Delhi District Court
M.J. Engineering Works Private Ltd vs Delhi Transco Limited on 7 March, 2020
IN THE COURT OF DISTRICT JUDGE
(COMMERCIAL COURT02), SOUTH DISTRICT,
SAKET COURT, NEW DELHI
Arbt. No. 258/18
M.J. ENGINEERING WORKS PRIVATE LTD.
B132, Okhla Industrial Area,
PhaseI, New Delhi110020 ..... Petitioner
Versus
DELHI TRANSCO LIMITED
Shakti Sadan, Kotla Road,
New Delhi - 110002
and also at :
220 Kv, S.Stn Building,
CGO Complex, Lodhi Road,
New Delhi110003 ..... Respondent
Date of institution : 11.10.2018
Date of arguments : 05.03.2020
Date of order : 07.03.2020
ORDER
1. This is a petition U/s 34 of Arbitration & Conciliation Act (hereinafter referred to as "A&C Act" for setting aside Arbitral Award dated 03 rd July, 2018 filed by the petitioner, M.J. Engineering Works Pvt. Ltd. (MJEWPL).
2. In brief, facts leading to the filing of this petition are that on 13 th October, 2009, respondent herein i.e. Delhi Transco Ltd. (DTL) floated a tender detailing the requirement of 785 metric tonnes of material and invited bids. As per Clause 46.1 of the Agreement dated 13 th October, 2009, "matter in dispute M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 1 of 19 shall be referred to Arbitration of ChairmancumMg. Director, Delhi Transco Ltd or his nominees and decision of CMD (DTL) or his nominee shall be final and binding on both the parties. The provision of Indian Arbitration Act, 1940 as amended from time to time shall apply to such arbitration proceedings." Pursuant to Arbitration Agreement, arbitrator namely Shri S.K. Sharma was appointed on 16th October, 2015 i.e. prior to the Arbitration & Conciliation (Amendment) Act, 2015 which came into force on 23 rd October, 2015. Respondent (DTL) in response to the request of the petitioner to change the arbitrator, appointed Shri Rakesh Kapoor (Retd District & Sessions Judge) as sole arbitrator vide letter dated 05th July, 2016 who passed an award dated 03 rd July, 2018. Aggrieved with the award, petitioner has filed this petition U/s 34 A&C Act. At the outset, Shri Siddhant Asthana, Ld. Counsel, appearing for the petitioner, submitted that he was not pressing any other grounds on merits except the ground regarding ineligibility of the arbitral tribunal to adjudicate upon the dispute.
3. Under section 34 Clause 2(v) of the A&C Act, arbitral award may be set aside if composition of the arbitral tribunal or arbitral procedure was not in accordance with agreement of the parties, unless such agreement was not conflict with a provision of this part from which the parties cannot derogate or, failing such agreement, was not in accordance with this part. {i.e. PartI}.
4. Ld. Counsel for petitioner contended that Shri S.K. Sharma, arbitrator suffered from ineligibility being employee of respondent/DTL. It is submitted that since arbitrator was later on also changed by the CMD of the respondent/DTL and Shri Rakesh Kapoor (Retd. District & Sessions Judge) was appointed, ineligibility of first/previous arbitrator Shri S.K. Sharma appointed by the CMD cannot be wiped off by the nomination by the CMD of another arbitrator, even if he was neutral and had no relation or connection with a party. It is M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 2 of 19 submitted that in view of Section 12(5) A&C Act r/w Seventh Schedule (Entry 12), Shri S.K. Sharma who was General Manager of the respondent/DTL had not conducted any proceedings and it was Shri Rakesh Kapoor (Retd District & Sessions Judge) subsequently, appointed by the CMD, had conducted the proceedings and passed the impugned award.
5. Ld. Counsel for petitioner submitted that on 18 th September, 2017 petitioner had written a letter to the arbitral tribunal of Shri Rakesh Kapoor stating that the arbitration tribunal was coram non judice and he had no mandate of jurisdiction to adjudicate the dispute. Arbitrator continued with the proceedings and thereafter, petitioner preferred a petition U/s 14 and 15 of A&C Act vide OMP(T) Commercial 28/2018 dated 18 th September, 2018. It is submitted that respondent informed the court that arbitration award has already been passed and in those circumstances, counsel for the petitioner withdrew the petition with liberty to raise all objections, in accordance with law by way of appropriate petition and said petition was dismissed as withdrawn and liberty as prayed was granted by the Hon'ble High Court.
