Delhi District Court
Hi Tech Pipes Ltd vs Indian Oil Corporation on 24 February, 2024
DLST010039222022
Presented on : 05.05.2022
Registered on : 05.05.2022
Decided on : 24.02.2024
Duration : 1 years, 9 months,19 days
IN THE COURT OF DISTRICT JUDGE
(COMMERCIAL COURT) (DIGITAL-04),
SOUTH, SAKET COURTS, NEW DELHI
Presiding Officer: Sh. RAJEEV BANSAL
OMP (Comm) No. 23/2022
In the matter of:
M/s. Hi-Tech Pipes Ltd.
505, Netaji Subhash Palace,
New Delhi- 110034. ............ Petitioner
Through Sh. Purvesh Buttan & Prateek Narwar,
Advocates
Vs.
M/s. Indian Oil Corporation
Pipelines Division
A-1, Udyog Marg, Sector-1,
Noida, Uttar Pradesh. ............Respondent
Through Ms. Alkanshree, Ms. Alka Dahar,
Ms. Jyotika Malhotra & Sh. Rahul Sharma
Advocates
Date of institution : 05.05.2022
Date on which argument was concluded : 19.02.2024
Date of pronouncement of the order : 24.02.2024
OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 1 of 20
Digitally signed
RAJEEV by RAJEEV
BANSAL
BANSAL Date: 2024.02.24
16:03:51 +0530
JUDGMENT
1. This Petition has been filed under Section 34 of Arbitration & Conciliation Act for setting aside the Arbitral Award dated 31.01.2022 passed by the Learned Arbitrator whereby an amount of Rs. 25,76,390/- was directed to be paid by the Petitioner / Contractor to the Respondent / IOCL with interest @ 12% p.a. till the date of Award and interest @ 8% p.a. thereafter.
2. The Petition was filed on 29.04.2022 and is within the period of limitation u/s 34 (3) of the Arbitration and Conciliation Act.
3. The facts of the case giving rise to the filing of the present Petition are that a tender was floated by the Respondent / IOCL on 18.06.2009 for procurement of IS-3589 Station Pipes. The Petitioner participated in the tender process and being L1, was awarded the contract. Pursuant thereto Purchase Order No. 23046397 dated 30.11.2009 was issued by Respondent / IOCL for an amount of Rs. 26,45,416/- for supply of Pipes and the supplies were made by the Petitioner / Contractor on 14.03.2010 at Kandhla and on 15.03.2010 at Viramgam. The supplied material is stated to carry a warranty for replacement of 12 months from the date of commissioning or 18 months from the date of shipment, whichever was earlier. It is stated that the Respondent / IOCL made payment on 16.04.2010 to the Petitioner / Contractor towards the goods supplied. It is stated that after 11 months, the Respondent / IOCL rejected the entire supply against the Purchase Order on the basis of sample testing of one pipe from the entire lot which was carried out by a Private Contractor namely M/s OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 2 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:04:05 +0530 Harji Engineering Limited and M/s J.N.V. Vira Engg. The Respondent / IOCL then terminated the contract, placed a PO on M/s Surya Roshni and invoked Arbitration as contained in Clause 34 of the Contract Agreement.
4. The Arbitration was invoked by the Respondent / IOCL. Vide Letter dated 04.06.2014, the Respondent / IOCL then appointed Sh. S.N Mishra, Retd. Deputy General Manager of IOCL as Sole Arbitrator in terms of the Arbitration Clause in the agreement between the parties, where-after the Arbitration Proceedings were held by the Ld. Sole Arbitrator, which culminated in the passing of the impugned Award dated 31.01.2022.
