Technocrats Advisory Services Private ... vs Union Of India Through The Secretary & ... on 18 August, 2022

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Delhi High Court - Orders

Technocrats Advisory Services Private ... vs Union Of India Through The Secretary & ... on 18 August, 2022

1. The present petition has been filed under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the "A&C Act, 1996") on behalf of the petitioner seeking appointment of a Sole Arbitrator to adjudicate disputes between the parties.

2. The facts in brief are that the petitioner is the successor Company of MC Consulting Engineers Private Limited, which was originally awarded the Contract in respect of which disputes have been arisen between the parties.

3. The respondent, which is the Ministry of Road Transport and Signature Not Verified Digitally Signed ARB.P. 108/2020 Page 1 of 15 By:SAHIL SHARMA Signing Date:24.08.2022 18:00:10 Highways under Union of India, had invited bids for collection of bridge condition and bridge inventory data of bridges on National Highways for a period of three years. MC Consulting Engineers Private Limited in association with Sugam Technocrats Private Limited (hereinafter referred to as the "Original Consultant") submitted its bid and was selected as the successful bidder for Package 18 - Arunachal Pradesh. The Letter of Acceptance for the bid was submitted vide Letter dated 12th October, 2015 by the Original Consultant and the Contract Agreement 07th December, 2015 was signed between the Original Consultant and the respondents.

4. MC Consulting Engineers Private Limited through a scheme of arrangement-cum-demerger which was duly approved by the High Court of Judicature of Andhra Pradesh and Telengana at Hyderabad and this Court under Sections 391 and 394 of the Companies Act, 1956 demerged its Consultancy business in the field of the Road/Highways and Bridges in favour of the petitioner. After the approval of the demerger of the roads and highways consultancy business of MC Consulting Engineers Private Limited into the petitioner-Company, it was substituted in place of MC Consulting Engineers Private Limited in the Contract Agreement dated 07th December, 2015 by way of signing and execution of a Substitution Agreement dated 18th September, 2018.

5. The petitioner has claimed that since the inception of the Contract, there were several acts and omissions on the part of the respondent No. 1 that delayed the delivery of services by the petitioner. Although, the methods and formats in which the inventory and conditions survey were to be collected were already specified in the Contract, yet in a major change, the respondent changed the reporting formats substantially and introduced Signature Not Verified Digitally Signed ARB.P. 108/2020 Page 2 of 15 By:SAHIL SHARMA Signing Date:24.08.2022 18:00:10 the requirement of online submission of the data collected by the field Consultants. The respondent also restricted the freedom and flexibility of the field consultants to collect inventory and condition data and regulated the speed of collection by introducing the requirement of assignment of the structures on the tablet. The field consultants were thus restrained from collecting data for the structures which were not assigned till then, which often resulted in idling of the petitioner's resources. The respondent No. 1 made multiple changes to the already specified method, procedure and formats for the collection of inventory data and condition survey details. Modified upgraded software was also not developed and provided by IDDC to incorporate the changes mentioned above. The software was provided after a considerable delay.

6. It is further asserted that after changing the format, method and procedures which caused delay in completing Cycle I and Cycle II, the respondent No. 1 after the passage of more than 21 months since the signing of the Contract Agreement again changed the format for the data collection in Cycle III. The directions were issued to each consultant directing them to use the new format for data entry. In this manner, the respondent made substantial changes in the formats at least five times.

7. Contemporaneously, the respondent issued a Notice to all the consultants stating that they may commence with the 3rd Cycle of bridge inventory/condition survey for the post-monsoon period from 01st September, 2017 or on end of monsoon in the respective states, which is indicating that the respondent No. 1 was also aware that there had been a delay in respect of all packages.

8. The original time for completion of the Contract was coming to an Signature Not Verified Digitally Signed ARB.P. 108/2020 Page 3 of 15 By:SAHIL SHARMA Signing Date:24.08.2022 18:00:10 end on 03rd January, 2019. The petitioner vide Letter dated 30th October, 2018 requested the respondent for extension of time for the completion of the Contract given due explanation for seeking extension up to 09th September, 2020. While, the request for extension of time was pending, the respondent No. 1 called a Review Meeting of all stakeholders, including the IDDC and the MBIU Consultants on 19th December, 2018 and again directed the IDDC to modify the software so that MBIU Consultant may submit the Condition Survey Report in the digital format. The IDDC was directed to change the software within two months to include unique ID number of the structure to add rating that may be assigned at the time of condition survey. All the consultants were also directed to extend the validity of the Bank Guarantee for additional one year. In the meanwhile, after expiry of 3-year term of the Contract, the respondent issued a revised financial sanction, revising the cost of the six Cycles to ₹2522.77 lakhs due to the increase of length of National Highway from 1600 Km. to 2537 Km.

