arbitrator had nothing to do
with the actual supply under the purchase contract. The challenge to the said nomination
has also been negated by the Supreme Court.

Mr. Y happens to be Chief Engineer PWD, Delhi. But his position is not a reasonable
excuse for apprehending bias. He had nothing to do with the actual work in question in the
agreement. Thus it is inappropriate to apprehend bias from Mr. Y. He is clearly competent
to decide the matter.

A3. The constitution of the tribunal is in accordance with the Indian law on arbitration.

The Concession Agreement defines arbitration act as the Arbitration and Conciliation Act,
1996 which shall also include modifications to or any re enactment thereof as in force from
time to time. The Arbitration and Conciliation Act, 1996 is a very fundamental piece of
legislation governing arbitration in India10.

Chapter III of the impugned act deals with Composition of Arbitral Tribunal. Section 11
within Chapter III addresses the issue of appointment of arbitrators. Sub section 2 of
section 11 permits the parties to appoint the arbitrators through any mutually agreed
procedure11. Furthermore, it is clear from the wording of sub section 3 that the procedures
prescribed therein need to be followed only if the mutually agreed procedure fails. Section
11(3) states that-
“Failing any agreement referred to in sub-section (2), in an arbitration with three
arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall
appoint the third arbitrator who shall act as the presiding arbitrator.”

10
J.R.K Bachawats Law of Arbitration and Conciliation; I edition;1992; pg. 453
11
The Arbitration and Conciliation Act, 1996
BEHEMOTH and GOD had agreed into a definite procedure for appointment of arbitrators
in conformity with the CIAC rules in Article 14.2 of the Concession Agreement, this
procedure has neither failed nor is inactive. In fact the appointment of arbitrators has taken
place in conformity with the above mentioned mutually agreed procedure, which itself is
testimony to the fact that the impugned procedure is active. Thus in the prevailing
circumstances wherein the parties have come to a consensus regarding an alternative mode
of appointment of arbitrators the procedure given under section 11(3) is not attracted.

Thus, since section11(2) of the Arbitration and Conciliation Act provides ample scope for
the parties to agree to an alternative arrangement for the appointment of arbitrators the
constitution of the arbitral tribunal is inconformity with the Indian laws on arbitration(The
Arbitration and conciliation act, 1996).

A4. The Arbitral Tribunal does have jurisdiction to decide the issue of Damages for
Loss of Profit.

The arbitral tribunal may determine its own jurisdiction [kompetenz-kompetenz

Principle]12. The lex arbitri includes the UNCITRAL Model Law and confers this power
on the tribunal13.

There exists a valid arbitration agreement14 between the Claimant and the
Respondent. The agreement is not null and void, inoperative or incapable of being
performed. Also, the parties' intent to arbitrate is clear. The arbitration clause is
sufficiently broad to embrace “all disputes arising out of or in connection” with the

12
Gaillard/ Savage, 213
13
Shanghai Foreign Trade Corp. v. Sigma Metallurgical Co Pty. Ltd., Aug 6, 1996.
14
Concession Agreement
present contract. This should be construed to encompass all arbitrable claims arising in
relation to the contract, whether inherently contractual, tortious or statutory15.

Today, the right of the arbitrators to rule on their own jurisdiction is an almost fully
uncontroversial part of the well-established doctrine and practice in international
arbitration. The provision of Art.16 MAL in its basic idea now really reflects the globally
harmonised approach to the issue universally called Kompetenz Kompetenz. Practically
all countries recognise the right of the tribunal to decide on their jurisdiction, subject to
the subsequent court control. This is also demonstrated by some 20 cases collected in
CLOUT, which all, without exception, assert the right of arbitrators to rule on their own
jurisdiction16.

There is now a ‘‘wide consensus that the arbitral tribunal has the power to rule on all
aspects of its own jurisdiction17’’. Reported decisions have showed that the courts
recognise the right of the arbitral tribunal
to determine:
— whether arbitration agreement exists between the parties18;
— whether the matter in dispute comes within the scope of the arbitration
agreement;
— what is the proper interpretation of the arbitration agreement19;
— whether the arbitration agreement is valid or was terminated.

