Delhi District Court
New Delhi Municipal Council vs Swajal Water Private Limited on 13 October, 2022
In the Court of Shri Sanjiv Jain,
District Judge (Commercial Court-03), Patiala House Courts
New Delhi
OMP (T) No. 06/2022
New Delhi Municipal Council
Palika Kendra, Sansad Marg,
New Delhi-110102
... Petitioner
versus
Swajal Water Private Limited
230, Udyog Vihar-1, Gurgaon,
Haryana-122016 .....Respondent
Date of institution : 09.06.2022 Date of reserving judgment : 20.07.2022 Date of decision : 13.10.2022 JUDGME NT
1. New Delhi Municipal Council (NDMC) (petitioner herein) has filed this petition under Section 14 of the Arbitration & Conciliation Act, 1996 (hereinafter called the 'Act') making a prayer to terminate the mandate of the Arbitral Tribunal comprises of Sole Arbitrator Sh. R. S. Baswana appointed by HMSEFC, in claim application no. 2415/2021.
2. Briefly, the facts are that on-line item rates RFP for the work of constructing, installing, operating and maintaining of water ATMs and vending of water ATMs at NDMC area, Phase OMP (T) 06/2022 Page No.1 of 19 II through EPC contract mode basis were invited by the petitioner for the eligible firm / society / NGO / Charitable Trust through e-tendering system. Pre-bid meeting was held on 13.04.2017 in which respondent participated along with other agencies. Issues raised by the agencies were incorporated and corrigendum was issued. Financial bid was opened on 04.05.2017 and respondent emerged as the lowest bidder at the tender amount of Rs. 1,47,16,111/-, which was 12.92% below the estimated cost of Rs. 1,69,00,000/-. Petitioner sent letter of acceptance on 09.06.2017 asking the respondent to submit performance guarantee of Rs. 5,00,000/- within 15 days. Thereafter, an agreement dated 25.07.2017 was entered into between the parties, which contained clause 5.2 regarding settlement of disputes through arbitration. It is stated in the clause that the venue of the arbitration shall be at such place as may be fixed by the Arbitrator in his sole discretion and the place of arbitration shall be New Delhi and in the event of any dispute, the same shall be settled by a Competent Court having jurisdiction over the place, where the agreement is executed.
3. It is alleged that the execution of work by the respondent was not upto the mark being slow. Further, the respondent raised certain claims. Thereafter, the respondent filed claim application no. 2415/2021 before HMSEFC, which vide order dated 22.10.2021 appointed Sh. R. S. Baswana as the Sole OMP (T) 06/2022 Page No.2 of 19 Arbitrator to adjudicate the dispute between the parties. He vide order dated 14.04.2022 issued notice to the petitioner stating that the proceedings would be held at Gurgaon, Haryana.
4. It is alleged that the agreement was entered into at Delhi, the work was carried out at Delhi and the agreement also provided for vesting of jurisdiction and seat of arbitration at Delhi. It is alleged that MSME Act is not applicable to the work contracts, so appointment of the Arbitrator through the mechanism of MSME Act is unlawful and the Arbitrator is dejure incapable of proceeding with the matter and his mandate is liable to be terminated. Reference is made of the cases CCE & Customs Vs. Larsen & Toubro Ltd, 2016 1 SCC 170 and M/s Kone Elevators India Pvt Ltd State of Tamil Nadu & Ors (2014) AIR SCW 5362. It is alleged that respondent is neither the supplier of any item nor the petitioner is purchaser / buyer of any goods as defined under Section 2 (d) of the MSME Act, 2006. No goods were supplied in terms of definition of expression "Goods" as defined in Section 2 (f) of MSME Act. Reference is made of the cases Shree Ghee Enterprises Vs. Union of India 224 (2015) DLT 445, P. L. Adke Vs.Wardha Municipal Corporation, 2021 (4) ABR 652, Sterling & Wilson Pvt Ltd Vs. Union of India & Ors, AIR 2017 BOM 242 and M/s Rahul Singh Vs. Union of India & Ors, MANU/UP/0092/2017.
