Asked to clarify whether it had authorised the liquidator, a joint venture partner said nothing. Calcutta High Court holds that silence cost it the point

Justice Om Narayan Rai refuses to disturb an arbitrator's order, holding that Article 227 will not be used to aid a joint venture member acting in bad faith against the venture's own claim.

One partner in a highways joint venture went into liquidation, and its liquidator took over the venture's arbitration against the company that had engaged it. The other partner wrote to the employer saying it had never authorised the liquidator — but when the liquidator wrote directly asking it to clarify its position, it did not reply. Three and a half years later, with evidence in the arbitration closed, it applied to intervene and have the venture's own claims thrown out. Justice Om Narayan Rai has dismissed its revision, holding that a party confronted with a claim of authority has a duty to speak, and that Article 227 will not be deployed to help a joint venture member act against the venture.

A road project, two insolvencies and an award on the other side

The National Highways Authority of India had invited bids for four and two-laning a stretch of NH 215 between Rimuli, Roxy and Rajamunda in Odisha, part of the third phase of the national highways development programme, on a build-operate-transfer basis. Two financiers bid jointly and won, and a special purpose company — the second opposite party in this case — was incorporated to execute the work and signed the Concession Agreement.

With only part of the work done, two contractors stepped in to complete the balance as EPC contractor. In July 2013 they constituted the Prathyusha-AMR Joint Venture, and days later the venture executed a power of attorney in favour of an individual attorney. The special purpose company then contracted with the venture for the works.

While the venture was executing, the Authority closed the project and terminated the Concession Agreement. The Authority and the special purpose company fought their own arbitration, which ended in March 2019 in an award in the company's favour. That award — for a little over Rs 322 crore, since deposited with the Registrar of the Delhi High Court by the Authority — becomes important later.

In September 2019 the joint venture invoked its arbitration clause against the special purpose company. Meanwhile the State Bank of India's insolvency application put the venture's majority member into the corporate insolvency resolution process before the Amaravati Bench of the National Company Law Tribunal. The resolution process failed, liquidation followed and a liquidator was appointed. The venture's constituted attorney then executed a second power of attorney authorising the liquidator to act on the venture's behalf.

On the strength of that document the liquidator applied under Section 11 of the Arbitration and Conciliation Act for appointment of an arbitrator. The application was allowed in September 2023. Evidence was recorded. Then, at the thirty-first sitting of the reference, the other venture member applied under Section 32(2) read with Section 19 for leave to intervene, to withdraw the claims made on behalf of the venture and to terminate the proceeding. The arbitrator dismissed that application with costs of Rs 51,000, and the revision under Article 227 followed.

The letter that was never answered

The chronology the Court fixed on is short. In March 2023 the employer wrote to the petitioner telling it that the liquidator had instituted arbitral proceedings on behalf of the venture. Later that month the petitioner wrote to the employer saying it had granted the liquidator no authority to act for the venture, including for the Section 11 and Section 9 applications before the High Court. In April 2023 the liquidator wrote to the petitioner directly, setting out the reasons for his actions and asking it to clarify its stance so that he could decide the future course of action and formulate a response to the employer.

The petitioner admitted receiving that letter. Nothing on the record showed any reply.

That omission is the fulcrum of the judgment. Once the petitioner found that steps adversely affecting its interests were being taken, that the liquidator was justifying them with reasons which may or may not have been valid, and that it was being asked to clarify its own position, it could no longer remain silent. Having been directly confronted with the liquidator's claim of authority, the Court held, it had a distinct duty to speak. It could not sit idly by, await the result of the Section 11 application, and then seek intervention in the arbitration with a prayer for termination on the ground of an incompetent reference.

The principle came from State of Punjab v. Dhanjit Singh Sandhu and Arosan Enterprises Ltd. v. Union of India: a person may be precluded by his actions, conduct or silence, when it is his duty to speak, from asserting a right he would otherwise have had, and silence at a time when there is a duty to speak may lead to forfeiture of contractual rights. This, the judgment says, was not passive silence in an ordinary commercial setting — it followed an express demand for clarification on the very matter on which the petitioner now asserts a decisive contractual right. Having failed to exercise its supposed veto when specifically called upon, it could not exercise it later to the prejudice of the arbitral process.