15
JURISDICTION OF THE ARBITRAL TRIBUNAL: Current Jurisprudence and Problem Areas Under The
UNCITRAL MODEL LAW; PROF. DR. Alan Uzelac

16
CLOUT cases 13; 18; 20; 27; 101; 114; 127; 147; 148; 182; 357; 367; 369; 373; 382; 392; 403; 441
from various jurisdictions: see the UNCITRAL website, www.uncitral.org. for full details).
17
Statement from the Draft Digest of Case Law on the UNCITRAL Model Law on International Commercial
Arbitration, Pre-publication presented at Cologne RIZ/DIS Conference on March 3–4, 2005, para.99 (‘‘Draft
Digest’’).
18
e.g. Supreme Court (Bermuda), January 21, 1994, Skandia International Insurance Co v Mercantile &
General Reinsurance Co (CLOUT case 127); Court of Appeal (Hong Kong), July 7, 1995 (CLOUT case 109).
19
Continental Commercial Systems Corp, n.6 above.
It is evident and globally accepted that a legally constituted arbitral tribunal like the
tribunal jointly constituted by the nominees of the claimant and the respondents in
conformity with the Concession Agreement formerly agreed upon by the parties has
vested in it the authority to determine its jurisdiction.

Moreover careful perusal of the wordings of the Concession Agreement as given in

Article 14.2(a) under the title ‘Arbitration’ which says that all matters arising out of or
in connection with the impugned contract are arbitrable. This is a clear implication that
the arbitral tribunal constituted in conformity with the provisions of Article 14.2(b) of
the Concession Agreement shall have the jurisdiction to arbitrate any matter in
connection to the agreement including claims of loss of profit.

There is a plethora of cases where in the arbitral tribunal have decided on issues
pertaining to damages for loss of profit. The very famous Videocon case is a recent
addition to this list, in which- the three-member arbitration panel, in its order on
damages upheld Videocon’s “claims for damages to be valid”. The company had claimed
Rs 1,600 crore as compensation for loss of opportunity and profits, which the tribunal
limited to “costs wasted by wrongful repudiation of the PPA and its related agreements”. It is
obvious from this that arbitral tribunals deciding on matters like damages for loss of
profit is a common practice, totally uncontroversial which has nothing to be disputed
about.

Various international organs like CISG which relate to arbitration have their Articles
worded parallel to this accepted idea. UNDER Article 74 of the CISG it has been
expressly stated that damages can be claimed for loss of profit20.

20
Handbook of ICC arbitration; By Michael Bühler, Thomas H. Webster
BEHEMOTH, the claimant in the current arbitration has put forth an array of claims
including damages to loss of profit to be decided by the arbitral tribunal 21. Moreover it
was BEHEMOTH who issued the notice of arbitration to the respondents and registrar
of CIAC on 25 January, 2009 nominating Mr. X as their arbitrator. It is an irony that
BEHEMOTH has put forth their claims for arbitration in spite of they themselves
contending that the tribunal does not have jurisdiction to decide on the claims.
Thus it is obvious that in pertinence to the established principles of arbitration and the
provisions of the Concession Agreement agreed upon by the parties that the arbitral
tribunal does have jurisdiction to decide the issue of damages for loss of profit.

21
Statement of Facts
B. THE TERMINATION OF THE CONCESSION AGREEMENT WAS
VALID.

B1. The Agreement was not wrongly terminated, the Termination Notice was not
improper and there was no violation of procedure as stated in the Agreement.

Article 11.2 of the Concession Agreement stipulates about the Termination of the
Agreement either by GOD or by the Concessionaire. The GOD or the Concessionaire
may terminate the Agreement upon the occurrence of a Concessionaire Event of Default
or a GOD Event of Default respectively. Events classified as Event of Default, which
may arise from both the GOD and the Concessionaire, are stipulated under Article 11.1
(a) and (b) of the Concession Agreement.

Of the stated Events of Default of the Concessionaire, Article 11.1 (a) (9) stipulates that
a Material Breach of the Agreement by the Concessionaire is an Event of Default. 22 In
Article 1.1, Material Adverse Effect has been defined as,

“material adverse effect on (a) the ability of the Concessionaire to observe and perform any of its
rights and obligations under and in accordance with the provisions of this Agreement and/or (b)
the legality, validity, binding nature or enforceability of this Agreement.”

At the same time, it was an obligation of the Concessionaire during Implementation

Period to,

22
Article 11.1 (a) (9) – “The Concessionaire is otherwise in Material Breach of this Agreement.”
“undertake, do and perform all such acts, deeds and things as may be necessary or required to
adhere to the Project Completion Schedule and to achieve Project Completion under and in
accordance with this Agreement.”23

At this juncture the respondent claims that the failure of the Concessionaire to duly and
faithfully perform their obligation to adhere to the Project Completion Schedule has
caused a Material Breach of the Agreement which, in turn, was an Event of Default of
the Concessionaire which automatically entitled the GOD to Terminate the Agreement.

