Telangana High Court
M/S B. Chandraiah And Sons vs Union Of India on 23 June, 2022
Author: T. Vinod Kumar
Bench: T. Vinod Kumar
THE HON'BLE SRI JUSTICE T. VINOD KUMAR
ARBITRATION APPLICATION No.55 of 2021
ORDER :
This Arbitration Application is filed under Section 11(6) of the Arbitration and Reconciliation Act, 1996 (for short 'the Act') to appoint Sole Arbitrator to adjudicate the disputes between the parties arising out of a contract agreement in CA.No.CERD/BAN/06 of 2010-11.
2. The said Agreement relates to work provision of Multi level Car Parking at GTRE Bangalore, allocated to the applicant by the respondents, in pursuance of the applicant's offer letter No.82410/86/E8, dt.05.05.2010, for an amount of Rs.7,08,21,795.99, to the tender enquiry No.82410/80/E8, dt.29.03.2010, issued by the respondents, as amended by their office letter dt.15.04.2010.
3. Applicant contends that though the above said project was completed and completion certificate was issued, disputes have arisen between the parties on account of price variations and other additional over heads, for which, the applicant had made a claim with the 2nd respondent in a sum of Rs.525 lakhs along with interest, vide letter dt.26.10.2020, to which the 2nd respondent replied vide letter dt.10.11.2020 stating that the claim made by the applicant is beyond the purview of the contract provisions and requested to cooperate and submit requisite documents and sign the Dos for finalization of Final Bill.
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4. As the 2nd respondent did not agree to the claim made by the applicant, it got issued notice dt.04.01.2021 invoking the arbitration as per Clause 70 of the General Conditions of the Contracts, which forms part of the tender document and to be read into the other correspondence between the parties.
5. Counter affidavit on behalf of the respondents is filed.
6. By the said counter, while referring to clause 70 of the General Conditions of the Contracts, it is contended that it is only the Engineer-In-Chief, who is been empowered to appoint an Arbitrator and the applicant cannot seek to appoint the Arbitrator, and therefore, prayed to dismiss this application.
7. I have noted the contentions of the respective counsel appearing for the parties.
8. The objection of the 2nd respondent is that it is only the Engineer-In-Chief, who is empowered to appoint the Arbitrator in terms of Clause 70 of the General Conditions of the Contracts, forming part of the contract.
9. Clause 70 of the General Conditions of Contracts reads as under:
"70. Arbitration:- All disputes, between the parties to the Contract(other than those for which the decision of the C.W.E. or any other person is by the Contract expressed to be final and binding) shall, after written notice by either party to the Contract to the other of them, be referred to the sole arbitration of an Engineer officer to be appointed by the authority mentioned in the tender documents.3
Unless both parties agree in writing such reference shall not take place until after the completion or alleged completion of the Work or termination or determination of the Contract under Condition Nos. 55, 56 and 57 hereof.
Provided that in the event of abandonment of the Works or cancellation of the Contract under Condition Nos. 52, 53 or 54 hereof, such reference shall not take place until alternative arrangements have been finalized by the Government to get the Works completed by or through any other Contractor or Contractors or Agency or Agencies.
Provided always that commencement or continuance of any arbitration proceeding hereunder or otherwise shall not in any manner militate against the Government's right of recovery from the contractor as provided in Condition 67 hereof.
If the Arbitrator so appointed resigns his appointment or vacates his office or is unable or unwilling to act due to any reason whatsoever, the authority appointing him may appoint a new Arbitrator to act in his place.
The Arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties, asking them to submit to him their statement of the case and pleadings in defence.
The Arbitrator may proceed with the arbitration, exparte, if either party, in spite of a notice from the Arbitrator fails to take part in the proceedings.
The Arbitrator may, from time to time with the consent of the parties, enlarge, the time upto but not exceeding one year from the date of his entering on the reference, for making and publishing the award.
The Arbitrator shall give his award within a period of six months from the date of his entering on the reference or within the extended time as the case may be on all matters referred to him and shall indicate his findings, along with sums awarded, separately on each individual item of dispute. [The arbitrator shall give reason for the award in each and every case irrespective of the value of claims or counter claims].
The venue of Arbitration shall be such place or places as may be fixed by the Arbitrator in his sole discretion. The award of the Arbitrator shall be final and binding on both parties to the Contract."
