Madhya Pradesh High Court
M/S Sahib Infrastructure Private ... vs The Secretary To The Government Of ... on 14 December, 2017
THE HIGH COURT OF MADHYA PRADESH
AC-78-2016
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(M/S SAHIB INFRASTRUCTURE PRIVATE LIMITED BHOPAL Vs THE SECRETARY TO THE
GOVERNMENT OF INJDIA)
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Jabalpur, Dated : 14-12-2017
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In this application filed under Section 11(6) of the Arbitration
and Conciliation Act, 1996, the applicant has prayed for
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appointment of a suitable Arbitrator.
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2. The whole controversy between the parties is relating to
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interpretation of Clause 10 of the Agreement and impact
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of the Arbitration and Conciliation (Amendment) Act,
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2015 on the said clause of the agreement.
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3. The parties entered into an agreement on 16.09.2013
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which is pregnant with an Arbitration Clause No.10. As
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per this clause, the Board of Arbitrator shall consist of
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HOD (Civil), Dean (P & D) and SE (CPWD). Since there
existed a dispute, the applicant sent a legal notice on
22.11.2016 seeking appointment of an Arbitrator. Since
Arbitrator as desired by the applicant was not appointed,
the present application was filed.
4. The stand of Shri Naman Nagrath, learned
senior counsel for the applicant is that Clause 10
of the agreement makes it clear that any
amendment or re-enactment in Arbitration and
Conciliation Act, 1996 shall govern Clause 10 of
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the agreement. Putting it differently, Shri
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Nagrath, senior counsel contended that Clause
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10 is worded in such a fashion which includes
âmodifications and re-enactment of
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Arbitration and Conciliation Act as a part of the
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agreementâ. By taking this Court to Section
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11 (8)(b) and Section 12(5), the learned counsel
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for the applicant submits that in view of the
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drastic amendment made by the Amendment Act
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of 2015, the departmental Arbitrator cannot be
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appointed and cannot be permitted to continue
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with the arbitration proceedings. It is submitted
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that in view of Section 21 of the Arbitration and
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Conciliation Act, the arbitral proceedings
commenced when the demand for appointment
of Arbitrator by notice dated 22.11.2016 was
received by the respondents. By this time, the
arbitral proceedings commenced, the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as âAmendment Actâ) came into being. Accordingly, the legislative mandate ingrained in various sh provisions of this Amendment Act will be e ad applicable with full force to the agreement in question.
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5. By referring to Section 12(5) read with item No.1 and hy 5 of Seventh Schedule, Shri Nagrath contended that it ad was no more open to the respondents to appoint the M Arbitration Board which consists of two departmental of officers of the respondents, namely, HOD (Civil) and rt Dean (P & D). In this view of the matter, the bone of ou contention of Shri Nagrath is that Clause 10 of C arbitration agreement is in two fold. The first part h ig provides for appointment of named Board of Arbitrators H whereas second part of Clause 10 automatically includes the amendment/changes in the Arbitration and Conciliation Act, 1996. In view of the amendment inserted through Amendment Act, it is not possible to resolve the present dispute through Arbitrators appointed by the respondents.
6. To bolster the aforesaid submission, reliance is placed on 2016 (3) MPLJ 334 (Pragat Akshay Urja Vs. State of M.P.).
It is submitted that the present case is a reverse case qua the sh case of Pragat Akshay (supra) wherein the commencement of e ad the arbitration was prior to the date when Amendment Act Pr became part of the Statute Book. In this view of the matter, it is submitted that the necessary corollary which can be drawn a hy from the judgment of Pragat Akshay (supra) is that the action ad which has been taken after the commencement of the M Amendmednt Act shall be hit by the provisions of the of Amendment Act. Reference is made to the judgment of rt Supreme Court 2017 SCC Online SC 692 (TRF Ltd. Vs. ou Energo Engineering Projects Ltd.). It is submitted that if C an ineligible Arbitrator nominated another Arbitrator, the h entire exercise will be bad in law because the basic authority ig who has decided to appoint the Arbitrator had no competence H to do the same.
7. The next judgment on which reliance is placed is 2017(4) SCC 665 (Voestalpine Schienen GMBH Vs. Delhi Metro Rail Corporation Ltd.). It is argued that independence and impartiality and arbitrator are two different concepts. An Arbitrator may be independent and yet lack impartiality or vice versa. The Amendment Act was brought into force in order to ensure the nutrality of Arbitrators viz. their independence and impartiality. It is submitted that Seventh sh Schedule in no uncertain terms makes it clear that in view of e ad the mandate ingrained in sub-section (5) of Section 12, it Pr nullifies any prior agreement which runs contrary to the legislative mandate incorporated through sub-section (5) of a hy Section 12 read with Fifth and Seventh Schedule of the ad Amendment Act.
