CASE ANALYSIS - EAST HYDERABAD EXPRESSWAY LIMITED V. THE HYDERABAD METROPOLITAN DEVELOPMENT AUTHORITY - High Court of State of Telangana

CITATION	2024 SCC OnLine TS 12
APPELLANT	East Hyderabad Expressway Limited
RESPONDENT	The Hyderabad Metropolitan Development Authority previously known as Hyderabad Urban Development Authority and others.
COUNSELS	For Appellant: S. Ram Babu For Respondents/Defendant: Y. Rama Rao, SC
BENCH/ JUDGE	Justice C.V. Bhaskar Reddy
DATE OF JUDGMENT	22 January 2024
JUDGMENT LINK	https://csis.tshc.gov.in/hcorders/2022/arbappl/arbappl_170_2022.pdf

FACTS

1. PARTIES AND TENDER DETAILS: 

East Hyderabad Express Limited (EHEL) is a Special Purpose Vehicle formed by the Consortium, and The Hyderabad Metropolitan Development Authority (HMDA), are the primary parties involved in this case. 

The EHEL was awarded the contract for the design, construction, development, finance, operation, and management of an eight-lane expressway in Phase IIA of the project extending Phase I of the Outer Ring Road project in Hyderabad. This project, which covered the stretch from Pedda Amberpet to Bongulur 95.00 KM to 108.00 KM was to be developed on a build, operate, and transfer basis. HMDA initiated the bidding process via Notice Inviting Proposal No. HGC/CGM(T)/ORR/6/2006-07 dated 22.02.2007 for the same.

2. KEY PROVISIONS OF THE AGREEMENT:

The Concession Agreement, signed on August 3, 2007, encompassed several pivotal provisions: 

• Project Completion Date: The project was scheduled for completion by June 9, 2010.

• Annuity Payments: The agreement described the annuity payment schedule made to EHEL.

• Handover of Right of Way (ROW): As per Article 13.5, HMDA was required to expeditiously hand over the ROW to EHEL. A handover of this type was essential to meet the relevant time targets for starting and finishing the project.

DISPUTE: 

The ROW delay from HMDA created a major dispute, caused severe timeline stretch and financial loss to EHEL. From January 8, 2009 to June 23, 2017, EHEL made repeated requests for extensions and voiced their concerns by letter which were not granted by HMDA, despite recommendations from the Independent Consultant. Moreover, HMDA in its communication dated 23.01.2018 at the behest of EHELs banker seek release Rs29.39 crores, threatening to deduct this amount from EHEL's 15th annuity payment due on December 9, 2017

4. EFFORTS TO AMICABLY RESOLVE: 

   
   

Between 2018 and 2021, EHEL and HMDA held several meetings and talks in an effort to reach a mutually agreeable resolution to disagreements about incentive payments, annuity payments, and the release of withheld cash. On May 16, 2018, and June 23, 2021, EHEL wrote letters requesting collaborative solutions. There was no satisfying conclusion in spite of HMDA's claims. As a result, an arbitration clause (Clause 39.2) outlining the arbitration procedure was incorporated in a supplemental agreement signed on January 5, 2022. This process involved appointing a panel of three arbitrators—one by each party and a presiding arbitrator chosen by the appointed arbitrators. The arbitration was to follow the Arbitration and Conciliation Act of 1996. 

5. ARBITRATION INVOCATION: 

   
   

On March 25, 2022, EHEL invoked the arbitration clause for non-resolution of its grievances with HMDA. EHEL sought provision for Justice Devinder Gupta, a retired Chief Justice of the Andhra Pradesh High Court, as its arbitrator and asked HMDA to name its own within two weeks. HMDA rejected this proposal on April 13, 2022, based on the statute of limitations for EHEL's claims. In the meantime, EHEL filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, impelling interventions in Court to appoint the arbitrator on behalf of HMDA.

ISSUES

1. Whether EHEL's request for arbitration was barred by statutory or contractual time limits.

2. Whether EHEL had followed the dispute resolution procedures specified in the Concession Agreement before initiating arbitration.

ARGUMENTS

APPLICANT'S ARGUMENTS:

1. Breach of Contract and Delays: 

According to EHEL, HMDA's tardy delivery of the ROW constituted a breach of the Concession Agreement, resulting in considerable delays and monetary losses. EHEL said that the delays hindered the project's timely completion, hence they should be entitled to extensions and payment in accordance with the terms of the agreement.

2. Invocation of Arbitration provision: 

EHEL claimed that after numerous attempts to settle the dispute amicably had failed, they had properly invoked the arbitration provision. They asked HMDA to appoint their arbitrator within the allotted time limit and proposed Justice Devinder Gupta as their arbitrator.

3. Validity of Claims:

EHEL contended that their claims were not time-barred and that the issue of limitation should be decided by the arbitral tribunal, not by the court. They argued that the period of limitation should be calculated from the date of the last correspondence and the continued discussions with HMDA, which extended the timeline for raising claims.