9. Again, a Review Meeting was held by DG(RD) & SS on 26th February, 2019, the IDDC was again directed that software/IBMS Portal must be improved/modified at the earliest, failing which action would be taken against it as per the provisions of the Agreement. On 01st March, 2019, the IDDC communicated to the petitioner to follow the new format to upload the data in accordance with the directions of the respondent.

10. However, in a sudden unforeseen U-turn, the respondent issued a Circular dated 22nd March, 2019, wherein it communicated its unilateral decision not to give any further extension of time to MBIU Consultant, including the petitioner and all the work should be closed immediately on "as-is-where-is" basis and penalty to be levied in accordance with the Signature Not Verified Digitally Signed ARB.P. 108/2020 Page 4 of 15 By:SAHIL SHARMA Signing Date:24.08.2022 18:00:10 Contract.

11. Following the Circular dated 22nd March, 2019, the Regional Office issued a Letter dated 29th March, 2019 to the petitioner directing the petitioner to stop the work immediately on "as-is-where-is" basis and to furnish the updated inventory of the bridges along with the details of distressed bridges requiring immediate attention. The petitioner vide Letter dated 25th April, 2019 objected to the respondent's action for closure of the work in this arbitrary manner and reiterated its request for further extension. It also submitted its claims of unpaid amounts, escalation payable by the respondent as per the Contract provisions. The petitioner vide its Letter dated 26th June, 2019 also sought return of its three Bank Guarantees.

12. In the meanwhile, the petitioner on 01st July, 2019 submitted the dispute to the Indian Roads Congress (hereinafter referred to as the "IRC") in terms of the Arbitration Clause incorporated in the Contract (Special Condition 4.5) with a request to refer the dispute to the Sole Arbitrator.

13. After a long time, the respondent No. 2 vide Letter dated 13th December, 2019 informed the petitioner that Mr. B.V. Tripathi, Engineer-in- Chief and H.O.D. (Retd.), U.P. PWD, 31191, Vishal Khand, Gomti Nagar, Lucknow, Uttar Pradesh-226010 had been appointed as the Sole Arbitrator.

14. The petitioner has claimed that the respondent had failed to appoint the Arbitrator within a period of 30 days of its letter. Furthermore, the Sole Arbitrator has been appointed by a Committee of IRC comprising: (a) Director General (Road Development); (b) President, IRC; and (c) Secretary General, IRC (respondent No. 2).

15. It is claimed that the Secretary General, IRC is on deputation from the Ministry of Road Transport and Highways, which is a party to the present Signature Not Verified Digitally Signed ARB.P. 108/2020 Page 5 of 15 By:SAHIL SHARMA Signing Date:24.08.2022 18:00:10 dispute. Furthermore, the Director General (Road Development) is already a party to the dispute. Therefore, the petitioner has grave doubts about the impartiality of the Sole Arbitrator appointed by the Committee, which is totally dominated by the Ministry of Road Transport and Highways, which is a party to the dispute.

16. The petitioner has asserted that the appointment of Sole Arbitrator is invalid since the Committee which nominated the Sole Arbitrator, is controlled by the respondent No. 1. In view of the observations of Supreme Court Judgements in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. 2019 SCC OnLine 1517, such appointment by the High- Powered Committee is invalid.

17. A prayer is, therefore, made that an independent Sole Arbitrator may be appointed.

18. The respondent No. 1 in its response has admitted that the consultancy work was awarded by the respondent-Ministry of Road Transport and Highways to the petitioner and a Contract dated 07th December, 2015 was executed. According to the Contract Agreement dated 07th December, 2015, the bridge condition data is to be collected in six Cycles, twice in a year during pre-monsoon and post-monsoon period for three years after utilizing Mobile Bridge Inspection Unit (MBIU). The petitioner-Consultant, however, completed three inspection cycles out of total six inspection cycles till 07th March, 2019. The Contract was admittedly closed by the respondent-Ministry of Road Transport and Highways vide its Letter dated 22nd March, 2019 on "as-is-where-is" basis and the extension of time was declined.

19. It is admitted by respondent no. 1 that the petitioner vide its Letters of Signature Not Verified Digitally Signed ARB.P. 108/2020 Page 6 of 15 By:SAHIL SHARMA Signing Date:24.08.2022 18:00:10 April, May and June, 2019 made various claims and approached the respondent No. 2-IRC on 01st July, 2019 under Clause 4.5 of the Contract seeking appointment of the Sole Arbitrator for resolving the disputes of aforesaid subject work. The claim amounting to ₹67.12 crores was raised against the original approved cost of ₹16.19 crores and revised approved cost of ₹25.23 crores, including GST.