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8. Shri Nagrath, learned senior counsel for the applicant of placed reliance on two orders passed by this Court in A.C. No. rt 61/2016 (M/s Mehrotra Buildcon Ltd. having its registered ou and corporate office Vs. Union of India) and A.C. No. 3/2016 C (MKS Engineering Co. Pvt. Ltd. Vs. Union of India and h others). It is submitted that in view of the judgment of ig Supreme Court reported in 2000 (8) SCC 151 (Datar H Switchgears Ltd. Vs. Tata Finance), 2006 (2) SCC 638 (Punj Lloyd Ltd. Vs. Petronet MHB Ltd.), 2012 (5) SCC 152 (Dakshin Shelters Pvt. Ltd. Vs. Geeta S. Johari) and 2013 (4) SCC 35 (Deep Trading Co. Vs. Indian Oil Corporation), if respondents have not responded to the demand of appointment of an Arbitrator within stipulated time pursuant to the demand dated 22.11.2016, it was no more open to the respondents to appoint Arbitrators thereafter. They appointed the Arbitrators Board later on sh w.e.f. 24.04.2017 (Annexure-A/17) (with rejoinder). In this e ad view of the matter, the prayer of applicant is that a suitable Pr independent Arbitrator may be appointed so that the dispute can be resolved.
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9. Per contra, Shri Vishal Bhatnagar, learned counsel for the ad respondent Nos.2 to 4 contended that the applicant entered M into agreement on his own volition which contains an of Arbitration Clause No.10. The applicant agreed for rt appointment of a Board which will consist of HOD (Civil), ou Dean (P & D) and SE (CPWD). After having entered into the C said contract with open eyes, the applicant can seek h appointment of Arbitrator only when conditions enumerated ig in Section 11 of the Act of 1996 are fulfilled. By taking this H Court to the demand notice dated 22.11.2016, it is submitted that the applicant, in fact prayed for change of conditions of arbitration clause which is wholly impermissible. The applicant prayed for appointment of such Arbitrators which runs contrary to the conditions prescribed under Clause 10 of the agreement. He placed heavy reliance on Section 11 (2) and the language employed in sub-section (6) of Section 11 of the Act. It is submitted that where an appointment procedure agreed upon by the parties and party fails to act as required sh under that procedure, this Court can step into the matter and e ad direct for appointment of a suitable Arbitrator. To elaborate, Pr learned counsel for other side contended that as per the agreed procedure, the applicant never prayed for a hy appointment of the Arbitrator. Since the applicant has not ad fulfilled the aforesaid requirement, the question of M appointment of Arbitrator by this Court does not arise.
of Reliance is placed on Indian Oil Corporation Ltd. and rt others Vs. M/s. Raja Transport (P). Ltd., (Civil Appeal ou No.5760/2009) wherein the Apex Court held that if the action C of the applicant is contrary to the agreed procedure, the h Court cannot direct for appointment of an Arbitrator. ig
10. Shri Bhatnagar also relied on 2007 (2) Arb. LR 65 (SC) H (Municipal Corporation Jabalpur and others Vs. Rajesh Construction Co.), it is pointed out that the Apex Court set aside the judgment of this Court wherein an Arbitrator was directed to be appointed when the claimant did not fulfill the necessary requirement of Clause 29 of the contract/agreement. Lastly, 2016 (4) R.A.J. 399 (Del) (Concept Infracon Pvt. Ltd. Vs. Himalaya Crest Power Ltd.) is relied upon to contend that when Dispute Resolution Machinery is agreed to between the parties under a written sh decision, no decision can be taken contrary to the same.
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11. The next contention of Shri Bhatnagar is based on the Pr document dated 03.05.2017 (Annexure-A/18). By taking this Court to this document, Shri Bhatnagar contended that the a hy applicant has invoked Section 13 of the Arbitration & ad Conciliation Act. Accordingly, this application is not M maintainable. Moreso, when a Board of Arbitrator has already of been constituted by order dated 24.04.2017 (Annexure-A/17).
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12. In rejoinder submission, Shri Naman Nagrath, learned ou senior Advocate contended that all the arguments advanced C by the other side and the judgments relied upon are relating h to pre-amendment era. In other words, the judgments of ig Supreme Court are relating to a period when Amendment Act H was not part of Statute Book. In the peculiar fact situation prevailing therein, the Supreme Court has set aside the judgments which have no bearing in the present case in the teeth of the Amendment Act of 2015. it is further submitted that in cases on which reliance is placed, the agreement provided multi level procedure which was required to be fulfilled by the claimant for appointment of an Arbitrator. For example, in the case of Municipal Corporation Jabalpur (supra), the claimant was first required to deposit some sh amount. If the claimant has not fulfilled the said requirement, e ad the question of appointment of an Arbitrator did not arise. It Pr is submitted that the said aspect is not relevant in the present case in view of the Amendment Act.