10. Further, vide tender document in CA.No.CEFD/BAN/TOKEN 08 of 2008-2009, serial page No.83 in lieu of IAFW-2159(Revised- 4 1947) under the head of 'Should this tender be accepted' at clause (b) it is stated as under:
"(b) To execute all the works referred to in the said documents upon the terms and conditions contained or referred to there upon and as detailed in the General Summary and to carry out such deviations as may be ordered vide condition 7 of IAFW-2249 up to a maximum of TEN percent and further agree to refer all disputes as required by the condition 70 of IAFW-2249 to the sole arbitration of serving officer having degree in Engineering or equivalent or having passed final/direct final examination of Sub-Division II of Institution of Surveyors (India) recognized by the Govt. Of India to be appointed by the Engineer-in-Chief, or in his absence the officer officiating as Engineer-in-Chief of Director General of Works, if specially delegated in writing by the Engineer-in-Chief, Army Headquarters, New Delhi-
11, whose decision shall be final, conclusive and binding".
11. The respondents in their counter do not dispute either the existence of arbitration clause or the applicant issuing notice invoking the said arbitration clause seeking appointment of an arbitrator. On the other hand, the respondents claim that the applicant should approach the Engineer-in-Chief seeking appointment of an Arbitrator.
12. It is to be seen that Section 12 of the Act deals with 'Grounds for Challenge' and sub-Section (5) thereof specifies that notwithstanding any prior agreement, any person having relationship with the parties falls within any of the categories specified in seventh Schedule appended to the Act are ineligible to be appointed as Arbitrator.
13. For the sake of reference, Seventh Schedule appended to the Act is extracted hereunder:
" The Seventh Schedule [See section 12(5)] :
Arbitrator's relationship with the parties or counsel :
1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.
2. The arbitrator currently represents or advises one of the parties or an affiliate of one of the parties.
3. The arbitrator currently represents the lawyer or law firm acting as counsel for one of the parties.5
4. The arbitrator is a lawyer in the same law firm which is representing one of the parties.
5. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration.
6. The arbitrator's law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself.
7. The arbitrator's law firm currently has a significant commercial relationship with one of the parties or an affiliate of one of the parties.
8. The arbitrator regularly advises the appointing party or an affiliate of the appointing party even though neither the arbitrator nor his or her firm derives a significant financial income therefrom.
9. The arbitrator has a close family relationship with one of the parties and in the case of companies with the persons in the management and controlling the company.
10. A close family member of the arbitrator has a significant financial interest in one of the parties or an affiliate of one of the parties.
11. The arbitrator is a legal representative of an entity that is a party in the arbitration.
12. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.
13. The arbitrator has a significant financial interest in one of the parties or the outcome of the case.
14. The arbitrator regularly advises the appointing party or an affiliate of the appointing party, and the arbitrator or his or her firm derives a significant financial income therefrom. Relationship of the arbitrator to the dispute
15. The arbitrator has given legal advice or provided an expert opinion on the dispute to a party or an affiliate of one of the parties.
16. The arbitrator has previous involvement in the case. Arbitrator's direct or indirect interest in the dispute
17. The arbitrator holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held.
18. A close family member of the arbitrator has a significant financial interest in the outcome of the dispute.
19. The arbitrator or a close family member of the arbitrator has a close relationship with a third party who may be liable to recourse on the part of the unsuccessful party in the dispute.
Explanation 1.--The term "close family member" refers to a spouse, sibling, child, parent or life partner.
Explanation 2.--The term "affiliate" encompasses all companies in one group of companies including the parent company. Explanation 3.--For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialised pool. If in such fields it is the custom and practice for parties frequently to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out above."
14. It is to be seen that as per Clause 70 of the General Conditions of Contracts, it is the Engineer-in-chief, who is empowered to appoint 6 Sole Arbitrator from the Serving Officer having degree in Engineering or equivalent. Further, it is the Engineer-in-Chief, who is vested with the power to adjudicate as to the existence of disputes, requiring appointment of Sole Arbitrator. Thus, the Engineer-in-Chief would have to be considered as having interest, more so the appointment of serving officer of the respondent attracts disqualification under Section 12(5) of the Act read with Seventh Schedule appended to the Act.