The petitioner had also stayed away from the Section 11 hearing itself, although it knew of the proceedings. The Court noted that the employer has since filed a review application against the Section 11 order on exactly the ground the petitioner now presses, and the petitioner has applied to intervene in that review. If the point could be raised that way, the Court said, the reason for not taking it earlier “only smacks of an ulterior motive to delay and derail the arbitral proceedings”.

A shareholding on the other side

The arbitrator had gone further and found collusion, and the High Court declined to disturb that too.

The finding rested on a disclosed fact: the petitioner holds 22.57 per cent of the shareholding in the employer, as recorded in the employer's audited financial statements for two financial years. The employer has already obtained the Rs 322 crore award against the Highways Authority for the same project, with the money lying deposited in the Delhi High Court. On that footing the arbitrator reasoned that the petitioner may have had an assurance from the employer that its financial interest would be protected, which would explain why it changed stance and began taking every available measure to terminate an arbitration in which the venture it belongs to is the claimant.

The Court found no reason to disagree. The shareholding is undisputed, the financial statements show the petitioner is one of the employer's promoters, and the petitioner was found to be actively communicating with and siding with the employer while maintaining stoic silence towards the liquidator. Taken cumulatively, that denoted bad faith, and it was not far-fetched for the arbitrator to conclude that the application had been filed with an oblique motive.

There was also a simpler observation about what the petitioner stood to lose. It sought not to protect the venture's interest but to have the venture's claims dismissed — the same claims for which the arbitration agreement had been validly invoked by the venture itself in 2019. If the arbitration ends in dismissal on merits, its prayer is answered; if the claims succeed, it may be entitled to its dues under the joint venture agreement; and if it is aggrieved about its share, the agreement leaves it free to arbitrate against its own co-venturer.

The limits of Article 227 over an arbitral order

On jurisdiction the Court applied Bhaven Construction v. Executive Engineer, Sardar Sarovar Narmada Nigam Limited. Supervisory intervention in an arbitration is reserved for cases of “exceptional rarity”, where a party would otherwise be left remediless. This was not one. The power under Article 227, in the judgment's formulation, is supervisory in ambit, equitable in essence and discretionary in application — and the Court would not exercise an extraordinary equitable jurisdiction to aid a member of a joint venture acting in bad faith and against the venture's interest.

The complaint that the arbitrator had disclaimed jurisdiction over the question and then decided it anyway, and that the second power of attorney conferred no authority and the liquidator had none under Section 35(1) of the Insolvency and Bankruptcy Code, did not impress the Court. The arbitrator had pronounced on the liquidator's authority on the basis of that power of attorney read with the joint venture agreement, which he had jurisdiction to do; the decision is no manifest jurisdictional defect, and can in any case be challenged before the Section 34 court.

The petitioner's answer — that as a non-party it cannot challenge the award under Section 34 — was met with the history. The employer had earlier raised the identical grounds in a Section 16 application, which failed; the petitioner chose to intervene only after evidence closed. The two had been taking chances in turn, and the employer's own route under Section 34 remains open.

Two authorities on consortium members were distinguished. Maharashtra State Electricity Distribution Company Limited concerned a notice issued by one constituent without express authority to refer the venture's dispute to arbitration, and was held inapplicable for three reasons: here the venture itself invoked the clause; clause 22 of the agreement makes the relationship a consortium rather than a partnership, so the Partnership Act provision relied on does not bite; and that decision came at the Section 34 stage, which has not yet arrived. Consulting Engineers Group Limited followed the same reasoning and failed with it. HLS Asia Limited, cited for the proposition that every consortium member must be a party to the reference, was held to turn on its own facts — its concern was to foreclose a later plea by a member that it was not bound, which is not what this petitioner wanted intervention for.

Order

Finding no reason to interfere with the impugned order, the Court dismissed the revisional application, and with it the connected application for recalling the interim order. No costs were awarded.

The practical lesson is about when to object. The petitioner's substantive point — that a liquidator holding a delegated power of attorney cannot speak for a joint venture without the other member's consent — was never decided, and on this judgment it survives for the Section 34 stage. What it lost was the right to raise it when it did. There was a letter asking the question directly, and the answer to it is on record as a blank.

The second strand will be cited more often. Where one member of a consortium holds a stake in the party on the other side of the venture's claim, a court asked to halt the arbitration will look at the alignment of interest rather than the pleaded grievance. Here the alignment was arithmetical, and the money the employer had already recovered on the same project was sitting in a court registry.