Karnataka High Court
M P Rajendran vs The General Manager on 5 September, 2019
Author: B.Veerappa
Bench: B. Veerappa
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 5TH DAY OF SEPTEMBER, 2019
BEFORE
THE HON'BLE MR. JUSTICE B. VEERAPPA
C.M.P.No.353/2018
BETWEEN
M P RAJENDRAN
RAILWAY CONTRACTOR
5TH STREET, T.N.NAGAR
PALANIPET,
ARAKKONAM-631 002
NOW AT NO.2/7, WELCOME COLONY
ANNA NAGAR WEST EXTENSION
CHENNAI-600 101 ... PETITIONER
(BY SRI KRISHNA MURTHY.G, SENIOR COUNSEL A/W
SRI CHANDRAKANTH PATIL K, ADVOCATE)
AND
1. THE GENERAL MANAGER
SOUTH WESTERN RAILWAY
HEADQUARTERS OFFICE
GADAG ROAD
HUBLI-580 023
KARNATAKA STATE
2. THE CHIEF ENGINEER / WEST,
CONSTRUCTION
SOUTHER WESTERN RAILWAY
2
#18, MILLER ROAD
BANGALORE CANTONMENT
BANGALORE-560 046
KARNATAKA STATE
3. THE DEPUTY CHIEF ENGINEER / WORKS,
CONSTRUCTION
SOUTH WESTERN RAILWAY
#18, MILLER ROAD
BANGALORE CANTONMENT
BANGALORE-560 046
KARNATAKA STATE
4. UNION OF INDIA
DEPARTMENT OF RAILWAYS
REPRESENTED BY ITS GENERAL MANAGER
SOUTH WESTERN RAILWAY
HEADQUARTERS OFFICE
GADAG ROAD, HUBLI - 580 023.
... RESPONDENTS
(BY SRI Y T ABHINAY, ADVOCATE FOR R1 TO R4)
*****
THIS CMP IS FILED UNDER SECTION 11(6) OF THE
ARBITRATION AND CONCILIATION ACT 1996, PRAYING TO
APPOINT AN INDEPENDENT AND IMPARTIAL SOLE ARBITRATOR
TO HEAR AND DECIDE THE DISPUTES BETWEEN THE
PETITIONER AND THE RESPONDENTS ARISING OUT OF THE
CONTRACT DATED:27/08/2008 (ANNEXURE-B) AND
ARBITRATION CLAUSE 34 OF LETTER OF ACCEPTANCE
DT:22/01/2008 ANNEXURE-A.
THIS CMP COMING ON FOR ADMISSION THIS DAY, THE
COURT MADE THE FOLLOWING:
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ORDER
The petitioner filed the present Civil Miscellaneous Petition under the provisions of Section 11(6) of the Arbitration and Conciliation Act, 1996 ('the Act' for short) for appointment of an independent and impartial sole Arbitrator to decide the disputes in terms of arbitration Clause 34 of letter of Acceptance dated 22.1.2008 as per Annexure-A and the contract dated 27.8.2008 (Annexure- B) entered into between the parties.
2. It is the case of the petitioner that South-Western Railway vide tender notice dated 25.6.2007 called for tenders for "Shimoga Town-Tallaguppa - BG Conversion - Shimoga-Talaguppa gauge conversion from MG to BG - Linking of track and other allied works between Km.88/300 to 117/300 between Kumsi - Anandapuram Section". Since tender submitted by the petitioner was the lowest, the same was accepted by the 2nd respondent by issuing 4 acceptance letter dated 22.1.2008. Thereafter, on 27.8.2008 the petitioner and the respondent - Railways entered into the agreement for the purpose of the said project. It is further case of the petitioner that in terms of the agreement, the entire work was required to be completed within a period of four months i.e., on or before 21.5.2008. As per the terms and conditions of contract, the petitioner has furnished a Performance Bank Guarantee for Rs.9,78,615/- and Security Deposit of Rs.9,78,615/- was also furnished to the respondent.
