Gujarat High Court
Patel Engineering Ltd vs Wapcos Ltd on 1 September, 2017
Author: Akil Kureshi
Bench: Akil Kureshi
O/IAAP/69/2017 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
PETN. UNDER ARBITRATION ACT NO. 69 of 2017
==========================================================
PATEL ENGINEERING LTD.....Petitioner(s)
Versus
WAPCOS LTD.....Respondent(s)
==========================================================
Appearance:
MR MI HAVA, ADVOCATE for the Petitioner(s) No. 1
MR.CHANAKYA BHAVSAR, ADVOCATE for the Petitioner(s) No. 1
MR.JAY KANSARA, ADVOCATE with MS.NISHA OJHA, ADVOCATE and
MR.PRIYAM SHAH, ADVOCATE for M/S WADIAGHANDY & CO, ADVOCATE
for the Respondent(s) No. 1
==========================================================
CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
Date : 01/09/2017
ORAL ORDER
1. Petitioner seeks appointment of an arbitrator to resolve disputes between the petitioner and the respondent arising out of an agreement dated 05.07.2013. Under such agreement, the respondent WAPCOS Ltd., a company registered under the Companies Act, had awarded a contract to the petitioner for constructing a retaining wall at Sabarmati riverfront for metro rail project for a sum of Rs.66,64,07,460/. According to the petitioner, in pursuance of the said contract, the petitioner mobilized machinery and Page 1 of 12 HC-NIC Page 1 of 12 Created On Sat Sep 09 15:54:50 IST 2017 O/IAAP/69/2017 ORDER manpower to execute the work so awarded and brought this to the notice of the respondent on 02.08.2013. The respondent however under communication dated 30.08.2013 instructed the petitioner not to proceed further with the work. Despite reminders from the petitioner, the respondent did not lift the stop further work instructions. Eventually therefore the petitioner was forced to terminate the contract under a letter dated 01.11.2014. According to the petitioner, due to the acts and omissions on part of the respondentWAPCOS Ltd., the petitioner suffered huge financial loss which would include the cost of mobilization of manpower and machinery and loss of profit.
2. The agreement contained arbitration clause in following terms:
"Article 47.2 Arbitration 47.2.1 All disputes or differences which may arise between the Owner and the Contractor in connection with this Contract (other than those in respect of which the decision of any person is expressed in the Contract to be final and binding) shall, after written notice by either party to the other and to the Chairman cum Managing Director of the WAPCOS Ltd. (who will be the appointing authority), be referred for adjudication to the sole Arbitrator to be Page 2 of 12 HC-NIC Page 2 of 12 Created On Sat Sep 09 15:54:50 IST 2017 O/IAAP/69/2017 ORDER appointed as hereinafter provided.
47.2.2 The appointing authority will send within ninety days of receipt of the notice of arbitration a panel of three names of persons, not directly connected with the work, to the Contractor who will select any one of the persons named to be appointed as a sole Arbitrator within 30 days of receipt of names. If the appointing authority fails to send to the Contractor the panel of three names, as aforesaid, within the period specified, the contractor shall send to the appointing authority a panel of three names of persons who shall also be unconnected with the organization by which the work is executed. The appointing authority shall on receipt of the names as aforesaid select any one of the persons named and appoint him as the sole Arbitrator. If the appointing authority fails to select the person and appoint him as the sole Arbitrator within 30 days of receipt of the panel and inform the Contractor accordingly, the Contractor shall be entitled to invoke the provisions of the Indian Arbitration and Conciliation Act 1996 as amended from time to time.
47.2.3 The further progress of any work under the contract shall unless otherwise directed by the Owner/Engineer continues during the arbitration proceedings and no payment due or payable by/to the Owner shall be withheld on account of such proceedings. It shall not be open to arbitrator to consider and decide whether or not such work shall continue during the arbitration proceedings.
47.2.4 GOVERNING LAW The laws applicable to the contract shall be the laws in force in India. The Courts of Gandhinagar, Gujarat shall have exclusive jurisdiction in all matters arising under this Contract.
Page 3 of 12
HC-NIC Page 3 of 12 Created On Sat Sep 09 15:54:50 IST 2017
O/IAAP/69/2017 ORDER
47.2.5 The Venue of the arbitral
proceedings shall be Gandhinagar, Gujarat.