15. Further, the Supreme Court in TRF Limited vs. Energo Engineering Projects Limited1, dealing with the ineligibility of a person, whose relationship with the subject matter or dispute falls under any of the categories specified in the Seventh Schedule, subsequent to the 2015 Amendment of the Act, held as under:
"12. Sub-section (5) of Section 12, on which immense stress has been laid by the learned counsel for the appellant, as has been reproduced above, commences with a non obstante clause. It categorically lays down that if a person whose relationship with the parties or the counsel or the subject-matter of dispute falls under any of the categories specified in the Seventh Schedule, he shall be ineligible to be appointed as an arbitrator. There is a qualifier which indicates that parties may, subsequent to the disputes arisen between them, waive the applicability by express agreement in writing. The qualifier finds place in the proviso appended to sub- section (5) of Section 12. On a careful scrutiny of the proviso, it is discernible that there are fundamentally three components, namely, the parties can waive the applicability of the sub-section; the said waiver can only take place subsequent to dispute having arisen between the parties, and such waiver must be by an express agreement in writing.
13. At this stage, we think it appropriate to refer to the Seventh Schedule, which finds mention in Section 12(5). The Seventh Schedule has three parts, namely, (i) arbitrator's relationship with the parties or counsel; (ii) relationship of the arbitrator to the dispute; and (iii) arbitrator's direct or indirect interest in the dispute.
15. We will be failing in our duty, if we do not refer to some of the aspects which find mention in the Fifth Schedule. Our attention has 1 2017(8) SCC 377 7 been drawn to Items 22 and 24 of the Fifth Schedule. They are as follows:
"22. The arbitrator has within the past three years been appointed as arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties.
24. The arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration on a related issue involving one of the parties or an affiliate of one of the parties."
We have noted this for the sake of completion.
16. What is fundamentally urged, as is noticeable from the submissions of Mr Sundaram, learned Senior Counsel appearing for the appellants, is that the learned arbitrator could not have been nominated by the Managing Director as the said authority has been statutorily disqualified. The submission of the respondent, per contra, is that the Managing Director may be disqualified to act as an arbitrator, but he is not deprived of his right to nominate an arbitrator who has no relationship with the respondent. Additionally, it is assiduously urged that if the appointment is hit by the Fifth Schedule or the Sixth Schedule or the Seventh Schedule, the same has to be raised before the Arbitral Tribunal during the arbitration proceeding but not in an application under Section 11(6) of the Act.
17. First we shall address the issue whether the Court can enter into the arena of controversy at this stage. It is not in dispute that the Managing Director, by virtue of the amended provision that has introduced sub-section (5) to Section 12, had enumerated the disqualification in the Seventh Schedule. It has to be clarified here that the agreement had been entered into before the amendment came into force. The procedure for appointment was, thus, agreed upon. It has been observed by the Designated Judge that the amending provision does not take away the right of a party to nominate a sole arbitrator, otherwise the legislature could have amended other provisions. He has also observed that the grounds including the objections under the Fifth and the Seventh Schedules of the amended Act can be raised before the Arbitral Tribunal and further when the nominated arbitrator has made the disclosure as required under the Sixth Schedule to the Act, there was no justification for interference. That apart, he has also held in his conclusion that besides the stipulation of the agreement governing the parties, the Court has decided to appoint the arbitrator as the sole arbitrator to decide the dispute between the parties."
16. Further, the Apex Court in the judgment of TRF Limited's case(1 supra) after analyzing the judgments in Datar Switchgears Ltd. v. Tata Finance Ltd.2, Newton Engg. and Chemicals Ltd. v. 2 2000(8) SCC 151 8 Indian Oil Corpn. Ltd.3 and Deep Trading Co. v. Indian Oil Corpn., had observed as under:
"47. The aforesaid three cases exposit three different situations. The first one relates to non-failure of the procedure and the authority of the owner to appoint the arbitrator; the second relates to non- survival of the arbitration clause; and the third pertains to forfeiture of the right of the Corporation to appoint the sole arbitrator because of the failure to act with the procedure agreed upon by the parties in Clause 29 which was the arbitration clause in the agreement. It is interesting to note that Clause 29 in Deep Trading Co. [Deep Trading Co. v. Indian Oil Corpn., (2013) 4 SCC 35 : (2013) 2 SCC (Civ) 449] does not mention unlike Newton Engg. [Newton Engg. and Chemicals Ltd. v. Indian Oil Corpn. Ltd., (2013) 4 SCC 44 : (2013) 2 SCC (Civ) 457] that no one else shall arbitrate upon.
