Respondent Memo Final

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 Arbitration rules of CIAC, I edition 3 Statement of Facts, para 26 2

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 Statement of Facts, para 26. 7 (1988) 2 JT 1; AIR 1988 SC 1099 6

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 8

9

including Department of Irrigation.

This did not mean that the

Supra n.6 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 11

J.R.K Bachawats Law of Arbitration and Conciliation; I edition;1992; pg. 453 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 Shanghai Foreign Trade Corp. v. Sigma Metallurgical Co Pty. Ltd., Aug 6, 1996. 14 Concession Agreement 13

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 Article 4.2 (a) (iii) Article 7.2 (f) of the Concession Agreement 25 Statement of Facts p. 15 23 24

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 Article 4.2 (a) (iii) Statement of Facts p.16 to 22 28 Statement of Facts p. 1 26 27

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. PostTermination 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. 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) 30

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