20. The respondent-Ministry of Road Transport and Highways vide its Letter dated 17th December, 2019 rejected all the claims of the petitioner and raised counter-claims of ₹91.63 crores.

21. The respondent No.2-IRC vide its Letter dated 13th December, 2019 has appointed Shri B.V. Tripathi, Engineer-in-Chief and HoD (Retd.), UP PWD from its empanelled list of Arbitrators under Package-18 as well as Package-17 in order to avoid any conflict of interest of arbitration.

22. In respect of Package-17, the petitioner has already filed an arbitration petition bearing No. ARB(P) 815/2019 dated 25th November, 2019 praying for the appointment of a Sole Arbitrator to adjudicate the disputes, which is pending before the Co-ordinate Bench of this Court.

23. The petitioner in the present case has sought quashing of the appointment of the Sole Arbitrator-Shri B.V. Tripathi, Engineer-in-Chief and HoD (Retd.), UP PWD in respect of Package-18, though no such objections had been raised in respect of Package-17, while the same individual was appointed as the Sole Arbitrator.

24. It is asserted that in the present case, the procedure for the appointment of Sole Arbitrator has already been specified, wherein the petitioner shall approach the respondent No. 2-IRC for appointment of the Sole Arbitrator. The respondent No.2-IRC has a panel of more than 75 Signature Not Verified Digitally Signed ARB.P. 108/2020 Page 7 of 15 By:SAHIL SHARMA Signing Date:24.08.2022 18:00:10 members from various Central and State Government Departments, Research/Academic Institutions and Private Sectors across the length and breadth of the country. The High-Powered Committee has appointed the Arbitrators for all types of works or services contracts pertaining to various Government agencies. The respondent No.2-IRC has, therefore, appointed the Sole Abitrator-Shri B.V. Tripathi, Engineer-in-Chief and HoD (Retd.) UP PWD with due consideration.

25. The challenge of the petitioner to the impartiality and independence of the appointed Arbitrator is not only imaginary, prejudiced but also unsubstantiated and illogical. Therefore the pleas for challenging the appointment of the Sole Arbitrator are not tenable. It is submitted that the petition is without merit and is liable to be dismissed.

26. The respondent No.2-IRC in its reply has admitted the factual matrix and has asserted that the Sole Arbitrator has been appointed by the High-Powered Committee comprising the members holding the position of President, Honorary Treasurer, IRC and Secretary General, IRC in accordance with the procedure agreed by the parties. It is submitted that the present petition is without merit and is liable to be dismissed.

27. Learned counsel on behalf of the petitioner in its rejoinder has submitted that the request Letter for appointment of Arbitrator was submitted by the petitioner on 01st July, 2019 to the respondent No.2-IRC, wherein the petitioner sought appointment of the Arbitrator to adjudicate the disputes and had also submitted its claims. However, the petitioner was communicated about the appointment of Arbitrator, Shri B.V. Tripathi, Engineer-in-Chief and HoD (Retd.), UP PWD vide Letter dated 13th December, 2019 of the respondent No.2-IRC, which is beyond the period of Signature Not Verified Digitally Signed ARB.P. 108/2020 Page 8 of 15 By:SAHIL SHARMA Signing Date:24.08.2022 18:00:10 30 days. Therefore, the petition under Section 11 of the A&C Act, 1996 for appointment of the Arbitrator is maintainable.

28. The petitioner has challenged the appointment of the Sole Arbitrator, Shri B.V. Tripathi, Engineer-in-Chief and HoD (Retd.), UP PWD on the ground that he has been nominated by a High-Powered Committee of respondent No. 2-IRC, which comprises the members holding the position of President, Honorary Treasurer, IRC and Secretary General, IRC. It is argued that those three members of the High-Powered Committee are directly related to the respondent No.1 and are a party to the dispute and, therefore, are not competent to appoint the Sole Arbitrator as has been held in the case of Perkins Eastman Architects DPC & Anr. vs. HSCC (India) Ltd. (supra).

29. Learned counsel on behalf of the respondents have refuted the claims of the petitioner on the ground that Shri B.V. Tripathi, Engineer-in- Chief and HoD (Retd.), UP PWD has been appointed as the Sole Arbitrator in a connected Contract pertaining to Package-17. Furthermore, the Sole Arbitrator is an Engineer-in-Chief whose impartiality and neutrality cannot be questioned as he is a person of impeccable integrity and, therefore, the appointment of Sole Arbitrator is not amenable to any challenge. The grounds agitated by the petitioner to challenge the appointment of the Sole Arbitrator are not tenable under law.