48. One aspect needs to be noted. In the first and third case, the parties had not stipulated that there will be no one else who can arbitrate while in the second case i.e. Newton Engg. [Newton Engg. and Chemicals Ltd. v. Indian Oil Corpn. Ltd., (2013) 4 SCC 44 : (2013) 2 SCC (Civ) 457] , such a stipulation was postulated.
49. Regard being had to the same, we have to compare and analyse the arbitration clause in the present case. Clause (c), which we have reproduced earlier, states that all disputes which cannot be settled by mutual negotiation shall be referred to and determined by arbitration as per the Act, as amended. Clause (c) is independent of Clause (d). Clause (d) provides that unless otherwise provided, any dispute or difference between the parties in connection with the agreement shall be referred to the sole arbitration of the Managing Director or his nominee.
50. First, we shall deal with Clause (d). There is no quarrel that by virtue of Section 12(5) of the Act, if any person who falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as the arbitrator. There is no doubt and cannot be, for the language employed in the Seventh Schedule, the Managing Director of the Corporation has become ineligible by operation of law. It is the stand of the learned Senior Counsel for the appellant that once the Managing Director becomes ineligible, he also becomes ineligible to nominate. Refuting the said stand, it is canvassed by the learned Senior Counsel for the respondent that the ineligibility cannot extend to a nominee if he is not from the Corporation and more so when there is apposite and requisite disclosure. We think it appropriate to make it clear that in the case at hand we are neither concerned with the disclosure nor objectivity nor impartiality nor any such other circumstance. We are singularly concerned with the issue, whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator. At the cost of repetition, we may state that when there are two parties, one may nominate an arbitrator and the other may appoint another. That is altogether a different situation. If there is a clause requiring the parties to nominate their respective arbitrator, their authority to nominate cannot be questioned. What really in that circumstance can be called in question is the procedural compliance and the eligibility of their arbitrator depending upon the norms provided under the Act and the Schedules appended thereto. But, here is a case where the Managing Director is the "named sole arbitrator" and 3 2013(2) SCC (Civ)457 9 he has also been conferred with the power to nominate one who can be the arbitrator in his place. Thus, there is subtle distinction.
51. ..................
52. ..................
53. The aforesaid authorities have been commended to us to establish the proposition that if the nomination of an arbitrator by an ineligible arbitrator is allowed, it would tantamount to carrying on the proceeding of arbitration by himself. .................
54. In such a context, the fulcrum of the controversy would be, can an ineligible arbitrator, like the Managing Director, nominate an arbitrator, who may be otherwise eligible and a respectable person. As stated earlier, we are neither concerned with the objectivity nor the individual respectability. We are only concerned with the authority or the power of the Managing Director. By our analysis, we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated. .........."
17. Thus, the Engineer-in-Chief, being the person having interest in the subject matter, the stand of the respondents that he is vested with the power to appoint a serving officer as Arbitrator upon his satisfaction as to the existence of a dispute, would be hit by Section 12(5) read with Seventh Schedule to the Act, and cannot be accepted.
18. That apart, the first part of Clause 70 of the General Conditions of the Contracts provides for resolution of disputes by arbitration and as the issuance of a letter of offer by the respondents for construction of Multi Level car parking at GTRE Bangalore, is not in dispute, and as the dispute raised by the applicant relates thereto, the objection of the respondent to this application filed under Section 11(6) of the Act, cannot be countenanced.
19. In the view of the foregoing discussion and in the light of the principles laid down by the Apex Court in TRF Limited's case(1 10 supra), this Court is of the view that the disputes arising in relation thereto would have to be referred to arbitration by appointing a Sole Arbitrator.
20. Accordingly, this application is allowed and Hon'ble Sri Justice Ramesh Ranganathan, Retired Chief Justice of High Court of Uttarakand, Road No.10, Tarnaka, Secunderabad, is appointed as Sole Arbitrator to adjudicate the disputes between the parties as may be raised before him in relation to the contract agreement number CA.No.CERD/BAN/06 of 2010-11. The learned Arbitrator shall fix his own remuneration upon deliberation and consultation with the parties. He shall also estimate the cost and expenses for the secretarial assistance and other incidental expenditure of the arbitration proceedings. The parties will bear the expenses of the arbitration proceedings in equal share. No costs.
21. Consequently, miscellaneous petitions, if any pending, shall stand closed.
_____________________ T. VINOD KUMAR, J 23rd June, 2022.
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