OMP (T) 06/2022 Page No.3 of 195. It is alleged that the Arbitrator has legal incapacity to proceed with the arbitration as HMSEFC ought not to have exercised its jurisdiction by constituting an Arbitral Tribunal with seat and jurisdiction other than that at Delhi. It is alleged that mandate of Arbitrator would amount to changing the seat of Arbitrator as well as the Court as defined under Section 2 (1)
(e) of the Act by rewriting the agreement between the parties.
6. I have heard Ld. Counsel Ms. Kanika Singh for the petitioner and Ld. Counsel Sh. Shikhar Sheel for the respondent.
7. Ld. Counsel for the petitioner reiterated what has been stated in the petition. She referred the cases supra to contend that the expression "Court" as defined in Section 2 (1) (e) of the Act means the Principal Civil Court of Original Jurisdiction in a District. The application for termination of mandate would therefore lie to the "Court" as defined in Section 2 (1) (e) namely the Principal Civil Court of Original Jurisdiction. She also referred the case of Swadesh Kumar Aggarwal Vs. Dinesh Kumar Aggarwal & Ors, CA No. 2935-2938 of 2022 dated 05.05.2022. She contended that the supply contract is not covered by the MSME Act 2006. As per the contract agreement, the arbitration should have been conducted at Delhi.
OMP (T) 06/2022 Page No.4 of 198. Ld. Counsel for the respondent per contra argued that although the contract was signed at Delhi and the work was to be completed at Delhi but this petition has arisen from the provisions of MSME Act 2006 and not from the contract between the parties. Ld. Counsel stated that respondent is registered under MSME Act in Haryana and certain payments were due from the petitioner. Ld. Counsel stated that the Arbitrator was appointed by HMSEFC under Section 18 (3) of the Act. Reference is made of Section 24 of MSME Act, which is a non obstante clause having an overriding power over any other law for the time being in force. Ld. Counsel stated that since the seat of the Arbitrator and the venue of arbitration are at Haryana, this Court does not have jurisdiction over the subject matter. Ld. Counsel referred Section 14 of the Act to contend that this section makes mandatory for the Court to substitute the Arbitrator after termination of his mandate. Since, power to appoint an Arbitrator under the Act lies with the High Court or the Supreme Court as the case may be, therefore, the petitioner after the amendment in 2015 cannot make such application before this Court. Ld. Counsel referred Section 2 (1) (e) of the Act and stated that a harmonious interpretation of Court as per Section 2 (1) (e) & Section 14 (2) of the Act would mean that termination of the mandate of the Arbitrator could be done by a Court, which also has the power to substitute an Arbitrator. He placed reliance on the case DDA Vs. Tara Chand OMP (T) 06/2022 Page No.5 of 19 Civil Construction, OMP (Misc) (Comm) NO. 236/2019 decided by High Court of Delhi.
9. Ld. Counsel for the petitioner in rejoinder argued that as the value of claims is less than Rs. 2,00,00,000/-, this petition under Section 14 is maintainable before this Court under Section 2 (1) (e) of the Act as held in the case of Swadesh Kumar Aggarwal (supra). Ld. Counsel contended that the case of DDA Vs. Tara Chand Sumit Construction Co. (supra) would not help the petitioner as the said judgment was passed in context of Section 29A of the Act and not Section 14 and in view of the later pronouncement by the Supreme Court in Swadesh Kumar Aggarwal (supra), the judgement in Tara Chand (supra) cannot used for drawing an analogy between Section 29A and Section 14 of the Act. Ld. Counsel contended that appointment of substitute Arbitrator as provided in Section 14 only happens under the Section 15 of the Act and in the present case, the petitioner has not sought any substitution. Ld. Counsel contended that MSME Act is not applicable in the present case.
10. I have given my thoughtful consideration to the rival contentions and perused the material placed on record and case laws (supra).