3. It is the further case of the petitioner that after awarding the contract, the work of execution of earthwork, blanketing and bridges was awarded to other agencies. After establishing at site, the entire establishment created was to remain without any work as there was no clear site available to the instant contract. The execution of earthwork, blanketing and bridges by the other agencies was abnormally delayed resulting in abnormal delay of 5 handing over of site to the instant contract. The booking instructions for transportation of Permanent Way Materials were also abnormally delayed by the respondents. The respondents caused delay due to which the petitioner suffered loss and the respondents also did not pay for the new items executed at the site. Hence, the petitioner issued notice to the respondents demanding a sum of Rs.2,81,43,377/- invoking arbitration clause and requested the respondents to send a panel of arbitrators, who are not Railway officers, either in service or retired as they are ineligible for appointment under the 5th and 7th Schedule of the Act. Inspite of the legal notice, the respondents failed to appoint the Arbitrator. Therefore, the present Civil Miscellaneous Petition is filed for the reliefs sought for.
4. The respondents filed statement of objections and contended that the present petition is premature. Under the contract, the claimant is first required to putforth claim and wait for decision within 120 days and thereafter, after 6 expiry of 120 days and before lapse of 180 days, shall demand in writing that the dispute to be referred to arbitration. The petitioner has submitted his claim to the General Manager on 25.8.2018. The period of 120 days to the Railways to take the decision would therefore lapse on 22.12.2018. The present Civil Miscellaneous Petition is filed on 27.11.2018 i.e., before the expiry of 180 days prescribed under the contract. Therefore, the present Civil Miscellaneous Petition is premature and not maintainable. It is further contended that the claims raised by the claimants are 'excepted matters' under clause 63 of the General Conditions of Contract and are outside the purview of arbitration and therefore sought for dismissal of the Civil Miscellaneous Petition.
5. I have heard the learned counsel for the parties to the lis.
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6. Sri Krishna Murthy .G., learned senior counsel appearing for the petitioner brought to the notice of the Court the Clauses 63 and 64 of the general conditions of contract referred to in Clause-34 of acceptance letter dated 22.1.2008. He submits that as per Clause-64(3)(a)(ii) of the contract, the Arbitral Tribunal shall consist of panel of three Gazetted Railway Officers not below JA grade or two Railway gazetted officers not below JA grade and a retired Railway Officer, retired not below the rank of SAG Officer, as the arbitrators. For this purpose, the Railway will send a panel of more than three names of Gazetted Railway Officers of one or more departments, of the Railway, which may also include the name(s) of retired Railway Officer(s) empanelled to work as Railway Arbitrator to the Contractor within 60 days from the day when a written and valid demand for arbitration is received by the General Manager. He would further contend that in view of the amended provisions of Section 12(5) of the Act, which came into 8 force on 23.10.2015 r/w Entry 1 of the seventh schedule of the Act, working gazetted officers are prohibited to be appointed and therefore one retired Railway Officer in terms of the contract, cannot constitute an Arbitral Tribunal. In the circumstances, this Court has to appoint independent sole Arbitrator exercising the powers under the provisions of Section 11(6) of the Act. Therefore, he sought to allow the present Civil Miscellaneous Petition.
7. In support of his contentions, learned senior counsel relied upon the following judgments:
1. TRF Limited v. Energo Engineering Projects Limited reported in (2017)8 SCC 377 (paragraphs 50 and 54).
2. Build India Construction System v. Union of India reported in (2002)5 SCC 433 (paragraph 8) 9
8. Per contra, Sri Y.T. Abhinay, learned counsel for the respondents reiterating the averments made in the statement of objections, fairly submits that the 1st objection raised by the respondents that the present Civil Miscellaneous Petition is premature, does not survive for consideration. He contended that in view of the amended provisions of Section 12(5) of the Act r/w Entry-1 of the 7th Schedule of the Act, a person who is related to a party as an employee, consultant, advisor or has any other past or present business relationship with a party, is disqualified to act as an Arbitrator. He further contended that the retired Railway Officer has no past or present business relationship with the respondent - Railways and further in view of the prayer sought in the present Civil Miscellaneous Petition to appoint the sole Arbitrator, there is no bar for appointment of the retired officer, in terms of the contract. He would further contend that an independent Arbitrator as sought by the petitioner cannot be appointed without resorting to the 10 procedure for appointment of Arbitrator, which has been prescribed under Clause 64(3)(a)(ii) of the Contract under the inbuilt mechanism as agreed by the parties. Therefore he submits that retired Railway Officer, who has no business relationship with the respondents, can be appointed as an Arbitrator.