5. In the Arbitration Proceedings, three claims were made before the Learned Arbitrator by the Respondent / IOCL. In the first Claim, an amount of Rs. 21,56,725/- was claimed on account of payment released by the Respondent - IOCL to the Petitioner / Contractor for supply of pipes under the PO which were found to be defective, being not meeting the technical specifications. It was stated that the Respondent - IOCL had released 90% payment of the Contract amount i.e. Rs. 29,42,161/- towards supply of Pipes. It is stated that after receipt of the Pipes from the Petitioner / Contractor, the same were handed over to M/s Harji Engineering Limited and M/s J.N.V. Vira Engg for pre-fabrication, painting, erection etc. It is stated that the supplied material under PO failed the Field Hydro Test, conducted by M/s Harji Engineering Limited and M/s J.N.V. Vira Engg. Further, it was stated that Hydro Testing of 12" Pipes was done on 27.02.2011 at Viramgam Site, when it was found that the Pipe could not bear the OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 3 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:04:13 +0530 pressure and started leaking. Similar problem was stated to be faced when the pipes were tested by M/s J.N.V. Vira Engg. on 28.02.2011. It was stated that M/s J.N.V. Vira Engg. informed the Respondent / IOCL regarding failure of pipes and that around 600 metres of pipe supplied by the Petitioner had to be scraped due to failure of the pipes to perform during testing.
6. Reliance was placed on GCP Clause 6.6 which provided that even if the inspections and tests are fully carried out, the vendor is not absolved to any degree from his responsibilities to ensure that all the equipments and materials supplied comply strictly with requirements of PO during manufacture, at the time of delivery and even after its erection and guarantee period. It is stated that the defects were brought to the notice of the Petitioner / Contractor and he was called upon to replace the pipes by 01.03.2011, but the same was not done, where-after a show-cause notice dated 06.05.2011 was issued by the Respondent - IOCL to Petitioner / Contractor. It is stated that the Respondent - IOCL then placed an order with M/s Surya Roshini to supply the pipes in place of the defective pipes so as to finish the project in time. Reliance was placed on Clause 25.3 of GCP where- under the Respondent - IOCL was entitled to procure the material from open market and recover the excess payment over vendor's agreed price, from the vendor. Clause 23 of GCP was also relied upon to recover the amount of Rs. 21,56,725/- from the Petitioner / Contractor - being the amount released as advance against PO.
7. In Claim No. 2, an amount of Rs. 4,19,664/- was claimed by the Respondent - IOCL being the extra financial burden for OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 4 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:04:24 +0530 rectification of the pipes.
8. In Claim No. 3, an amount of Rs. 1,55,33,131/- was claimed towards losses and damages incurred by the Respondent / IOCL due to defective material supplied by the Petitioner and its consequent non-replacement.
9. Thus, three Claims totaling to Rs. 1,81,09,522/- were raised by the Respondent - IOCL before the Learned Arbitrator.
10. The Petitioner stated before the Learned Arbitrator that the Claim of the Respondent - IOCL was barred by limitation. On merits, it was stated that the material was supplied in complete conformity with the specifications and requirements as per the terms of the PO and the supplied material was of immense quality and workmanship. It was stated that the material was dispatched only after its due inspection and verification by a third party namely M/s PRS Engineering Consultants (hereinafter referred to as 'PRS') which was appointed as inspection agency by the Respondent - IOCL. Further, it was stated that the payment was made by the Respondent only after receipt of the material and further, handing it over to some other Agency on the basis of sample test conducted by some other Agency. It was stated that as per the PO read with GCP, the procedure to be followed for inspection at various stages and the test were to be as per the terms of the Contract and any test conducted beyond the Contract, would not be binding on the parties. It was stated that according to Clause 1.4 of GCP, 'Inspector' meant 'Inspector deputed by owner'. It is stated that the owner deputed PRS and the tests were to be conducted as per Clause 5.0 of the specifications of steel lying pipe for water services IS-3589.
OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 5 of 20 Digitally signed RAJEEV by RAJEEV
BANSAL
BANSAL Date: 2024.02.24
16:04:33 +0530
It is stated that Clause 10 provided that the Pipes shall undergo Hydro Static Testing at the site after erection alongwith fittings and Hydro Test Pressure shall not be more than the factory test pressure and the manufacturer shall replace any defective / failed pipe at his cost. It is stated that the Pipes carried warranty of 18 months against defects in mechanical design and workmanship from the date of supply and the defective pipes were entitled to be replaced by the manufacturer. It was stated that the Tests were conducted by a Fourth Agency and the same cannot bind the Petitioner / Contractor - being conducted by an Agency not authorized to do so by the Contract as, according to the Contract, only the Third Party i.e. PRS could have conducted any inspection. Further, it was stated that the Petitioner / Contractor was neither made a Party to any such test nor any material was shown that the procedure followed by some other Agency was in consonance with IS-3589:2001 (which provided that Hydraulic Test Pressure shall be applied for 05 seconds) as the report suggests that the pressure was applied for 10 minutes. It was stated that for mishandling of the material by the Respondent - IOCL or by Fourth Party, the Petitioner / Contractor cannot be held responsible and liable. It was stated that Contract with Surya Roshni was finalized even prior to issue of show-cause notice to the Petitioner / Contractor.
11. The Award has been challenged, it being arbitrary and against the Public Policy of India inasmuch as the Arbitrator is stated to have exceeded his jurisdiction. It is stated that the claims were barred by limitation, but the Learned Arbitrator being not well-versed with law, held the claims of the Respondent / IOCL to be within limitation. It is stated that the Arbitrator rewrote the Contract, without addressing OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 6 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:04:40 +0530 the issues raised by the Petitioner / Contractor. It is stated that the Respondent - IOCL novated the contract. It was stated that the Award is non-speaking and that it was passed after about 02 years of reserving the Award.
12. Reply to the Petition was filed on behalf of the Respondent
- IOCL, supporting the Award in question. Written Submissions were also filed by both the sides.
13. The Arbitral Records were received from the Arbitrator. A perusal of the same shows that vide Letter dated 18.04.2014, Respondent - IOCL wrote to the Petitioner / Contractor that arbitrable issues have arisen and under Clause 34.0 Respondent / IOCL invoked the Arbitration and called upon the Petitioner / Contractor to select, within 30 days, the Sole Arbitrator from the names of three Retired Officers of Respondent / IOCL, namely Sh. S.K. Gupta (Retired G.M - IOCL); Sh. V.K. Mittal (Retired Deputy GM - IOCL); or Sh. S.N. Mishra (Retired Deputy GM - IOCL), being nominated by the Executive Director of IOCL. Records also show that vide Letter dated 04.06.2014, the Respondent IOCL appointed Sh. S.N. Mishra, (Retired Deputy GM - IOCL) as the Sole Arbitrator for all the three Purchase Orders on account of failure of the Petitioner / Contractor to nominate the Sole Arbitrator within 30 days. It was mentioned that Clause 34.0 of GCP provided that in the event of failure of a party to select the Arbitrator within 30 days from the Panel furnished by Respondent / IOCL, the Respondent / IOCL shall select a Sole Arbitrator from the Panel so suggested. It appears that pursuant to the said appointment, learned Arbitrator issued notice dated 04.06.2014 for holding first OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 7 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:04:48 +0530 sittings of the Arbitration Proceedings on 25.06.2014 and went on to pass the Impugned Award against the Petitioner / Contractor.
14. The Arbitrator was thus appointed by Respondent IOCL unilaterally vide Letter dated 04.06.2014 and the appointed Arbitrator was a Retired Deputy General Manager of IOCL itself.
15. The question which arises for consideration is as to whether the appointment of the Arbitrator was in accordance with law or the same was in violation of the law on the subject.