11. Sections 2(1)(e) of the Act reads as under:
OMP (T) 06/2022 Page No.6 of 19"2. Definitions-(1) In this Part, unless the context otherwise requires,-
(a) ..................................................................................
(b) ..................................................................................
(c) .................................................................................
(d) .................................................................................
(e) "Court" means-
(i) in the case of an arbitration other than international commercial arbitration, the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-
matter of the arbitration if the same had been the subject- matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes:
12. Section 11 of the Act relates to appointment of Arbitrators by the Supreme Court or as the case may be or, by the High Court or any person or the institution designated by such Court.
13. Section 14 of the Act reads:
14. Failure or impossibility to act.-- (1) The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if --
(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and
(b) he withdraws from his office or the parties agree to the termination of his mandate.
(2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.
(3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply OMP (T) 06/2022 Page No.7 of 19 acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12.
14. Section 15 of the Act reads:
15. Termination of mandate and substitution of arbitrator.--
(1) In addition to the circumstances referred to in section 13 or section 14, the mandate of an arbitrator shall terminate--
(a) where he withdraws from office for any reason; or
(b) by or pursuant to agreement of the parties. (2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. (3) Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2), any hearings previously held may be repeated at the discretion of the arbitral tribunal. (4) Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal."
15. It provides that the mandate of arbitrator shall terminate if he withdraws from office for any reason or by or pursuant to agreement of the parties. In such an event, the substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. If such an arbitrator is replaced, any hearings previously held may be repeated at the discretion of the arbitral tribunal. Unless otherwise agreed by the parties, the earlier order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator shall not be invalid.
OMP (T) 06/2022 Page No.8 of 1916. Under Section 16 of the Act, the arbitral tribunal is empowered to rule on its own jurisdiction including ruling on any objections with respect to the existence or validity of arbitration agreement. Such plea shall be raised not later than the submission of the statement of defence. If such plea is rejected by the arbitral tribunal, it has to proceed with the arbitral proceedings and declare an award. If plea of jurisdiction is accepted by the arbitral tribunal, the respondent may file an appeal under section 37 of the Act. If plea of jurisdiction is not accepted, the respondent may challenge such ruling along with award under section 34 of the Act.
17. Sub-section (1) of Section 29A of the Act provides that the award shall be made within a period of twelve months from the date, the arbitral tribunal enters upon the reference. The explanation to the said provision provides that an arbitral tribunal shall be deemed to have entered upon the reference on the date on which the arbitrator or all the arbitrators, as the case may be, have received notice in writing of their appointment. Sub-section (2) of Section 29A of the Act provides that if the award is made within a period of six months from the date the arbitral tribunal enters upon the reference, the arbitral tribunal shall be entitled to receive such amount of additional fees as the parties may agree. Sub-section(3) of Section 29A of the Act provides that the parties may, by consent, extend the period OMP (T) 06/2022 Page No.9 of 19 specified in subsection (1) for making award for a further period not exceeding six months. Subsection (4) of Section 29A of the Act provides that if the award is not made within the period specified in sub-section (1) or the extended period specified under sub-section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period. If the Court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, then, the Court may pass an order for reduction of fees of arbitrator(s) by not exceeding five per cent for each month of such delay. Sub- section(5) of Section 29A of the Act provides that the extension may be granted only for sufficient cause and on such terms and conditions as may be imposed by the Court.
18. In the case of DDA vs M/s Tara Chand Sumit Construction Company, OMP (Misc.) (Comm.) 236/2019, decided on 12/05/2020, it was held that an application under Section 29A of the Act seeking extension of the mandate of the Arbitrator would lie only before the Court which has the power to appoint Arbitrator under Section 11 of the Act and not with the Civil Courts. Petitions under Section 11 of the Act are filed in the High Court irrespective of the pecuniary jurisdiction of the Court and the same analogy would apply to the petitions under Section 29A of the Act. It was held that there is no merit OMP (T) 06/2022 Page No.10 of 19 in the contention of the Ld. Counsel for the respondent that the High Court has no pecuniary jurisdiction to entertain the petition having the value of the claims below Rs. 2.0 Crores.