30. Submissions heard.

31. It is an undisputed fact that the Contract that was awarded to the petitioner has been closed by the respondent No.1 vide its Circular dated 22nd March, 2019 issued to the Regional Office and the Regional Office vide its Letter dated 29th March, 2019 directed the petitioner to stop the work Signature Not Verified Digitally Signed ARB.P. 108/2020 Page 9 of 15 By:SAHIL SHARMA Signing Date:24.08.2022 18:00:10 immediately as-is-where-is basis. Thereafter, the arbitrable disputes and claims have been raised by the petitioner to which the counter-claims have been raised by the respondent No.1. There is also no challenge that Shri B.V. Tripathi, Engineer-in-Chief and HoD (Retd.), UP PWD has been appointed as the Sole Arbitrator vide Letter dated 13th December, 2019. It is also not in dispute that there exists the procedure for appointment of Arbitrator in Clause 4.5 of the Contract Agreement executed between the parties. Clause 4.5 of the Contract Agreement reads as under:

"Clause 4.5 - Arbitration: -

(a) In the event of any question, dispute or difference arising under general conditions or special conditions of contract, or in connection with this contract (except as to any matters the decision of which is specifically provided for by the general or the special conditions), the same shall be referred to the sole arbitrator, appointed by the Indian Road Congress (IRC). The arbitrator will be a retired Government Servant of Chief Engineer Level. The 'Award' of the arbitrator shall be final and binding on the parties to this contract.

(b) In the event of the Arbitrator's dying, neglecting or refusing to act or resign or being unable to act for any reason, or his Award being set aside by the Court for any reason, it shall be lawful for the IRC to appoint another arbitrator in place of the outgoing arbitrator in the manner aforesaid.

(c) It is further a term of this contract that no person, other than the person appointed by the IRC as aforesaid, should act as arbitrator and that, if for any reason that is not possible, the matter is not to be referred to Arbitration at all.

(d) The arbitrator may, from time to time with the consent of all the parties to the contract, extend the Signature Not Verified Digitally Signed ARB.P. 108/2020 Page 10 of 15 By:SAHIL SHARMA Signing Date:24.08.2022 18:00:10 time for making the Award.

(e) Upon every and any such reference, the assessment of the costs incidental to the reference and Award, respectively, shall be at the discretion of the arbitrator.

(f) Subject as aforesaid, the Arbitration Act, 1996 as amended and the rules there under and any statutory modification thereof for the time being in force shall be deemed to apply to the Arbitration proceedings under this clause.

(g) If the value of the claim in a reference exceeds Rs. 1 lakh, the arbitrator shall give reasoned Award.

(h) The venue of arbitration shall be the place from which forma Acceptance of Tender is issued or such other place as the DG(RD) & SS at his discretion may determine."

32. The sole challenge which has been raised by the petitioner is that admittedly the Sole Arbitration has been appointed by the High-Powered Committee of the respondent No.2-IRC. It is explained in the petition that the Secretary General, IRC, who was the Member of the Committee is on deputation from the Ministry of Road Transport and Highways, which is a party to the dispute. Moreover, the Director General (Road Development) is already a party to the dispute. Furthermore, the High-Powered Committee of the respondent No.2-IRC is controlled by the respondent No.1.

33. In Voestalpine Schienen GMBH v. DMRC (2017) 4 SCC 665, the Supreme Court dealt with the significance of independence and impartiality of the Arbitrator. It observed as under:

"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 applied to all judicial and quasi-judicial relationship between the parties to the arbitration and the arbitrators themselves are Signature Not Verified Digitally Signed ARB.P. 108/2020 Page 11 of 15 By:SAHIL SHARMA Signing Date:24.08.2022 18:00:10 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 (though contractually agreed upon) would render him ineligible to conduct the arbitration.

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. Functions and duties require him to rise above the partisan interest of the parties and not to act in or so as to further, the particular interest of either parties. After all, the arbitrator has adjudicatory role to perform and, therefore, he must be independent of parties as well as impartial. The United Kingdom Supreme Court has beautifully highlighted this aspect in Hashwani vs. Jivraj in the following words: (WLR P. 1889, para 45) "45. ... the dominant purpose of appointing an arbitrator or arbitrators is the impartial resolution of the dispute between the parties in accordance with the terms of the agreement and, although the contract between the parties and the arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the parties"

Similarly, Cour de Cassation, France, in a judgment delivered in 1972 in Consorts Ury, underlined that:

"an independent mind is indispensable in the exercise of judicial power, whatever the source of that power may be, and it is one of the essential qualities of an arbitrator."