16. The Arbitration and Conciliation Act provides the criteria to be adopted and followed for appointment of Arbitrator, Section 12 of the Act, amongst other things, provide that a person when approached for his appointment as an Arbitrator is bound to disclose in writing existence of either direct or indirect of any past or present relationship with or interest in any party. Explanation 1 attached to Section 12 provides that the grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to independence or impartiality of an Arbitrator. Fifth Schedule provides that the following grounds give rise to justifiable doubts as to the independence or impartiality of Arbitrators. Entry No. 34 of Fifth Schedule provides that the Arbitrator had been associated within the past 03 year with a party or an affiliate of one of the parties in a professional capacity, such as a former employee or a partner. Similarly, Section 12 (5) provides that if any person falls under any of the categories specified in Seventh Schedule shall be ineligible to be appointed as an Arbitrator, irrespective of any prior Agreement contrary to the above provision. First Entry of Seventh Schedule deals with a OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 8 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:04:57 +0530 situation where the Arbitrator is an Employee, Consultant, Advisor or as any other past or present business relationship with a Party.
17. Letter dated 18.04.2014, noted above clearly discloses that Sh. S.N. Mishra, Learned Arbitrator is a Retired Deputy General Manager of Respondent / IOCL. Entry No. 34 of Fifth Schedule lists appointment of a 'former employee' of a party being a ground to give rise to justifiable doubts as to the independence or impartiality of an Arbitrator. First Entry of Seventh Schedule makes a past employee of a party ineligible to be appointed as an Arbitrator. Section 12 (5) of the Act starts with a non-obstante clause providing that a person will be ineligible to be appointed as an Arbitrator, if he is a former employee of any party and the bar will operate even if, the parties had agreed for such an appointment.
18. Clearly, the appointment of Arbitrator in the present matter is not only unilateral, but is also contrary to Section 12 of the Act r/w Fifth and Seventh Schedule.
19. When posed with this question by this Court, learned counsel for Respondent stated that the Bar would not apply to the facts of the present case as the amendments to Section 12 were made by way of 2016 Amendment Act, with retrospective effect 23.10.2015. Further, it was argued that the appointment of the Arbitrator being unilateral or against the provisions of Section 12 has not been raised as a ground by the Petitioner in the Petition.
20. On merits, learned counsel for Respondent argued that the jurisdiction of the Court in a Petition u/s 34 of the Act is limited to the OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 9 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:05:03 +0530 grounds mentioned in Section 34 itself and such a Petition cannot be treated as an appeal, permitting re-appreciation of evidence. She took me through following Judgments to buttress her submissions in this regard :-
(a) Gujarat Water Supply & Sewerage Board v. Unique Erectors AIR 1989 SC 973;
(b) D.D.A v. Uppal Engineering Construction Company, AIR 1982 Del. 425;
(c) P.C. Sharma v. D.D.A., 2006 (88) DRJ 171 Del.;
(d) Associate Builders v. D.D.A, 2015 (3) SCC 49;
(e) Indian Oil Corporation v. S.P.S. Engineering, AIR 2011 SC 987;
21. I have heard both the sides and have perused the records of the case, including the Written Submissions filed by both the sides and the Arbitral Award.
22. So far as the argument that the Petition has nowhere challenged the appointment of the Arbitrator as unilateral or in contravention of the provisions of Section 12 of the Act, is concerned, it is well settled that there cannot be any estoppel against law, nor can there be any acquiescence in this regard unless so provided specifically in the Statute. Even if, a party, out of ignorance of law, does not plead a legal ground, the same shall not be a limitation for the Court to test the Arbitral Award in question at the anvil of law. This Court thus has ample power to scrutinize the Arbitral Award in question to see that the OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 10 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:05:09 +0530 same should be compliant of the Public Policy of India, as provided u/s 34 of the Act, which specifically lays down that an Arbitral Award can be set-aside if it is against the Public Policy of Indian Law.
23. As noted previously, the Impugned Award was passed by an Arbitrator who has unilaterally appointed by the Respondent / IOCL vide Letter dated 04.06.2014. Undisputedly, the appointment of the Arbitrator was before amendment of Section 12 of the Act. The question which now arise is as to whether, unilateral appointment of an Arbitrator, which was made prior to amendment of Section 12 of the Act, being contrary to the provisions of Section 12 r/w Fifth and Seventh Schedule of the Act, inserted vide Amendment Act of 2016, w.e.f. 23.10.2015 can be sustained as the amendments came into being after the appointment of Arbitrator had already been made vide Letter dated 04.06.2014.