19. In the case of Proddatur Cable TV Digi Services vs. Siti Cable Network Ltd., 2020 SCC Online Del 350, following the ratio of the judgment in the case of Perkins (supra), it was held that it is clear that a unilateral appointment by an authority which is interested in the outcome or decision of the dispute is impermissible in law. When the arbitration clause empowers the Company to appoint Sole Arbitrator, it can hardly be disputed that the Company acting through its Board of Directors will have an interest in the outcome of the dispute. In that case, the appellant had filed the petition under Section 14 and 15 of the Act seeking declaration that the mandate of the arbitrator appointed by the respondent be terminated and an arbitrator be appointed by High Court under the provisions of the Act. Following the ratio of the judgments in Bharat Broadband Network Limited Vs. United Telecoms Limited, CA No. 3973 of 2019 decided on 16.04.2019, the mandate of the Arbitrator was terminated de jure and another independent Sole Arbitrator was appointed to substitute the previous Arbitrator.
20. In the case of M/s Omcon Infrastructure Pvt. Ltd. Vs India Bulls Investment Advisors Ltd, OMP (T) (Comm) No. OMP (T) 06/2022 Page No.11 of 19 35/2020 decided on 01/09/2020, petition was filed under Section 14 and 15 of the Act seeking termination of the mandate of the Arbitrator unilaterally appointed by the respondent and also for quashing of order passed by Ld. Arbitrator rejecting the application of petitioner under Section 12 of the Act. The ratio of the decision in case of Perkins (supra) was applied and it was held that once the Managing Director of the respondent Company was ineligible to appoint the arbitrator, the same would also bar the Company from unilaterally appointing the sole arbitrator. Reference was also made to the decision of Proddatur Cable TV Digi Services (supra).
21. In the case of Lalitkumar V Sanghavi (D) Th. L.Rs. and Ors. Vs Dharamdas V. Sanghavi and Ors supra, the Supreme Court held that the question whether the mandate of the arbitrator stood legally terminated or not, can be examined by the court "as provided under Section 14(2)" of the Act. Also was stated that the expression "Court" is a defined expression under Section 2(1)(e) of the Act. In that case, the appellants were given liberty to approach the appropriate court for determination of the legality of the termination of the mandate of the arbitral tribunal, which in turn was based upon an order dated 29/10/2007 by which the arbitral proceedings were terminated by the Presiding Arbitrator as for more than four OMP (T) 06/2022 Page No.12 of 19 years, the matter was pending and fees of the Arbitrator were not paid despite directions.
22. In the case of DDA vs M/s Tara Chand Sumit Construction Company (supra), the High Court interpreted sub Section (1) of Section 2 of the Act with respect to the definition of the 'Court' and observed that sub Section (1) of Section 2 begins with the expression "in this part, unless the context otherwise requires". It was observed that a Court which has the power to appoint an Arbitrator under Section 11 of the Act can only extend the mandate of the arbitrator under Section 29A of the Act as in the process of extending the mandate of the arbitrator under Section 29A of the Act, need may also arise for substitution of the arbitrator and there may be situation where conflict would arise between the powers of Superior Courts to appoint Arbitrators under Section 11 of the Act and those of the Civil Court to substitute those Arbitrators under Section 29A of the Act. It was held that there is no merit in the contention of the Ld. Counsel for respondent that High Court has no pecuniary jurisdiction to entertain the petition for extension of mandate of the arbitrator for the value of claims below Rs 2.0 crores. True that the interpretation of the term "Court" was in the context of Section 29A of the Act for extension of the mandate of the Arbitrator but the fact remains that while extending the mandate of an Arbitrator, there may also be need OMP (T) 06/2022 Page No.13 of 19 to substitute an Arbitrator. It was held that there was need to avoid conflict that would arise between the power of Superior Courts to appoint Arbitrators under Section 11 of the Act and those of the Civil Court to substitute those Arbitrators under Section 29A of the Act as Section 11 of the Act confers power of appointment of Arbitrator only on the High Court or the Supreme Court, as the case may be.