6. Ld. Counsel for petitioner submitted that the date of entering upon the reference of the arbitrator should be taken as 05.07.2016 i.e. reference of second arbitrator and reference of first arbitrator should not be taken into account, therefore, the issue of applicability of unamended provisions does not arise and present appointment will be under the amended Act which was objected to by the petitioner as the said Arbitrator suffered from bar covered under the Seventh Schedule of the Act. The appointment of the arbitrator was made by the respondent in terms of the Clause 46.0 of the contract between the parties. The extract of the aforesaid clause is reproduced herein below:
"....the matter in dispute shall be referred to arbitration of Chairman cum Managing Director, Delhi Transco Limited or his nominee and M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 3 of 19 the decision of CMD (DTL) or his nominee shall be final and binding on both parties. The provision of Indian Arbitration Act, 1940 as amended from time to time shall apply to such arbitration proceedings."
7. Ld. Counsel for petitioner submitted that it is a settled position of law that the arbitration proceedings between the parties is to be conducted as per the arbitration agreement entered between the parties and in the present case the parties have expressly agreed to follow the Arbitration Act, 1940 as amended from time to time. Therefore, Arbitration and Conciliation (Amendment) Act, 2015 shall be applicable between the parties. Reliance is placed on "Madhava Hytech Rani (JV) versus Ircon International Limited" 1 wherein the Hon'ble Court has held that where the parties have expressly agreed that the arbitration proceedings would be governed by Act or any statutory modification or reenactment, such a case would fall within the exception as provided under Section 26 of the Amendment Act as parties have agreed that any modification to act would be applicable.
8. In support of his submissions, Ld. Counsel for petitioner has referred TRF Limited Vs. Energo Engineering Projects Ltd. 2. Attention of the court drawn towards para no. 49, 50, 53 and 54 wherein Hon'ble Supreme Court has observed as under :
49. "Regard being had to the same, we have to compare and analyse the arbitration clause in the present case. Clause (c), which we have reproduced earlier, states that all disputes which cannot be settled by mutual negotiation shall be referred to and determined by arbitration as per the Act, as amended. Clause
(c) is independent of Clause (d) provides that unless otherwise provided, any dispute or difference between the parties in 1ARB. P. No. 159/2016, decided on 19.12.2016 2 (2017) 8 Supreme Court Cases 377 M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 4 of 19 connection with the agreement shall be referred to the sole arbitration of the Managing Director or his nominee.
50. First, we shall deal with Clause (d). There is no quarrel that by virtue of Section 12(5) of the Act, if any person who falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as the arbitrator. There is no doubt and cannot be, for the language employed in the Seventh Schedule, the Managing Director of the Corporation has become ineligible by operation of law. It is stand of the learned Senior Counsel for the appellant that once the Managing Director becomes ineligible, he also becomes ineligible to nominate, Refuting the said stand, it is canvassed by the learned Senior Counsel for the respondent that the ineligibility cannot extend to a nominee if he is not from the Corporation and more so when there is apposite and requisite disclosure. We think it appropriate to make it clear that in the case at hand we are neither concerned with the disclosure nor objectivity nor impartiality nor any such other circumstance. We are singularly concerned with the issue, whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator. At the cost of repetition, we may state that when there are two parties, one may nominate an arbitrator and the other may appoint another. This is altogether a different situation.
53. The aforesaid authorities have been commended to us to establish the proposition that if the nomination of an arbitrator by an ineligible arbitrator is allowed, it would tantamount to carrying on the proceeding of arbitration by himself. According to the learned counsel for the appellant, ineligibility strikes at the root of his power to arbitrate or get it arbitrated upon by a nominee.
54. In such a context, the fulcrum of the controversy would be, can an eligible arbitrator, like the Managing Director, nominate an arbitrator, who may be otherwise eligible and a respectable person. As stated earlier, we are neither concerned with the objectivity or the individual respectability. We are only concerned with the authority or the power of the Managing Director. By our analysis, we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 5 of 19 of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated. Therefore, the view expressed by the High Court is not sustainable and we say so.
9. Ld. Counsel for petitioner submitted that in view of aforesaid judgment in "TRF Limited's case, once the arbitrator had become ineligible by operation of law, he could not nominate another as an Arbitrator and once, identity of the Managing Director was lost as Sole Arbitrator, the power to nominate someone else was obliterated. It is further submitted that the aforesaid decision was based on the factum that the parties had agreed the dispute to determined by arbitration as per the Arbitration and Conciliation Act, 1996, as amended. He drew attention of court towards para 8 and which is as under : "... 8. To appreciate the contentions at Bar, it is necessary to refer to relevant Clause of GTCPO that deal with dispute resolution..... Clause 33.... (c) All disputes which cannot be settled by mutual negotiations shall be referred to and determined by arbitration as per Arbitration and Conciliation Act, 1996, as amended.
(d) unless otherwise provided, any difference between the parties in connection to this agreement shall be referred to Sole Arbitration of Managing Director or his nominee........