24. The Hon'ble Supreme Court was faced with such an issue and it decided that irrespective of the amendments carried out in the Arbitration and Conciliation Act w.e.f. 23.10.2015, the tenets of appointment of Arbitrator should pass the test of impartiality and if an Arbitrator has been appointed even before 23.10.2015, contrary to the provisions of Section 12 as amended by 2016 Amendment Act, the same cannot be sustained.
25. In Ellora Paper Mills Ltd. v. State of Madhya Pradesh, 2022 INSC 11, the Hon'ble Supreme Court, refused to approve the Judgment of the Hon'ble High Court by which it was held that the Amendment Act will only be prospective and will not have retrospective operation in the Arbitration Proceedings already OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 11 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:05:15 +0530 commenced. The Hon'ble Supreme Court, after discussing the law on the subject in detail, set-aside the said Judgment of the Hon'ble High Court.
26. In the said case of Ellora (supra), the Arbitral Tribunal was constituted in the year 2000 by State of Madhya Pradesh, and the Arbitral Tribunal consisted of 05 Members, all of whom were Officers of the State of Madhya Pradesh. A Petition was filed by the said appellant Ellora Paper Mills in the Hon'ble High Court u/s 14 r/w Section 11 and 15 of the Arbitration Act seeking termination of the mandate of the Arbitral Tribunal, relying upon Section 12 (5) of the Act that the Members of the Tribunal, being employees of the Respondent had rendered themselves ineligible to continue as Arbitrators. The Hon'ble Supreme Court held that as per Section 12 (5) of the Act r/w Seventh Schedule, all of them had become ineligible to become Arbitrators and to continue as Arbitrators. Setting-aside the appointment of such ineligible persons as Arbitrators, the Hon'ble Supreme Court made the following relevant observations, which are reproduced below for ready-reference :-
7. As observed hereinabove, the Arbitral Tribunal - Stationery Purchase Committee consisted of officers of the respondent-State.
Therefore, as per Amendment Act, 2015 - Sub- section (5) of Section 12 read with Seventh Schedule, all of them have become ineligible to become arbitrators and to continue as arbitrators. Section 12 has been amended by Amendment Act, 2015 based on the recommendations of the Law OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 12 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:05:22 +0530 Commission, which specifically dealt with the issue of "neutrality of arbitrators". To achieve the main purpose for amending the provision, namely, to provide for "neutrality of arbitrators", 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. In such an eventuality, i.e., when the arbitration clause is found to be foul with the amended provision, the appointment of the arbitrator would be beyond the pale of the arbitration agreement, empowering the Court to appoint such an arbitrator as may be permissible. That would be the effect of the non obstante clause contained in sub-section (5) of Section 12 and the other party cannot insist upon the appointment of the arbitrator in terms of the arbitration agreement. It cannot be disputed that in the present case, the Stationery Purchase Committee -Arbitral Tribunal comprising of officers of the respondent-State are all ineligible to become and/or to continue as arbitrators in view of the mandate of sub-section (5) of Section 12 read with Seventh Schedule. Therefore, by operation of law and by amending Section 12 and bringing on statute sub-section (5) of Section 12 read with Seventh Schedule, the OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 13 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:05:28 +0530 earlier Arbitral Tribunal - Stationery Purchase Committee comprising of Additional Secretary, Department of Revenue as President and (i) Deputy Secretary, Department of Revenue, (ii) Deputy Secretary, General Administration Department, (iii) Deputy Secretary, Department of Finance, (iv) Deputy Secretary/Under Secretary, General Administration Department and (v) Senior Deputy Controller of Head Office, Printing as Members, has lost its mandate and such an Arbitral Tribunal cannot be permitted to continue and therefore a fresh arbitrator has to be appointed as per Arbitration Act, 1996.