34. The decision of the Apex Court in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. (supra) recognises the importance of ensuring that the Arbitrator having an interest in the outcome of the matter is not appointed so as to obviate any doubt as to the impartiality and independence of Arbitral Tribunal.

35. The Supreme Court in Voestalpine Schienen GMBH v. DMRC (supra) observed and explained why the names of the Arbitrators in the panel should not be limited to Government Departments or Public Sector undertakings Signature Not Verified Digitally Signed ARB.P. 108/2020 Page 12 of 15 By:SAHIL SHARMA Signing Date:24.08.2022 18:00:10 and held that in order to instil confidence in the mind of the other party, it is imperative that apart from serving or retired engineers of Government Departments and Public Sector Undertakings, engineers of prominence and high repute from Private Sector should also be included. Likewise, the panel should comprise persons with legal background like Judges and Lawyers of repute. While upholding the procedure of having a panel of Arbitrators from whom the Arbitrator may be selected, it was observed that this panel should be broad based and not limited to the Officers/Officials of one party.

36. Likewise, the Co-ordinate Bench in BVSR KVR (Joint Ventures) vs. Rail Vikas Nigam Ltd. ARB. P.370/2019 Decided on 12th February, 2022, held that the panel of five arbitrators who were all serving employees of the Respondent Company from which the petitioner was asked to select a nominee Arbitrator was invalid being hit by the prohibited relationship laid down in Schedule 7 of the Act. The persons forming part of the Arbitral Tribunal were held ineligible in law to be appointed as Arbitrators.

37. The validity of panel containing names of five proposed arbitrators as in present case, came up for consideration in Voestalpine Schienen GMBH (supra). The Supreme Court held as under:

"28. Before we part with, we deem it necessary to make certain comments on the procedure contained in the arbitration agreement for constituting the arbitral tribunal. Even when there are number of persons empanelled, discretion is with the DMRC to pick five persons therefrom and forward their names to the other side which is to select one of these five persons as its nominee (Though in this case, it is now done away with). Not only this, the DRC is also to nominate its arbitrator from the said list. Above Signature Not Verified Digitally Signed ARB.P. 108/2020 Page 13 of 15 By:SAHIL SHARMA Signing Date:24.08.2022 18:00:10 all, the two arbitrators have also limited choice of picking upon the third arbitrator from the very same list, i.e., from remaining three persons. This procedure has two adverse consequences. In the first place, the choice given to the opposite party is limited as it has to choose one out of the five names that are forwarded by the other side. There is no free choice to nominate a person out of the entire panel prepared by the DMRC. Secondly, with the discretion given to the DMRC to choose five persons, a room for suspicion is created in the mind of the other side that the DMRC may have picked up its own favourites. Such a situation has to be countenanced. We are, therefore, of the opinion that Sub-clauses (b) & (c) of Clause 9.2 of SCC need to be deleted and instead choice should be given to the parties to nominate any person from the entire panel of arbitrators. Likewise, the two arbitrators nominated by the parties should be given full freedom to choose third arbitrator from the whole panel."

38. In view of the objection taken by the petitioner in respect of the High- Powered Committee which appointed the Sole Arbitrator is not unfounded. It may be comprising persons of highest integrity, and competence, but it cannot be ignored that they have an interest in the outcome of the arbitration and thus, do not meet the criteria as laid down in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. (supra).

39. Considering the facts and submissions, Mr. Ranvir Singh, former Chief Engineer, South MCD, Mobile No. 9717788065, who has been appointed as a Sole Arbitrator in the connected matter pertaining to Package-17, is hereby appointed as the Sole Arbitrator to adjudicate the disputes between the parties.

40. This is subject to the learned Sole Arbitrator making the necessary Signature Not Verified Digitally Signed ARB.P. 108/2020 Page 14 of 15 By:SAHIL SHARMA Signing Date:24.08.2022 18:00:10 disclosure under Section 12(1) of the A&C Act, 1996 and not being ineligible under Section 12(5) of the A&C Act, 1996.

41. The parties are at liberty to approach the learned Sole Arbitrator for further proceedings.

42. Accordingly, the petition is disposed of in the above terms.

NEENA BANSAL KRISHNA, J AUGUST 18, 2022 S.Sharma Signature Not Verified Digitally Signed ARB.P. 108/2020 Page 15 of 15 By:SAHIL SHARMA Signing Date:24.08.2022 18:00:10

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Delhi High Court - Orders