23. By Section 9 of the Arbitration and Conciliation (Amendment) Act 2015 {in short Act 3 of 2016}, Section 14 of the Principal Act has been amended. Prior to said amendment, the mandate of legislature with respect to the said provision was only for the termination of mandate of an Arbitrator. After the amendment, the mandate of legislature is not only for making provision for termination of mandate of an Arbitrator but also for substitution by another Arbitrator, on existence of certain pre-conditions, as detailed therein and as elicited hereinbefore, which is implicitly clear by the following reproduction of Section 14 before the amendement by Act 3 of 2016 and after the amendment by Act 3 of 2016.
24. Section 14 (1) of the Act after amendment by Act 3 of 2016 reads as under:
"14. Failure or impossibility to act.- (1) The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if--
(a) he becomes de jure or de facto unable to perform his OMP (T) 06/2022 Page No.14 of 19 functions or for other reasons fails to act without undue delay; and
(b) he withdraws from his office or the parties agree to the termination of his mandate"
25. In the case of Swadesh Kumar Agarwal vs Dinesh Kumar Agarwal & Ors, (supra), the Sole Arbitrator was appointed by the parties themselves by mutual consent and in the absence of any written contract containing the arbitration agreement. Following questions arose before Supreme Court for consideration:-
"6. (i) Whether the High Court in exercise of powers under section 11(6) of the Act, 1996, can terminate the mandate of the sole arbitrator?
(ii) Whether in the absence of any written contract containing the arbitration agreement, the application under section 11(6) of the Act, 1996 would be maintainable?
(iii) Is there any difference and distinction between sub-
section (5) of section 11 and sub-section (6) of section 11 of the Act, 1996?
(iv) Whether the application under sub-section (6) of section 11 shall be maintainable in a case where the parties themselves appointed a sole arbitrator with mutual consent?
(v)Whether in the facts and circumstances of the case the High Court was justified in terminating the mandate of the sole arbitrator on the ground that there was undue delay on the part of the sole arbitrator in concluding the arbitration proceedings which would lead to the termination of his mandate, in an application under section 11 (6) of the Act, 1996?
(vi) Whether in the facts and circumstances of the case, the learned Trial Court was justified in dismissing the application submitted by the appellant, submitted to reject the application under section 14(2) of the Act, 1996 in exercise of powers under Order VII Rule 11 of CPC?"
OMP (T) 06/2022 Page No.15 of 1926. The Supreme Court held:-
"11. In view of the aforesaid discussion and for the reasons stated above, it is observed and held as under:-
(i) That there is a difference and distinction between section 11(5) and section 11(6) of the Act, 1996;
(ii) In a case where there is no written agreement between the parties on the procedure for appointing an arbitrator or arbitrators, parties are free to agree on a procedure by mutual consent and/or agreement and the dispute can be referred to a sole arbitrator/arbitrators who can be appointed by mutual consent and failing any agreement referred to section 11(2), section 11(5) of the Act shall be attracted and in such a situation, the application for appointment of arbitrator or arbitrators shall be maintainable under section 11(5) of the Act and not under section 11(6) of the Act;
(iii) In case where there is a written agreement and/or contract containing the arbitration agreement and the appointment or procedure is agreed upon by the parties, an application under section 11(6) of the Act shall be maintainable and the High Court or its nominee can appoint an arbitrator or arbitrators in case any of the eventualities occurring under section 11(6)(a) to (c) of the Act;
(iv)Once the dispute is referred to arbitration and the sole arbitrator is appointed by the parties by mutual consent and the arbitrator/arbitrators is/are so appointed, the arbitration agreement cannot be invoked for the second time;
(v)In a case where there is a dispute/controversy on the mandate of the arbitrator being terminated on the ground mentioned in section 14(1)(a), such a dispute has to be raised before the "court", defined under section 2(e) of the Act, 1996 and such a dispute cannot be decided on an application filed under section 11(6) of the Act, 1996."