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13. No other point is pressed by learned counsel for the ad parties.
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14. I have heard learned counsel for the parties at length and of perused the record.
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15. Before dealing with rival contentions, it is apposite to ou refer to Clause 10 of the Agreement which reads as under:
C â10 Any dispute which is not resolved amicably shall be finally decided by reference to arbitration by a Board h which will consist of HOD (Civil), Dean (P & D) and SE ig (CPWD), such arbitration shall be held in accordance with the Arbitration & Conciliation Act, 1996 and shall H include modifications to or any reenactment thereof, as in force from time to time. The venue of such arbitration shall be Bhopal, and the language of arbitration proceedings shall be English.â
16. Section 26 of the Amendment Act, 2015 provides as under:
â 26. Act not to apply to pending arbitral proceedings â Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of Section 21 of the Principal Act, before the commencement of this Act unless the parties otherwise agree but this act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.â sh [Emphasis Supplied]
17. A plain reading of aforesaid section makes it clear that e ad the Amendment Act shall apply to the arbitral proceedings Pr commenced in accordance with Section 21 of the Act which are commenced after the Amendment Act came into being.
a hy This fact cannot be disputed in the present case. That the ad Amendment Act came into being and became part of the M Statute Book much before the arbitral proceedings of commenced by issuance of demand notice dated 22.11.2016.
rt Pertinently, the Amendment Act became part of the Statute ou w.e.f. 23.10.2015. It is condign to refer to certain provisions C of this Act which are relevant for adjudication of the present h application. Section 11(8) (b) reads as under:
ig â (b) the contents of the disclosure and other H considerations as are likely to secure the appointment of an independent and impartial arbitrator.â
18. Section 12(5) of the Arbitration and Conciliation Act reads as under:
â(5) 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, subsequently to disputes having arisen between them, waive the applicability of this sub- section by an express agreement in writing.â
19. Item Nos.1 & 5 of Seventh Schedule read as under:
sh â 1. The Arbitrator is an employee, consultant, e advisor or has any other passed or present business ad relationship with a party.
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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 a directly involved in the matters in dispute in the hy arbitration.â ad [Emphasis Supplied] M
20. Clause 10 clearly provides that any of amendment/modification or any re-enactment of Arbitration rt and Conciliation Act shall automatically form part of the ou agreement. Thus, before arbitral proceedings commenced in C the present case, the Amendment Act became enforceable in h view of the clear stipulation contained in Clause 10 of the ig Agreement. Apart from this, the Amendment Act is enacted H by the Act of the Parliament and while amending the provision, the Legislature has taken care of such agreements which were in force prior to commencement of the Amendment Act. Considering the aforesaid, the following expression is used in sub-section (5) of Section 12 âNotwithstanding any prior agreement to the contraryâ.
21. In the considered opinion of this Court this expression is very important for decision of this matter. A conjoint reading of sub-section (5) of Section 12 with aforesaid entries of sh Seventh Schedule makes it clear that any person whose e ad relationship with the parties or counsel or the subject-matter Pr of dispute falls under any of the categories specified in Seventh Schedule, he shall be ineligible to be appointed and a hy act as an Arbitrator.
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22. In view of the aforesaid expression, there is no scintilla of M doubt that even if parties agreed for appointment of three of member Board, such prior agreement for appointment of rt Arbitrators which runs contrary to the mandate ingrained in ou sub-section (5) and relevant entries of Seventh Schedule have C lost its complete significance. Thus, I find force in the h argument of Shri Naman Nagrath, learned senior counsel for ig the applicant that the named Arbitrators cannot be appointed. H I find force in my view from the judgment of Supreme Court in the case of Delhi Metro Rail Corporation Ltd. (supra). Para 25 reads as under:
â 25.Section 12 has been amended with the objective to induce neutrality of arbitrators, viz., their independence and impartiality. The amended provision is enacted to identify the 'circumstances' which give rise to 'justifiable doubts' about the independence or impartiality of the arbitrator. If any of those circumstances as mentioned therein exists, it will give rise to justifiable apprehension of bias. The Fifth Schedule to the Act enumerates the grounds which may give rise to justifiable doubts of this nature. Likewise, the Seventh Schedule mentions sh those circumstances which would attract the provisions of sub-section (5) of Section 12 and e nullify any prior agreement to the contrary. In the ad context of this case, it is relevant to mention that only if an arbitrator is an employee, a consultant, an Pr advisor or has any past or present business relationship with a party, he is rendered ineligible to act as an arbitrator. Likewise, that person is treated a as incompetent to perform the role of arbitrator, hy who is a manager, director or part of the management or has a single controlling influence in an affiliate of ad one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration. Likewise, M persons who regularly advised the appointing party or affiliate of the appointing party are incapacitated. A of comprehensive list is enumerated in Schedule 5 and Schedule 7 and admittedly the persons empaneled by the Respondent are not covered by any of the items in rt the said list.â ou [Emphasis Supplied] C h
23. The Supreme Court poignantly held that Seventh ig Schedule mentions the circumstances which would attract the H provisions of sub-section (5) of Section 12 and nullify any prior agreement to the contrary. The legislative mandate ingrained in sub-section (5) of Section 12 is clearly explained by Supreme Court in the case of Delhi Metro (supra).