9. In support of his contentions, learned counsel for the respondents relied upon the following judgments:
1. Union of India Vs. Parmar Construction Company {(2019)5 SCALE 453}
2. State of Haryana Vs. G.F. Toll Road (P) Ltd., {(2019)3 SCC 505 .. paragraphs 22 and 23}
10. Having heard the learned counsel for the parties, it is an undisputed fact that the respondents have invited tenders for the work of "Shimoga Town-Tallaguppa - BG Conversion - Shimoga-Talaguppa gauge conversion from MG to BG - Linking of track and other allied works between 11 Km.88/300 to 117/300 between Kumsi - Anandapuram Section". It is also not in dispute that since the Tender submitted by the petitioner was the lowest, the same was accepted by the 2nd respondent by issuing acceptance letter on 22.1.2008. Subsequently, the petitioner and the respondents entered into contract on 27.8.2008 for the purpose of the said project. According to the petitioner, the respondents - Railways have not fulfilled the conditions of the contract, thereby the petitioner has issued notice demanding a sum of Rs.2,81,43,377/- invoking the arbitration clause.
11. It is the specific case of the respondents - Railways that the Arbitrator has to be appointed in terms of Clause 64(3)(a)(ii) of the general conditions of the contract referred to in Clause-34 of the acceptance letter dated 22.1.2008. On the other hand, Sri Krishna Murthy, learned senior counsel appearing for the petitioner contended that the amended provisions of sub-section (5) of Section 12 of 12 the Act, which came into force on 23.10.2015 clearly depicts notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an Arbitrator provided that parties may, subsequent to dispute having arisen between them, waive the applicability of this sub-section by an express agreement in writing. In the present case, the parties have not waived the applicability of Section 12(5) of the Act.
12. A careful reading of the said provisions make it clear that inspite of the prior agreement entered into before the amendment Act came into force i.e., prior to 23.10.2015, any person to the agreement whose relationship with the parties or Counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be 13 appointed as an Arbitrator. In view of the amended provisions of Section 12(5) of the Act r/w Entry-1 of the Seventh Schedule of the Act, a person who is related to a party as an employee, Consultant, Advisor or as any other past or present business relationship with a party, is disqualified to act as an Arbitrator. The petitioner apprehended that even a retired Railway Officer cannot be appointed in view of the amended provisions of the Act. A reading of the Entry-1 of the Seventh Schedule of the amended provisions of sub-section (5) of Section 12 of the Act clearly prohibited appointment of existing employee of the respondent - Railways and it has not barred the appointment of any former/retired Railway Officer who has no business relationship with respondent, as an Arbitrator.
13. It is also not in dispute that the contract came to be entered into between the parties on 27.8.2008. The legal notice issued by the petitioner only on 25.8.2018. In the legal notice, it is also stated that the General Manager 14 of the respondents - Railways shall send a panel of arbitrators within 60 days on receipt of letter considering the terms of the 5th and 7th Schedule of the amended Arbitration Act, 2015.
14. At this stage, it is relevant to state that the Hon'ble Supreme Court while considering the very amended provisions of the Act in the case of State of Haryana v. G.E. Toll Road (P) Limited reported (2019)3 SCC 505, held at paragraphs 22, 23 and 24 as under:
22. The present case is governed by the pre-
amended 1996 Act. Even as per the 2015
Amendment Act which has inserted the Fifth
Schedule to the 1996 Act which contains grounds to determine whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. The first entry to the Fifth Schedule reads as under:
"Arbitrator's relationship with the parties or counsel 15
1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party."
Entry 1 of the Fifth Schedule and the Seventh Schedule are identical. The entry indicates that a person, who is related to a party as an employee, consultant, or an advisor, is disqualified to act as an arbitrator. The words "is an" indicate that the person so nominated is only disqualified if he/she is a present/current employee, consultant, or advisor of one of the parties.
23. An arbitrator who has "any other" past or present "business relationship" with the party is also disqualified. The word "other" used in Entry 1, would indicate a relationship other than an employee, consultant or an advisor. The word "other" cannot be used to widen the scope of the entry to include past/former employees.