4. Non-Compliance by HMDA:

EHEL emphasised that after the arbitration clause was invoked, HMDA was supposed to designate an arbitrator, but they did not do it within the prearranged 15 days. According to EHEL, HMDA's non-compliance called for the court to step in and appoint an arbitrator.

RESPONDENT'S ARGUMENTS:

1. Claims Barred by Limitation: 

EHEL's claims were blocked by limitation, according to HMDA, ever since the arguments began a few years ago. Due to the arbitration request being made outside the legally permitted time frame, they argued that the claims should be dismissed.

2. Non-Adherence to Dispute Resolution Procedure:

HMDA contended that EHEL did not adhere to the pre-arbitration dispute resolution procedures outlined in the Concession Agreement. HMDA emphasized that EHEL failed to follow the agreed-upon steps for amicable resolution before invoking arbitration.

3. Rejection of Arbitrator Nomination:

HMDA rejected EHEL’s nomination of Justice Devinder Gupta, proposing M. Krishna Murthy instead. HMDA argued that their nominee was suitable and raised objections to EHEL’s nominee on the grounds of potential bias and lack of independence.

4. Counter Claims and Deductions:

HMDA justified their deductions from EHEL’s annuity payments and other financial recoveries, arguing that these were in accordance with the agreement and necessary to offset delays and breaches attributable to EHEL.

COURTS OBSERVATION

1. Existence of Arbitration Agreement:  

The court emphasized that under Section 11(6) of the Arbitration and Conciliation Act, 1996, its role is confined to confirming the presence of an arbitration agreement and appointing arbitrators. It does not delve into the substance of the underlying dispute. This was reaffirmed in IBI Consultancy (India) (P) Ltd. v. DSC Ltd. [1], where the Supreme Court held that the existence of an arbitration agreement and disputes to be referred are prerequisites for appointing an arbitrator. The court's role is limited to confirming these elements without touching on the merits of the case.

2. Limitation Period:  

The court pointed out that there is no deadline for submitting an application for the appointment of arbitrators in Section 11 of the Act. As a result, the three-year statute of limitations established by the Limitation Act of 1963 is relevant. When the right to apply accrues, this time frame starts. In the current case, the applicant nominated an arbitrator and invoked the arbitration provision in a letter sent to the respondents on March 25, 2022. In their response dated April 23, 2022, the respondents denied the request, claiming that it was prohibited by law. The Arbitration and Conciliation Act of 1996, however, does not specify a time restriction for such applications; as a result, the residual provision under Article 137 of the Limitation Act, which stipulates a three-year period from the date the cause of action arose.

3. Appointment of Arbitrators:  

The court said that while selecting arbitrators, it must adhere to the terms outlined in the arbitration agreement, citing earlier rulings. Nonetheless, the court has the authority to select an impartial arbitrator if there are worries about bias or if the parties do not designate an arbitrator in the allotted time. This was supported by the Supreme Court in Indian Oil Corporation and others v. Raja Transport Private Limited [2], the Supreme Court elaborated on the scope of Section 11 of the Act, stating that while courts should normally adhere to the arbitration agreement's provisions, they can appoint an independent arbitrator if there is reasonable apprehension about the named arbitrator's impartiality or if the named arbitrator is unavailable. The Chief Justice or designate must record reasons for such deviation, making it an exception to the rule.

JUDGMENT 

In its final judgment, the court ruled in the applicant's favor, concluding that the respondents had not appointed an arbitrator in the allotted time Thus, the court upheld the applicant's right to arbitration by using its power to designate an arbitrator.

REASONING

The court’s reasoning was Based on the Arbitration and Conciliation Act of 1996, which permits the court to intervene in the appointment of arbitrators in certain situations. This covers circumstances where disagreements emerge about the appointment process or when one party does not adhere to the established appointment protocol.

Due to the respondents' violation for the arbitration clause in the Concession Agreement, the applicant in this case requested arbitration. The respondents contended that the redress procedure was not appropriately followed and that the claims were made too late. But even if other parts of the contract are null and unenforceable, the court emphasized that arbitration terms are still enforceable.

The court also referenced the National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd [3] case, which clarified that an arbitrator has the authority to decide on issues beyond their appointment, such as the statute of limitations. Therefore, the court upheld the applicant’s right to invoke the arbitration clause under Section 11(6)(a) of the Arbitration and Conciliation Act, 1996, and appointed an arbitrator in favor of the respondents as well.

REFERENCES

[1] (2018) 17 SCC 95

[2] (2009) 8 SCC 520

[3] (2009) 1 SCC 267

This case analysis is submitted by Nidhi Dutia. She was among the Top 40 performers in the Corporate Law Quiz Competition organized by Lets Learn Law.