Case Analysis on

Indian Oil Corporation Limited Vs.

NCC Limited
CIVIL APPEAL NO. 341 OF 2022
1. Case Type:
This is the Special Leave Petition No.13161/2019 in the
Supreme Court arising out of the order passed by the High Court in
Arbitration Petition No.115/2018.
2. Jurisdiction:
The Respondent has filled Special Leave Petition with the
Supreme Court against the Order of the High Court of Delhi. So
obviously there is Appeal Jurisdiction availed by the Supreme Court.
3. Statutes and law provisions involved:
- Section 11(6-A) of the Arbitration and Conciliation Act, 1996.
- Sections 8 and 11 the statutory power of an arbitral Tribunal as
enshrined under Section 16.
4. Facts in brief.
➢ Indian Oil Corporation Limited (IOCL or Appellant), as
owner, entered into 5 contracts with NCC Limited (NCCL or
Respondent), as contractor, in respect of certain civil and
piping work for one of IOCL's refinery projects. Due to delay
in completion, NCCL made a request for extension of time
(EOT).
➢ During the pendency of this extension, NCCL submitted its
final bill while making a specific reference to Notified Claims
(for additional costs incurred) therein. NCCL, thereafter,
agreed to withdraw its Notified Claims from the final bill if
both its EOT and price discount requests were considered
favourably by IOCL.
➢ These requests were partially acceded to and IOCL
released the final bill payment in favour of NCCL, while
treating the Notified Claims as fully withdrawn.
➢ Aggrieved by this partial allowance, NCCL protested against
the same as IOCL had made the final bill payment without
factoring NCCL's conditional requests in its entirety.
➢ NCCL further alleged that its letter for withdrawal of claims
was made under duress and coercion, and that the same
was a conditional offer and not an acceptance letter for
withdrawal of its Notified Claims. Replying to these
allegations, IOCL stated that none of the claims raised by
NCCL in the final bill were Notified Claims.
➢ In view of the aforesaid, NCCL invoked arbitration under the
terms of the contracts, pursuant to which IOCL referred the
matters to its General Manager to decide the arbitrability of
NCCL's claims which ultimately came to be dismissed as
non-arbitrable under all 5 contracts.
➢ It is imperative to mention here that the contracting parties
had specifically excluded the following disputes from the
scope of the arbitration agreement:

i. Scope or existence of the arbitration agreement

ii. Whether the Claim sought to be referred to arbitration is a
Notified Claim
iii. Whether the Notified Claim is included in NCCL's final bill
raised
iv. Whether NCCL has opted for alternative dispute resolution
with respect to the Notified Claims included in NCCL's
final bill

Being aggrieved, NCCL approached the Delhi High Court under

Section 11(6) of the Act seeking appointment of a sole
arbitrator, which came to be allowed. Challenging this, IOCL
preferred 5 civil appeals before the Supreme Court.

5. Arbitration proceeding: Evidence filed in the written

process may include exhibits, witness statements, expert
reports, audio, and video files. Such evidence must be filed
together with the submission to which it relates (Arbitration
Rule 5).

A. Contract/ Arbitration clause.:

1. The General Condition of Contract contemplates that the
disputes between the parties have to be referred to
arbitration of a sole arbitrator and that only disputes
arising out of the ‘Notified Claims’ included in the final
bill can be the subject matter of arbitration.

2. Further, the decision as to whether a dispute between the

parties is arbitrable, i.e., whether the arbitral tribunal will
have jurisdiction to decide such claim in terms of the
arbitration clause shall be decided by the General
Manager of IOCL.

B. Appointment of arbitration:
Section 11 of the Arbitration and Conciliation
Act, 1996 prescribes the procedure for appointment of
arbitrator. The parties are free to determine the number of
arbitrators, provided that such number shall not be an even
 number. Failing the said determination, the arbitral tribunal
shall consist of a sole arbitrator.

C. Jurisdiction of arbitrator. It is observed that the

Arbitrator shall first decide the aspect with regard to
‘accord and satisfaction’ of the claims and arbitrability of
the disputes with regard to such claims by deciding an
application under Section 16 of the Arbitration Act, which is
reported to be pending.
The learned Arbitrator shall first decide the jurisdiction of
the Arbitral Tribunal and the arbitrability of the claims
within a period of three months from the date of first sitting
which shall be within a period of one month from today. All
the contentions and/or defences which may be available to
the respective parties are kept open to be considered by the
learned Arbitrator in accordance with law and on its own
merits and considering the relevant clauses of the contract
and the material on record. (Sec 16).

6. Arbitration petition.

I. Ground for challenge: In the present case the

respondent NCCL received the amount of final bill in
full settlement of their claims. That in the present case
the arbitration clause itself states that where the final
bill amount has been received by the party, or where a
sum has been received on account of Notified Claims,
the arbitration clause itself stands extinguished.
Therefore, the fact that amount of final bill having
been received in full settlement cannot be the subject
matter of reference by any specific stipulation in the
contract.
II. Prayers/ Relief:
 IOCL prayer was submitted that the General
Manager’s decision would be binding and the claim of
NCCL would fall outside the scope of claims which can
be submitted to arbitration. NCCL Prayer that The Delhi
High Court was correct in allowing the application and
referring the dispute to arbitration.