The Concessionaire had failed to perform their obligation when it failed to achieve
Milestone 2 of the Project Completion Schedule, in spite of, it receiving ample time. The
respondent resolved the delay faced by the Concessionaire, by extending the time of
completion of Milestone 1. During the implementing period of Milestone 1 the
Concessionaire had faced a delay of only 4 months and 20 days in total, but the
claimant, to compensate the delay faced by it, asked for an extension of the Concession
Period by 8 months. After considering and analyzing the plea of the Concessionaire the
GOD gave an extension of 7 months and 14 days [2 months and 24 days more than the
actual delay faced by the Concessionaire]. But it took the Concessionaire 8 months and
17 days in total to achieve Milestone 1 of the Project Schedule. This delay in achieving
Milestone 1 further delayed the Concessionaire in achieving Milestone 2 of the Project
Schedule. It was further delayed by the Concessionaire by submitting substandard
Drawings of the Project to the Independent Engineer and the Steering Group for
approval whereas the Concessionaire was obliged to be responsible for delays in Project
Completion and consequences thereof caused by reason of any Drawings not being in
conformity with the Specifications and Standards and shall not be entitled to seek any
relief in regard from GOD.24 Even then, the Concessionaire sought for an extension of 3
months for achieving Milestone 2 citing the reason as delay in getting the approval of
Drawings,25 which could have been prevented by the Concessionaire if it had submitted
23
Article 4.2 (a) (iii)
24
Article 7.2 (f) of the Concession Agreement
25
Statement of Facts p. 15
Drawings pertaining to the Specifications and Standards. Thus the Concessionaire had
failed to fulfill its obligation26 and had caused a Material Breach of the Agreement
which entitled the GOD to terminate the Agreement. Thus the respondent wishes to
claim that the Termination was proper.

Regarding the Notice of Termination and the procedure followed by GOD in issuing the
Notice of Termination sent by the GOD to the Concessionaire, the respondent claims
that it was proper, as it had followed the exact procedure in issuing the Notice of
Termination as stipulated in Article 11.2 (A) (1) of the Concession Agreement. The GOD
had issued the Preliminary Notice [as per Article 11.2 (A) (1)], had given the cure
period to the Concessionaire [as per Article 11.2 (A) (1)], had encashed the Performance
Security issuing an Encashment Notice when the default was not cured within the cure
period of 30 days allotted [as per Article 11.2 (A) (1) (a)], and finally issued the
Termination Notice when the default was not cured within 30 days, from the date of the
Encashment Notice, cure period was allotted [as per Article 11.2 (A) (1) (b)].27 Thus the
respondent submits that the Agreement was not wrongly terminated, the Termination
notice was not improper and there was no violation of procedure as 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.

BEHEMOTH INTERNATIONAL (PVT) LTD, the Concessionaire is a Consortium

formed by RMC & Co, a reputed Indian construction company and KUTSCO, a large
Korean Chaebol. BEHEMOTH is a company incorporated under the Companies Act,
1956. KUTSCO had a 60% investment/stake in BEHEMOTH and 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.28

26
Article 4.2 (a) (iii)
27
Statement of Facts p.16 to 22
28
Statement of Facts p. 1
The Income Tax Act 1961 (S.2 (1A)) defines amalgamation as “the merger of one or more
companies with one another or the merger of two or more companies to form a new company, in
such a way that all assets and liabilities of the amalgamating companies become assets and
liabilities of the amalgamated company and shareholders not less than nine-tenths in value of the
shares in the amalgamating company or companies become shareholders of the amalgamated
company.”

In Telesound India Ltd., In Re. (Delhi), the Delhi High Court observed:

”Amalgamation of a company with another or an amalgamation of two companies to form a

third is brought about by two parallel schemes of arrangements entered into between one
company and its members and the other company and its members and the two separate
arrangements bind all the members of the companies and the companies when sanctioned by the
court.”

During the Concession Period, 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. 29

This was one of the reasons, which led the GOD to issue the Termination Notice to the
Concessionaire. Though RMC & Co. had only less than 40% stake in the Consortium it
had an equal role to play and had equal say when it came to the issues of management
of the Consortium and running its activities. In a Consortium since the members had an
integral role, the status of the individual members has to be taken into consideration.
Since RMC & Co. had been disclosed by one of its Directors to be financially irregular
and since the Company was under the surveillance of regulatory bodies, it was natural
for the stake holders of the Company to withdraw their shares and wind up the
Company as the market value of the shares would stoop down and the GOD did

29
Statement of Facts p. 18
apprehend such a scenario. According to Article 11.2 (a) (4) of the Concession
Agreement such a situation would lead to an Event of Default of the Concessionaire 30
which entitled the GOD to terminate the agreement.