24. ICA made only a bald assertion that the nominee arbitrator Mr M.K. Aggarwal would not be independent and impartial. The objection of reasonable apprehension of bias raised was wholly unjustified and unsubstantiated, particularly since 16 the nominee arbitrator was a former employee of the State over 10 years ago. This would not disqualify him from acting as an arbitrator. Mere allegations of bias are not a ground for removal of an arbitrator. It is also relevant to state that the appointment had been made prior to the 2015 Amendment Act when the Fifth Schedule was not inserted. Hence, the objection raised by ICA was untenable on that ground also.
15. It is also useful to refer the judgment of the Hon'ble Supreme Court in the case of Union of India v. Parmar Construction Company reported in (2019)5 SCALE 453, wherein it is held at paragraphs 41, 43 and 44 as under:
41. This Court has put emphasis to act on the agreed terms and to first resort to the procedure as prescribed and open for the parties to the agreement to settle differences/disputes arising under the terms of the contract through appointment of a designated arbitrator although the name in the arbitration agreement is not mandatory or must but emphasis should always be on the terms of the arbitration 17 agreement to be adhered to or given effect as closely as possible.
43. In the present batch of appeals, independence and impartiality of the arbitrator has never been doubted but where the impartiality of the arbitrator in terms of the arbitration agreement is in doubt or where the Arbitral Tribunal appointed in terms of the arbitration agreement has not functioned, or has failed to conclude the proceedings or to pass an award without assigning any reason and it became necessary to make a fresh appointment, Chief Justice or his designate in the given circumstances after assigning cogent reasons in appropriate cases may resort to an alternative arrangement to give effect to the appointment of independent arbitrator under Section 11(6) of the Act. In North Eastern Railway v.Tripple Engineering Works {(2014)9 SCC 288}, though the panel of arbitrators as per clause 64(3)(a)(ii) and (iii) of the general conditions of contract under GCC was appointed in the year 1996 but for two decades, the arbitrator failed to pass the award and no explanation came forward. In the given situation, this Court observed that general conditions of the contract do not prescribe any specific qualification of the arbitrators to be appointed under the agreement 18 except that they should be railway officers further held that even if the arbitration agreement was to specifically provide for any particular qualification(s) of an arbitrator the same would not denude the power of the Court acting under Section 11(6) to depart therefrom and accordingly, confirmed the appointment of an independent arbitrator appointed by the High Court in exercise of Section 11(6) of the Act, 1996. Almost the same situation was examined by this Court in Union of India v. Uttar Pradesh State Bridge Corporation Ltd.{(2015)2 SCC 52} and after placing reliance on North Eastern Railway v. Tripple Engineering works(supra) held that since Arbitral Tribunal has failed to perform and to conclude the proceedings, appointed an independent arbitrator in exercise of power under Section 11(6) of the Act, 1996. In the given circumstances, it was the duty of the High Court to first resort to the mechanism in appointment of an arbitrator as per the terms of contract as agreed by the parties and the default procedure was opened to be resorted to if the arbitrator appointed in terms of the agreement failed to discharge its obligations or to arbitrate the dispute which was not the case set up by either of the parties.19
44. To conclude, in our considered view, the High Court was not justified in appointing an independent arbitrator without resorting to the procedure for appointment of an arbitrator which has been prescribed under clause 64(3) of the contract under the inbuilt mechanism as agreed by the parties.
16. Learned senior counsel for the petitioner contended that in terms of Clause 64(3)(a)(ii) of the general conditions of contract referred to in Clause-34 of the acceptance letter dated 22.1.2008, the Arbitral Tribunal shall consist of a panel of three gazetted Railway Officers or two Railway gazetted officers and one retired Railway Officer, but in view of the amended provisions of Section 12(5) of the Act, the working gazetted officers cannot be appointed and therefore one retired Railway Officer cannot constitute the Arbitral Tribunal. The same cannot be accepted. The appointment of the retired Railway Officer in terms of Clause 64(3)(a)(ii) of the contract, as Arbitrator 20 is not prohibited under the amended provisions of Section- 12(5) of the Act and the law declared by the Hon'ble Supreme Court in the case of State of Haryana stated supra. The prayer sought in the present Civil Miscellaneous Petition is also appointment of independent sole Arbitrator. The petitioner has also not expressed any apprehension or doubt in the present Civil Miscellaneous Petition in respect of appointment of independent, impartial arbitrator, in terms of the contract. Therefore, the contention of the petitioner that independent sole Arbitrator has to be appointed by this Court exercising the powers under Section 11(6) of the Act, cannot be accepted. My view is fortified by the judgment of the Hon'ble Supreme Court in the case of Union of India stated supra, where the Hon'ble Supreme Court held that the High Court was not justified in appointing an independent arbitrator without resorting to the procedure for appointment of the Arbitrator which has 21 been prescribed under Clause 64(3) of the contract under the inbuilt mechanism as agreed by both the parties.