III. Judgment and order

a. The Court at the outset observed that the parties were
governed by the GCC as GCC was a part of the
Agreement.
b. On consideration of the General Condition and the
decisions relied on, the court stressed that strict
interpretation must be applied on the terms between the
parties and as such, only Notified Claims would be liable
to be considered by IOCL and whether a Notified Claim
exists as on date would be solely decided by the General
Manager.
c. The court held that parties are free to decide on excepted
matters and hence the General Manager had the power
to decide on whether the claim was a Notified Claim
which could be referred to arbitration.
d. The General Manager dealt with the claims and decided
that the same were not Notified Claims. The General
Manager having decided on such question, NCCL could
not have thereafter referred the said claims to arbitration
(considering only Notified Claims could be referred to
arbitration).
e. The Arbitrator has no power under the arbitration clause
to decide on the issue of jurisdiction or on the validity of
the Notified Claims.
f. Further, after payment of the final amount, it was not
open for NCCL to invoke arbitration.
 g. The Court held that the terms under the GCC are clear
and unambiguous and hence strict adherence of the
same was expected.
h. The court also made an observation that in view of the
specific clauses, Section 11 could be interpreted widely
where courts may also decide on arbitrability and on
excepted clause in addition to the existence of an
arbitration agreement, before referring the matter to
arbitration.

i. The cases where the question of accord and satisfaction

was concerned, i.e., whether the payment was made in
final settlement, although the conditions were not
accepted entirely, was open to be adjudicated by the
arbitral tribunal. The High Court was correct in allowing
the Section 11 application. These appeals were
dismissed.
j. The cases that concerned the question of Notified
Claims where the General Manager held that such claims
were not arbitrable, the question was within the exclusive
scope of the General Manager who had taken the final
decision that Notified Claims were withdrawn, and the
arbitration clause did not exist as regards such claims.
The claims could not have been referred to arbitration.
The High Court did not interpret the clauses correctly in
these cases. These appeals were allowed, and
respective impugned judgments were set aside.

IV. Present Case.

I. Issues:
1. Under Section 11(6-A) of the Arbitration Act, at the stage of
appointment of an arbitrator, the scope of intervention by the
Courts is confined to the examination of the existence of an
arbitration agreement.
2. At the stage of appointment of the arbitrator, the Court
cannot look into whether there has been accord and
satisfaction between the parties.
3. At the stage of appointment of arbitrator, the Court cannot
look into whether a claim is an excepted claim or not.
4. As per the doctrine of election, the present proceedings
ought to be dismissed since IOCL has preferred an application
under Section 16(2) and 16(5) challenging the jurisdiction of
the Arbitral Tribunal.
[Link] in an application filed under Section 11 of the Act,
a court can directly adjudicate the arbitrability of disputes
which fall within excluded clauses.

II. Arguments of appellant

1. IOCL submitted that party autonomy is the backbone of
arbitration and when the parties have decided the terms of
arbitration it cannot be subject to interpretation of the courts.
2. When the agreement between the parties contemplates a
restricted clause on arbitration and that arbitration clause
would not apply to certain disputes (as in this case, no
arbitration clause exists in respect of disputes outside the
scope of Notified Claims), then section 11(6-A) cannot stand
in the way.
3. NCCL received the amount of final bill in full settlement of
their claims. In the present case, the arbitration clause itself
states that where the final bill amount has been received by
the party, or where a sum has been received on account of
Notified claims, the arbitration clause itself stands
extinguished.
 4. IOCL also submitted that the General Manager’s decision
would be binding and the claim of NCCL would fall outside the
scope of claims which can be submitted to arbitration.
III. Arguments of Respondent.
1. NCCL prima facie attributed the cause of delay in
completion of project to IOCL and submitted that it was
constrained to withdraw its claims only under coercion. The
withdrawal was conditional, but the conditions were not
entirely accepted by IOCL by reason of which the withdrawal
became ineffective.
2. The General Manager acted beyond jurisdiction by deciding
the claim in regard to ‘accord and satisfaction’ and holding
that it was an excepted claim. The said decisions are within
the exclusive domain of an arbitrator.

3. After appointment of the arbitrator by the High Court, IOCL

has also filed applications under Section 16 of the Act
challenging the jurisdiction of the arbitrator and hence by this
appeal, IOCL is seeking to pursue two remedies
simultaneously.
4. NCCL also pointed to the fact that IOCL had accepted the
existence of Notified Claims and the final bill raised by NCCL
also contains the Notified Claims. Hence it cannot be
concluded that the Notified Claims were withdrawn.
5. The Delhi High Court was correct in allowing the application
and referring the dispute to arbitration.

IV. Judgment.
The cases where the question of accord and satisfaction was
concerned, i.e., whether the payment was made in final settlement,
although the conditions were not accepted entirely, was open to be
adjudicated by the arbitral tribunal. The High Court was correct in
allowing the Section 11 application. These appeals were dismissed.
The cases that concerned the question of Notified Claims where the
General Manager held that such claims were not arbitrable, the
question was within the exclusive scope of the General Manager who
had taken the final decision that Notified Claims were withdrawn, and
the arbitration clause did not exist as regards such claims. The claims
could not have been referred to arbitration. The High Court did not
interpret the clauses correctly in these cases. These appeals were
allowed, and respective impugned judgments were set aside.