47.2.6 The arbitral tribunal shall give reasons for its award. Each party shall bear its own cost and the cost of arbitration shall be equally borne by each party. The award rendered in any arbitration hereunder shall be final and binding upon the parties. The parties agree that neither party shall have any right to commence or maintain any suit or legal proceeding concerning any dispute under this agreement until the dispute has been determined in accordance with the arbitration proceeding provided for herein and then only to enforce or facilitate the execution of an award rendered in such arbitration."
3. On account of the disputes between the parties, the petitioner activated the arbitration clause by issuing a notice dated 22.12.2015 raising a claim of Rs.20,43,89,463/ and requested the respondent to send a panel of three arbitrators to enable the petitioner to select one of them to act as a sole arbitrator.
4. In response to the said letter, WAPCOS Ltd. suggested names of three arbitrators under its letter dated 12.03.2016. Upon receipt of the letter, the petitioner under letter dated 22.03.2016 conveyed to WAPCOS Ltd. that as per amended section 12 of the Arbitration and Conciliation Act, 1996, ('the Act' for Page 4 of 12 HC-NIC Page 4 of 12 Created On Sat Sep 09 15:54:50 IST 2017 O/IAAP/69/2017 ORDER short), the proposed arbitrators are required to make a declaration in the form provided under the schedule to the Act. The petitioner requested the WAPCOS Ltd. to supply such declarations.
5. Such declarations were supplied by WAPCOS Ltd. to the petitioner under a letter dated 29.03.2016. Upon perusal of the declarations made by the panel of persons suggested by WAPCOS Ltd., the petitioner was of the opinion that each one of them was disqualified to act as an arbitrator. These issues were highlighted by the petitioner to the respondent under a letter dated 16.04.2016. In the same letter, the petitioner also suggested three names, from which, the respondent could select one for appointment as an arbitrator. Along with the letter, the petitioner also annexed the declarations made by these suggested arbitrators.
6. The respondent did not accept the stand of the petitioner that the persons suggested by the respondent company were disqualified to act as an arbitrator. However, not to precipitate, the respondent under a letter dated 02.05.2016, suggested Page 5 of 12 HC-NIC Page 5 of 12 Created On Sat Sep 09 15:54:50 IST 2017 O/IAAP/69/2017 ORDER three additional names for appointment of arbitrator. In reply to the said letter, the petitioner on 26.05.2016 wrote to the respondent company that the respondent had right to suggest a panel of three persons only within 90 days from the notice for arbitration by the petitioner. In the present case, the fresh recommendations were made long after that.
7. At that stage, the Arbitration Petition has been filed. This petition is opposed by the respondent on three grounds. First that none of the persons initially suggested by the respondent under letter dated 12.03.2016 suffered any disqualification. Secondly, the provisions of section 12 of the Act have to be read along with section 13 and the authority of an arbitrator can be challenged only before an arbitrator or upon completion of arbitral proceedings before the competent Court and lastly that the respondent in terms of the procedure for appointment of an arbitrator having suggested the names of three persons, it was not open for the petitioner to approach the Court for appointment of an arbitrator.
8. To consider the respondent's objections, one Page 6 of 12 HC-NIC Page 6 of 12 Created On Sat Sep 09 15:54:50 IST 2017 O/IAAP/69/2017 ORDER would have to analyze the arbitration clause. The arbitration clause laid down a certain procedure for appointment of an arbitrator in case of disputes arising between the parties. It would start with the receipt of a notice of arbitration by the appointing authority who would thereupon send within 90 days a panel of three names of persons to the contractor. The contractor would choose one of them to be appointed as a sole arbitrator. Such choice shall be made within 30 days within receipt of the names. If the appointing authority fails in sending of names within the specified time, the contractor would send a panel of three persons to appointing authority who upon receipt of the panel would select any one of them to act as a sole arbitrator. If the appointing authority failed to do so within 30 days upon receipt of the panel from the contractor, the contractor would be entitled to invoke the Act.