17. Though the learned senior counsel for the petitioner relied upon the judgment of the Hon'ble Supreme Court in the case of TRF Limited stated supra, it was a case where the question involved was whether the Managing Director, after becoming ineligible in view of the amended provisions of sub-section (5) of Section 12 of the Act by operation of law, is he still eligible to nominate an arbitrator and in those circumstances, the Hon'ble Supreme Court held that when the Managing Director himself become ineligible, he cannot appoint or name another as an Arbitrator. In the present case, it is not the case of the petitioner that all the three persons referred in the arbitration clause become ineligible. Only two working gazetted officers are ineligible by operation of law and therefore, there is no impediment to appoint one retired Railway Officer since the petitioner has not raised any 22 apprehension or doubt in the Present Civil Miscellaneous Petition in respect of appointment of the impartial and independent Arbitrator, in terms of the contract. Therefore the said Judgment has no application to the facts of this case.
18. In the judgment relied upon by the learned senior counsel for the petitioner in the case of Build India Construction System stated supra, the Hon'ble Supreme Court observed that " a plain reading of the acceptance letter dated 22.2.1985 signed by the appellant clearly suggests a copy of general conditions of contract with amendments having been supplied by the respondents to the appellant and having been read and understood by the appellant followed by the appellant's agreement to abide by the terms and conditions thereof. The expression 'as modified', qualifies the terms and conditions contained in the general conditions of contract as on and till that day. There is nothing contained in the acceptance letter, either 23 expressly or by necessary implication, to spell out the appellant therein having authorized the respondents to carry out the modification in the terms and conditions of the contract otherwise than by mutual agreement." In those circumstances, the Hon'ble Supreme Court held that unless by mutual consent, it cannot be modified or amended. In the present case, in terms of the arbitration clause, there is no question of modification, in view of the inbuilt agreement between the parties and in the absence of prohibition for appointing one retired Railway Officer as contemplated under Clause 64(3)(a)(ii) of the general conditions of contract. Therefore the said judgment is also not applicable to the facts and circumstances of the present case.
19. Learned senior counsel appearing for the petitioner also relied upon the judgment of the Hon'ble Supreme Court in the case of Voestalpine Schienen GMBH vs. Delhi Metro Rail Corporation Limited 24 reported in (2017)4 SCC 665 to the effect that sub-section (5) of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule, he shall be ineligible to be appointed as an Arbitrator and further in view of the non-obstante clause contained in Section 12(5) of the Act, the other party cannot insist appointment of the arbitrator in terms of the agreement. Admittedly in the present case, either in view of the amended provisions of sub-section (5) of Section 12 or the law declared by the Hon'ble Supreme Court in the case of State of Haryana stated supra, it is not prohibited to appoint a retired Railway Officer, in terms of the contract, as an Arbitrator. This Court has no quarrel with the said judgment relied upon by the learned counsel for the petitioner in respect of interpretation of Section 12 of the 25 Act. But with due respect, the said judgment has no application to the facts of the case.
20. In view of the aforesaid circumstances, the 1st respondent - General Manager is directed to furnish names of three retired Railway Officers, in terms of Clause 64(3)(a)(ii) of the general conditions of the contract referred to in Clause-34 of the acceptance letter dated 22.1.2008, within a period of four weeks from the date of receipt of copy of this order. Out of three names suggested, the petitioner can give consent to any one of them within a period of one week thereafter and on the basis of the said consent, the 1st respondent shall appoint the sole Arbitrator to adjudicate the dispute between the parties in terms of clause 64(3)(a)(ii) of the general conditions of contract referred to in Clause-34 of the acceptance letter dated 22.1.2008.
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21. All other contentions raised by both the parties are left open to be urged before the sole Arbitrator.
Accordingly, the Civil Miscellaneous Petition is disposed off with the above observations.
Sd/-
JUDGE Gss/-