27. In the case in hand, the parties had agreed for arbitration vide arbitration clause 5.2 in the agreement dated 25.07.2017 as per own version of applicant/petitioner whereas with respect to OMP (T) 06/2022 Page No.16 of 19 the question that arose for consideration before Supreme Court, above elicited, the findings/law laid is after taking into consideration the facet of absence of written agreement and also that in case of arising of dispute/controversy on mandate of Arbitrator to be terminated on the grounds mentioned in Section 14 of the Act, it is to be raised before the competent Court.
28. On an analogy of interpretation of Section 2 (1) (e) of the Act for interpreting the term "Court" adopted by the High Court in the case of DDA vs M/s Tara Chand Sumit Construction Company (supra), the elicited mandate of legislature amended by Act 3 of 2016 is to be seen. It makes clear that not only adjudicating authority has to adjudicate whether the mandate of an Arbitrator shall terminate as per Section 14 (1)and (2) of the Act but also in case of such termination, there has to be a substitution by another Arbitrator. In terms of law laid by the High Court in the case of DDA vs M/s Tara Chand Sumit Construction Company (supra), such substitution of an Arbitrator is to be done by the Court, which has the power to appoint an Arbitrator under Section 11 of the Act and not the Civil Courts. The mandate of legislature, as elicited and discussed above in terms of the amended Section 14 of the Act by Act 3 of 2016 also makes it vivid and clear that when the mandate of an Arbitrator shall terminate, he shall be substituted by another Arbitrator if he becomes de-jure or de-facto unable OMP (T) 06/2022 Page No.17 of 19 to perform his functions.
29. Since, the petitions under Section 11 of the Act are filed in Delhi High Court irrespective of the pecuniary jurisdiction of the Court, applying the same analogy in the petition under Section 29A of the Act in the case of DDA vs M/s Tara Chand Sumit Construction Company (supra), the High Court has held that there is no merit in the contention of Ld. Counsel for the respondent that High Court has no pecuniary jurisdiction to entertain the petition, value of the claims being below Rs 2 crores.
30. The fact remains that in an event when the Arbitrator becomes unable to perform his / her functions as an Arbitrator on finding the mandate of such Arbitrator terminated de jure, then while terminating the mandate of such Arbitrator in the same exercise, another independent Sole Arbitrator needs to be appointed to substitute the previous Arbitraror, as per the amended Section 14 of the Act subsequent to the amendment by Act 3 of 2016. This Court has no power under Section 11 of the Act to appoint the Arbitrator or under Section 29A of the Act to extend the period for making an award, so also to substitute an Arbitrator in terms of law laid in the case of DDA vs M/s Tara Chand Sumit Construction Company (supra).
OMP (T) 06/2022 Page No.18 of 1931. In view of the foregoing discussions, applying the analogy adopted in the case of DDA vs M/s Tara Chand Sumit Construction Company (supra) by the High Court, I am of the opinion that the mandate of legislature, consequent to amendment by Act 3 of 2016 in Section 14 of the Act, is that the Court considering the termination of the mandate of an Arbitrator on existence of any of the pre-conditions laid in sub section (1) and (2) of Section 14 of the Act, also at the same time needs to substitute such Arbitrator by another Arbitrator. This Court has no power to substitute the present Arbitrator by another Arbitrator.
32. I need not dwelve on the issue whether MSME Act shall be applicable to the work contracts or not or where should be the seat of the Arbitrator or the venue of the arbitration.
33. In the fact of the matter, this petition is not maintainable in this Court and is hereby dismissed.
34. The parties are left to bear their own costs.
35. File be consigned to record room.
Announced in open court
today i.e. 13.10.2022 (SANJIV JAIN)
District Judge (Commercial Court- 03)
Patiala House Courts, New Delhi
OMP (T) 06/2022 Page No.19 of 19