9. The agreement in question was executed before the amendment of the Act by the Amending Act of 2015, which brought about certain significant changes. The agreement would therefore have to be read in light of such amended provisions since notice for appointment Page 7 of 12 HC-NIC Page 7 of 12 Created On Sat Sep 09 15:54:50 IST 2017 O/IAAP/69/2017 ORDER of an arbitrator was issued after the amendments in the statute. In the amended form, section 12 of the Act places great importance on impartiality and independence of the arbitrator. Subsection (1) of section 12 requires the proposed arbitrator to make a declaration in prescribed proforma. This would include a declaration as to existence of a past or present relationship with or interest in any of the parties or in relation to the subjectmatter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality. Schedule5 has been added to the Act which would act as a guide in determining whether circumstances exist which give rise to the justifiable doubts as to the independence or impartiality of an arbitrator. Sub section (5) of section 12 which was newly inserted, overrides any prior agreement to the contrary when the proposed arbitrator falls within the ineligible category as specified in the Seventh Schedule. The only exception being that the parties may subsequent to the disputes having arisen, waive the applicability of said subsection by an express agreement in Page 8 of 12 HC-NIC Page 8 of 12 Created On Sat Sep 09 15:54:50 IST 2017 O/IAAP/69/2017 ORDER writing.
10. The very first clause to the Seventh Schedule which lists the ineligible category of person to Act as an arbitrator reads as under:
"1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party."
11. Thus, if the person is an employee, consultant, adviser or has any other past or present business relationship with the parties, would be rendered ineligible to be appointed as an arbitrator. In the present case, all three persons whose names were suggested by WAPCOS Ltd. at the first instance under letter dated 12.03.2016, suffered from such ineligibility. In case of Shri Satyapal Gupta, his declaration would reveal that he has worked as a consultant in WAPCOS Ltd. from 2005 to 2008. Shri Arun Gopal Agrawal, the second person named in the panel had been an independent director with WAPCOS Ltd. upto October, 2004 for six years and was Chairman of Finance & Audit committee, remuneration committee and had actively participated in CSR committee. Likewise, third and last person named Shri Subhashchandra Verma had declared that from January, Page 9 of 12 HC-NIC Page 9 of 12 Created On Sat Sep 09 15:54:50 IST 2017 O/IAAP/69/2017 ORDER 2009, he was associated with regional office of the respondent at Chandigarh. All these three persons had therefore past or present business relationship or had acted as an consultant or auditor for WAPCOS Ltd. They were clearly ineligible to be appointed as arbitrators.
12. The action of the respondent company in sending a panel of three names, all being clearly ineligible to act as an arbitrator, that too without applying sub section (1) of section 12, cannot be seen as having discharged its duty under an arbitration clause governing the parties. Arbitration clause undoubtedly requires the appointing authority to react within 90 days from the date of receipt of notice from the contractor seeking arbitration. However, such requirement cannot be seen in isolation and must be seen in light of the amended section 12 of the Act. The respondent cannot claim satisfaction of such requirement by suggesting names of three ineligible arbitrators that too without necessary declaration to enable the petitioner to verify whether anyone of them suffered from any ineligibility. The requirement of suggesting names of three persons was coupled with the Page 10 of 12 HC-NIC Page 10 of 12 Created On Sat Sep 09 15:54:50 IST 2017 O/IAAP/69/2017 ORDER duty to suggest the persons who were otherwise not ineligible.
The last contention that the appointment of an arbitrator can be challenged only in terms of section 13 of the Act would require a summary disposal. In the present case, there has been no appointment of an arbitrator. The issue got mired in correspondence and controversy between the parties. It is not even the case of the respondent that good, bad or indifferent, an arbitrator came to be appointed. We may recall, the respondent suggested names of three persons whom the petitioner found were ineligible, upon which, the petitioner in terms of the arbitration clause, made a counter suggestion of three persons. The respondent did not accept the name of anyone of them within 30 days envisaged in the agreement. This would give rise to the right of the petitioner to seek appointment of an arbitrator in terms of the Act. The action of the respondent sending three new names was act which can be described as too little too late. Since so far no arbitrator has been appointed even as per the stand of the respondent, the question of challenging an arbitrator's authority in terms of section 13 of the Page 11 of 12 HC-NIC Page 11 of 12 Created On Sat Sep 09 15:54:50 IST 2017 O/IAAP/69/2017 ORDER Act has not yet arisen. The mechanism provided in the agreement for selecting an arbitrator did not fructify into appointment of an arbitrator. The agreement itself envisaged that in such a case, the aggrieved party would be entitled to resort to the provisions of the Act. Reference to this must mean appointment of an arbitrator in terms of section 11 of the Act.
13. Under the circumstances, I request the parties to present the declaration of Shri D.A.Mehta (former Judge of this Court) by the next date of hearing. Stand over to 08.09.2017.
(AKIL KURESHI, J.) ANKIT Page 12 of 12 HC-NIC Page 12 of 12 Created On Sat Sep 09 15:54:50 IST 2017