8. An identical question came to be considered by this Court in the case of Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited v. Ajay Sales and Suppliers, 2021 SCC Online SC 730, and after considering the decisions of this Court in the case of TRF Limited v. Energo Engineering Projects Ltd., 2017 (8) SCC 377 and other decisions on the point, in paragraphs 13, 14 and 15, it is observed and held as under:
"13. So far as the submission on behalf of the petitioners that the agreement was prior to the insertion of Sub-section (5) of Section 12 read with Seventh Schedule to the Act and therefore the disqualification under Sub-section (5) of Section 12 read with Seventh Schedule to the Act shall not be applicable and that once an arbitrator OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 14 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:05:41 +0530
- Chairman started the arbitration proceedings thereafter the High Court is not justified in appointing an arbitrator are concerned the aforesaid has no substance and can to be accepted in view of the decision of this Court in TRF Ltd. v. Energo Engineering Projects Ltd., (2017) 8 SCC 377; Bharat Broadband Network Limited v. United Telecoms Limited, (2019) 5 SCC 755; Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Limited, (2017) 4 SCC 665. In the aforesaid decisions this Court had an occasion to consider in detail the object and purpose of insertion of Subsection (5) of Section 12 read with Seventh Schedule to the Act. In the case of Voestalpine Schienen GMBH (Supra) it is observed and held by this Court that the main purpose for amending the provision was to provide for 'neutrality of arbitrators'. It is further observed that in order to achieve this, 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. It is further observed that in such an eventuality i.e. when the arbitration clause finds foul with the amended provisions (Sub-section (5) of Section 12 read with Seventh Schedule) the appointment of an arbitrator would be beyond pale of the arbitration agreement, empowering the court to appoint such arbitrator as may be OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 15 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:05:48 +0530 permissible. It is further observed that, that would be the effect of non obstante clause contained in sub-section (5) of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of the arbitration agreement.
14. It is further observed and held by this Court in the aforesaid decision that independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which apply to all judicial and quasi-
judicial proceedings. It is further observed that it is for this reason that notwithstanding the fact that relationship between the parties, to the arbitration and the arbitrators themselves are contractual in nature and the source of an arbitrator's appointment is deduced from the agreement entered into between the parties, notwithstanding the same non-independence and non-impartiality of such arbitrator would render him ineligible to conduct the arbitration. It is further observed that the genesis behind this rational is that even when an arbitrator is appointed in terms of contract and by the parties to the contract, he is independent of the parties.
15. In the case of Bharat Broadband Network Limited (Supra), it is observed that Sub-section (5) of Section 12 read with Seventh Schedule made it clear that if the arbitrator falls in any one of the categories specified in the Seventh OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 16 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:05:55 +0530 Schedule, he becomes 'ineligible' to act as an arbitrator. It is further observed that once he becomes 'ineligible', it is clear that he then become dejure unable to perform his functions inasmuch as in law, he is regarded as 'ineligible'. It further is observed in the said decision that where a person becomes ineligible to be appointed as an arbitrator there is no question of challenge to such arbitrator before such arbitrator in such a case i.e. a case which falls under Section 14(1)(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a matter of law (i.e., de jure), unable to perform his functions under Section 12(5), being ineligible to be appointed as an arbitrator and this being so, his mandate automatically terminates, and he shall then be substituted by another arbitrator.
9. In view of the above and for the reasons stated hereinabove, the impugned judgment and order passed by the High Court is contrary to the law laid down by this Court in the cases of TRF (supra), Bharat Broadband Network Limited (supra) and the recent decision of this Court in the case of Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited (supra). It is held that the earlier Arbitral Tribunal - Stationery Purchase Committee comprising of Additional Secretary, Department of Revenue as President and (i) Deputy Secretary, Department of Revenue, (ii) Deputy Secretary, General Administration Department, (iii) Deputy OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 17 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:06:01 +0530 Secretary, Department of Finance, (iv) Deputy Secretary/Under Secretary, General Administration Department and (v) Senior Deputy Controller of Head Office, Printing as Members, has lost its mandate by operation of law in view of Section 12(5) read with Seventh Schedule and a fresh arbitrator has to be appointed under the provisions of the Arbitration Act, 1996. The impugned judgment and order passed by the High Court is therefore unsustainable and deserves to be quashed and set aside.