B3. Award of contract to Avaram Company is valid.

Entering into a contract with a new entity is not prohibited and in the present case the
GOD has entered after properly terminating the Agreement with BEHEMOTH. Post-
Termination the existence of liabilities does not mean that the Agreement or the
Contract is still subsisting between the parties entered in the Contract. It was opined by
the Hon’ble Supreme Court in Prakash Khandre v. Vijaya Kumar Khandreb31that,

“Similarly, subsequent payment by the Government for the work done which was payable at the
time of termination of contract would not mean that contract between the parties was
subsisting…”

The law relating to award of a contract by the State, its corporations and bodies acting
as instrumentalities and agencies of the Government has been settled by the decision of
this Court in R. D. Shetty v. International Airport Authority32, Fertilizer Corporation
Kamgar Union v. Union of India,33 Asstt. Collector, Central Excise v. Dunlop India
Ltd.,34 Tata Cellular v. Union of India,35 Ramniklal N. Bhutta v. State of
Maharashtra,36 and Raunaq International Ltd. v. I.V.R. Construction Ltd.37 It was held
by the Apex Court that, “The award of contract, whether it is by a private party or by a public
body or the State, is essentially a commercial transaction. The State can choose its own method
to arrive at a decision. The State can choose its own method to arrive at a decision.

30
Article 11.2 (a) (4): “A resolution is passed by the shareholders of the Concessionaire for the
voluntary winding up of the Concessionaire.”
31
AIR 2002 SC 2345
32
(1979) 3 SCC 498 : (AIR 1979 SC 1628)
33
(1981) 1 SCC 568 : (AIR 1981 SC 844);
34
(1985) 1 SCC 260 : (AIR 1985 SC 330)
35
(1994) 6 SCC 651 : (1994 AIR SCW 3344 : AIR 1996 SC 11)
36
(1997) 1 SCC 134 : (1997 AIR SCW 1281 : AIR 1997 SC 1236)
37
(1999) 1 SCC 492 : (1999 AIR SCW 53 : AIR 1999 SC 393)
The Concession Agreement gave BEHEMOTH the right to design, engineer, construct
and maintain the bridge, but the GOD had found reasons for it to severe the relation
between BEHEMOTH by terminating the Agreement. But the fact of the matter is that
the GOD is perfectly entitled with the right to enter into new contracts as it had
terminated the older Agreement according to the provisions stipulated in the
Agreement. Since the Termination of the Agreement is valid then so is the award of
Contract to Avaram Company.

B4. God has not violated the agreement provisions as it did not pay the contractually
stipulated Termination Payment and BEHEMOTH is not 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 amount remaining
unpaid shall be paid along with interest @ SBI PLR plus two percent from the Termination
Date till payment.”
The Termination Payment supposedly to be paid by the GOD to the Concessionaire
was to be paid within 30 days of demand being made by the Concessionaire with
the necessary particulars duly certified by the Statutory Auditors. Here, the entity
who has failed to do its responsibility is the Concessionaire itself, who has claimed
for the Termination Payment because they had failed to demand for the Termination
Payment with the necessary particulars duly certified by the Statutory Auditors.
Since the Concessionaire hadn’t filed in the demand for the Termination Payment,
the GOD was not able to furnish the same. Hence it is claimed that God has not
 violated the agreement provisions, as it did not pay the contractually stipulated
Termination Payment.

PRAYER FOR RELIEF

In light of the above submissions, Counsel respectfully requests the Tribunal to find that:
 A. THE ARBITRAL TRIBUNAL IS COMPETENT FOR
ARBITRATING THE CURRENT DISPUTE.

A1. The arbitral tribunal is constituted as per the agreement of the parties.
A2. Mr. Y’s association with the government would not bring in the element of bias in
the decision making process.
A3. The constitution of the tribunal is in accordance with the Indian law on arbitration.
A4. The Arbitral Tribunal does have jurisdiction to decide the issue of Damages for
Loss of Profit.

B. THE TERMINATION OF THE CONCESSION AGREEMENT WAS

VALID.

B1. The Agreement was not wrongly terminated, the Termination Notice was not
improper and there was no violation of procedure as 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 valid.

B4. God has not violated the agreement provisions as it did not pay the contractually
stipulated Termination Payment and BEHEMOTH is not entitled for damages on
account of loss of profit.

Signed Counsel for the Claimant

____________ ____________ ___________

Aneesh S Basil Ajith Syamnath JG