24. The contention of Shri Bhatnagar is based on the nature of demand raised by the applicant in the demand notice dated 22.11.2016. If the demand notice is read in entirety, it would show that in different paragraphs, different contentions have been raised. However, applicant has clearly highlighted the sh provisions of Amendment Act and contended that in view of e ad the amendment, the respondents should act and appoint an Pr Arbitrator proposed by the present applicant. It is not in dispute that pursuant to this demand notice, the Board was a hy appointed only on 24.04.2017 (Annexure-A/17). In view of the ad judgments cited by Shri Naman Nagrath, I find substance in M the contention that after stipulated time, the respondents of cannot appoint their own Arbitrators. This view is taken by rt this Court by following the judgment of Supreme Court in the ou case of M/s Deep Trading Company (supra) and, therefore, C this Court decided to appoint an Arbitrator.
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25. I will be failing in my duty if I do not consider the ig judgment cited by Shri Bhatnagar. No doubt, if parties agree H to a procedure prescribed in the agreement for the purpose of appointment of an Arbitrator, the parties are required to fulfill the conditions mentioned in various clauses of the agreement. In case of Municipal Corporation Jabalpur (supra) and Indian Oil Corporation Ltd. (supra), interference was made because necessary conditions of agreement were not satisfied. However, suffice it to say that these judgments are of pre-amendment period. After the amendment and in view of the specific language employed in sub-section (5) of sh Section 12, the Departmental Arbitrator cannot be appointed e ad and continued even if the agreement contains a contrary Pr clause. Thus, applicantâs request for appointment of Board of Arbitrator would have been a futile exercise because the a hy legislative mandate is otherwise and such mandate is passed ad to ensure adjudication/resolution of dispute by independent M and impartial Arbitrator. The applicant suggested the name of of one such Arbitrator, which in the opinion of the applicant rt would have been an independent/impartial Arbitrator but ou respondents did not pay any heed to the said request. The C request was not decided within stipulated time. Thereafter, it h was decided to appoint an Arbitrator Board, which is clearly ig impermissible in the light of the Amendment Act. It is not H disputed by the other side that the HOD (Civil) and Dean (P & D) are the departmental officers of the respondent department. Entries 1 & 5 of Seventh Schedule makes it clear that if the Arbitrator is an employee, consultant, advisor or has any past or present business relationship with a party, he cannot be appointed as an Arbitrator.
26. This is trite law that a judgment of Supreme Court cannot be construed as a Statute. Blind reliance on a judgment without considering the fact situation and Statute applicable sh is bad. [See: 2003 (11) SCC 584 (Ashwani Kumar Singh Vs. e ad U.P. Public Service Commission & others) and 2016 (3) Pr SCC 762 (Vishal N. Kalsaria Vs. Bank of India and others)]. It is equally settled that a single different fact or a a hy provision may change precedential value of a judgment. [See:
ad 2003 (2) SCC 111 (Bhavnagar University Vs. Palitana M Sugar Mills (P) Ltd.)].
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27. In view of aforesaid analysis, in my view, there exists a rt live dispute, an arbitration clause and a statutory mandate for ou appointment of Arbitrator. Thus, in my view, it is a fit case C where powers under sub- section (6) of Section 11 of the h Arbitration and Conciliation Act, 1996 can be exercised. ig
28. Considering the aforesaid, I deem it proper to H provisionally appoint Honâble Shri Justice N.K. Jain (Former Judge), Plot No.46, Arera Colony, Bhopal (M.P.) as Arbitrator. The Registry of this Court shall seek declaration from the learned provisional Arbitrator as per requirement of sub section (8) of Section 11 of the Arbitration and Conciliation Act, 1996.
29. List along with declaration on 03.01.2018.
(SUJOY PAUL) JUDGE e sh ad Biswal Pr a hy Digitally signed by SHIBA NARAYAN BISWAL Date: 2017.12.18 17:27:11 +05'30' ad M of rt ou C h ig H