Supreme Court Rules on Arbitration Dispute in Salma Dam Project

On November 14, 2019, the Supreme Court of India delivered a crucial judgment in the case of WAPCOS Ltd. vs. Salma Dam Joint Venture & Another. The ruling addressed the validity of arbitration proceedings concerning a dispute over the construction of the Salma Dam Project in Afghanistan, which was executed under an agreement between the Ministry of External Affairs (MEA) and WAPCOS Ltd., a public sector undertaking. The Court ruled in favor of WAPCOS Ltd., dismissing the arbitration petition filed by the Salma Dam Joint Venture (SDJV).

Background of the Case

The dispute originated from a contract awarded to SDJV for the reconstruction, rehabilitation, and completion of the Salma Dam Project. The project was initially valued at Rs. 253.84 crores but was later revised to Rs. 872.67 crores after multiple negotiations and amendments. WAPCOS Ltd. was responsible for financial, administrative, and contractual management on behalf of the MEA.

SDJV was formed as a joint venture between M/s SSJV Projects Pvt. Ltd. (SSPPL) and M/s Angelique International Ltd. (AIL), with SSPPL holding 95% and AIL 5%. However, disputes arose between the joint venture partners regarding payments, work execution, and arbitration clauses.

Key Legal Issues

The case raised two fundamental legal questions:

• Whether the arbitration agreement in the contract was still valid and enforceable at the time of filing the arbitration petition.
• Whether SSPPL had the authority to unilaterally invoke arbitration on behalf of SDJV after AIL revoked its Power of Attorney.

Arguments of the Appellant (WAPCOS Ltd.)

WAPCOS Ltd. argued that:

• The arbitration clause in the contract agreement was superseded by a subsequent Amendment of Agreement (AoA) signed on June 9, 2015.
• The AoA explicitly stated that all pending claims of the contractor stood “buried” and that “no arbitration” would be pursued for any settlement of claims.
• SSPPL, acting unilaterally, did not have the authority to invoke arbitration after AIL revoked its Power of Attorney.
• The Technical Committee had already adjudicated on the claims, and SDJV had accepted the revised project cost and payments without objection.

Arguments of the Respondent (Salma Dam Joint Venture)

SDJV, represented by SSPPL, contended that:

• The arbitration agreement remained valid and was not nullified by the AoA.
• The High Court of Delhi had correctly ruled that arbitration could be invoked under Clause 20.6 of the contract agreement.
• AIL’s revocation of the Power of Attorney did not impact SSPPL’s right to initiate arbitration as the lead partner of SDJV.
• The Technical Committee’s decision was not binding, and arbitration was necessary to resolve disputes over additional claims.

Supreme Court’s Observations

The Supreme Court extensively examined the contract agreement, the Amendment of Agreement (AoA), and the actions taken by the parties. The Court made the following key observations:

1. Validity of the Arbitration Clause

The Court held that the arbitration clause in the original contract was no longer in force. It stated:

“The terms and conditions specified in the AoA leave no manner of doubt that the arbitration agreement has been done away with.”

The Court emphasized that the parties had consciously agreed to forgo arbitration in exchange for revised project costs and payments.

2. Effect of the Amendment of Agreement (AoA)

The Court ruled that the AoA was a legally binding modification of the original contract and explicitly prohibited arbitration:

“Clause 1.2 of the AoA states that the balance pending claims of the contractor stand buried and that there will be no arbitration for the settlement of claims.”

3. Authority of SSPPL to Invoke Arbitration

The Court ruled that SSPPL lacked the authority to unilaterally invoke arbitration, especially after AIL revoked its Power of Attorney. The judgment noted:

“SSPPL had no legal standing to act on behalf of SDJV after AIL’s Board of Directors revoked its authority and informed WAPCOS Ltd. in writing.”

Final Judgment

The Supreme Court concluded:

“The Arbitration Petition filed for and on behalf of SDJV through SSPPL was not maintainable.”

Accordingly, the Court:

• Set aside the Delhi High Court’s judgment appointing an arbitrator.
• Dismissed the arbitration petition filed by SDJV.
• Held that the parties were free to pursue other legal remedies outside of arbitration.

Legal Implications of the Judgment

This ruling reinforces several important principles in contract and arbitration law:

• Amendment agreements can override arbitration clauses: If parties explicitly agree to abandon arbitration, courts will uphold such agreements.
• Authority to invoke arbitration must be clear: A joint venture partner cannot unilaterally initiate arbitration after its authority has been revoked.
• Judicial scrutiny of arbitration clauses: Courts can assess whether an arbitration agreement remains valid before allowing arbitration proceedings.

Conclusion

The Supreme Court’s ruling in WAPCOS Ltd. vs. Salma Dam Joint Venture clarifies that arbitration clauses do not remain valid indefinitely and can be overridden by subsequent agreements. By upholding contractual modifications and ensuring that only authorized entities invoke arbitration, the judgment strengthens the legal framework for resolving commercial disputes.

Petitioner Name: WAPCOS Ltd..
Respondent Name: Salma Dam Joint Venture & Another.
Judgment By: Justice A.M. Khanwilkar, Justice Dinesh Maheshwari.
Place Of Incident: Delhi, India.
Judgment Date: 14-11-2019.

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