10. In view of the above and for the reasons stated above, the present appeal succeeds. The impugned judgment and order passed by the High Court of Madhya Pradesh dated 27.08.2021 passed in AC No. 23100/2019 is hereby quashed and set aside and the application being AC No. 100/2019 filed by the appellant herein before the High Court is hereby allowed. It is declared that the earlier Arbitral Tribunal - Stationery Purchase Committee comprising of Additional Secretary, Department of Revenue as President and (i) Deputy Secretary, Department of Revenue, (ii) Deputy Secretary, General Administration Department, (iii) Deputy Secretary, Department of Finance, (iv) Deputy Secretary/Under Secretary, General Administration Department and (v) Senior Deputy Controller of Head Office, Printing as Members are ineligible to act/continue as OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 18 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:06:09 +0530 arbitrators in view of sub-section (5) of Section 12 read with Seventh Schedule of the Arbitration Act, 1996 and therefore a fresh arbitrator under the provisions of the Arbitration Act, 1996 is to be appointed to adjudicate upon and resolve the dispute between the parties."
27. The facts of the case in hand are on all fours with the facts of the case before the Hon'ble Supreme Court in Ellora (supra). In Ellora (Supra), Arbitral Tribunal was constituted by one party to the dispute and the Tribunal consisted of the Officers of the said party appointing the Arbitral Tribunal. The appointment was made before insertion of Section 12 (5) in the Act. In the present case also, as noted above, the Arbitrator was appointed by one of the party to the dispute namely Respondent / IOCL, the Arbitrator is a Retired Deputy General Manager of the Respondent / IOCL. By virtue of Section 12 (5) r/w Fifth Schedule and Seventh Schedule of the Act, the Arbitrator is ineligible to be so appointed.
28. None of the Judgments relied upon by the learned counsel for the Respondent / IOCL deal with the issue of appointment of an Arbitrator unilaterally by one party to the dispute, and hence, not relevant for deciding the legal question in the present Petition as the Impugned Award is not even passing the initial muster of having being passed by an Arbitrator who was competent and eligible to be so appointed, in accordance with the provisions of the Act.
29. In view of the above clear enunciation of law, the OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 19 of 20 Digitally signed RAJEEV by RAJEEV BANSAL BANSAL Date: 2024.02.24 16:06:15 +0530 appointment of the Arbitrator in the present case cannot be sustained. As fait-accompli, all the proceedings conducted, including the Impugned Award passed by such an ineligible person to be appointed as an Arbitrator, is a nullity.
30. Without going any further into the rival contentions of the Parties with regard to other grounds of challenge to the Impugned Award, on this ground alone that the Award has been passed by a person who was de jure ineligible to be appointed as an Arbitrator, this Court is of the opinion that the Impugned Award cannot be sustained and is liable to be set-aside.
31. In view of the above discussion, the Petition succeeds and the Impugned Award dated 31.01.2022 is set-aside.
32. Arbitral Records be returned to the Respondent / IOCL against acknowledgment.
33. File be consigned to Record Room thereafter.
Digitally signed by RAJEEV RAJEEV BANSAL
Announced in open Court BANSAL Date:
2024.02.24
on 24.02.2024 16:06:22 +0530
(RAJEEV BANSAL)
District Judge
(Commercial Court) (Digital-04)
South, Saket, ND/24.02.2024
OMP (Comm) No. 23/2022 Hi Tech Pipes Ltd. vs. Indian Oil Corporation Page 20 of 20