9. We have reproduced the entire Clause 33 to appreciate the dispute resolution mechanism in its proper perspective. Subclause
(c) of Clause 33 clearly postulates that if the disputes cannot be settled by negotiation, it has to be determined under the Act, as amended. Therefore, the amended provisions do apply. SubClause
(d) stipulates that the disputes or references between the parties in connection with agreement shall be referred to Sole Arbitration of Managing Director or his nominee....."
10. Ld. Counsel for petitioner has further relied upon judgment of the M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 6 of 19 Hon'ble Supreme Court in a case titled, HRD Corporation (Marcus Oil & Chemical Division) Vs. GAIL (India) Ltd. 3. Attention of the court was drawn towards para no. 12 wherein Hon'ble Supreme Court has observed as under :
12. "After the 2016 Amendment Act, a dishotomy is made by the Act between persons who become "ineligible" to be appointed as arbitrators, and persons about whom justifiable doubts exist as to their independence or impartiality. Since ineligibility goes to the root of the appointment, Section 12(5) read with the Seventh Schedule makes it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes "ineligible" to act as arbitrator. Once he becomes ineligible, it is clear that, under Section 14(1)(a), he then becomes de jure unable to perform his functions inasmuch as, in law, he is regarded as "ineligible."
11. Ld. Counsel for petitioner also referred a case titled, Bharat Broadband Network Limited Vs. United Telecoms Limited 4 wherein it was observed "disputes and differences arose between the parties and the Respondent, by its letter dated 03.01.2017, invoked the aforesaid arbitration Clause and called upon the Appellant's Chairman and Managing Director to appoint an independent and impartial arbitrator for adjudication of disputes which arose out of the aforesaid APO dated 30.09.2014 and it was held that "What is clear, therefore, is that where, under any agreement between the parties, a person falls within any of the categories set out in the Seventh Schedule, he is, as a matter of law, ineligible to be appointed as an arbitrator. The only way in which this ineligibility can be removed, again, in law, is that parties may after disputes have arisen between them, waive the applicability of this Subsection by an "express agreement in writing". Obviously, the "express agreement in writing"
has reference to a person who is interdicted by the Seventh Schedule, but who is
3. (2018) 12 Supreme Court Cases 471
4. AIR 2019 SC 2434 M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 7 of 19 stated by parties (after the disputes have arisen between them) to be a person in whom they have faith notwithstanding the fact that such person is interdicted by the Seventh Schedule."
12. Lastly, Ld. Counsel for the petitioner has relied upon the judgment titled, Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd. 5 relying upon the TRF judgement, the Hon'ble Apex Court held that any person of a party having interest in the outcome of the matter would be de facto and de jure ineligible to appoint an arbitrator. It is argued that conduct of the respondent in filing of the petition under Section 29A, Arbitration & Conciliation (Amendment) Act, 2015 for extension of time of the proceedings indicates that he was under
the obligation to follow the amended provisions as expressly agreed by the parties in the agreement and in terms of the decision of the Hon'ble Supreme Court in Bharat Broadband Network Limited relying upon its earlier decision in TRF's case appointment made in violation of Section 12(5) read with schedule 7 would be ineligible and the award by an ineligible arbitrator would squarely be covered and is liable to be set aside. Moreover, in terms of the above decision it is clear that any appointments made after the coming into force of the act are hit by the said provisions and the present case arbitration proceedings commenced when the Ld. Sole Arbitrator was appointed on 05.07.2016 and thus, will be governed by the provisions of the Arbitration and Conciliation amendment Act, 2015. It is submitted that the reliance of the Respondent on the letters dated 07.04.2016 and 11.04.2016 was misconceived and an award by an ineligible arbitrator was liable to be set aside under Section 34(2) (v) of the Act.
13. On the other hand, Shri S.K. Singh, Ld. Counsel, appearing for the claimant (respondent herein), submitted that Shri S.K. Sharma was appointed as
5. 2019(6) R.A.J. 554(SC) M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 8 of 19 arbitrator on 16.10.2015 and he was very much eligible in terms of arbitration clause. It is submitted that Arbitration & Conciliation (Amendment) Act, 2016 has come into force on 23.10.2015. It is submitted that arbitrator was appointed prior to amendment came into force and Shri Rajesh Jain, AM (Legal) DTL had written letter to Shri S.K. Sharma regarding his appointment and copies thereof was served to the respondent, therefore, it cannot be said that Shri S.K. Sharma was not eligible on the date of his appointment or was hit by Seventh Schedule r/w Section 12 Clause 5 of Arbitration & Conciliation Act. It is submitted that a letter/application U/s 12 of Arbitration & Conciliation Act dated 07.04.2016 was written by Shri Deepak Kohli, advocate on behalf of the petitioner to the CMD, DTL whereby CMD was notified and intimated and called upon to act in accordance with the procedure prescribed in the arbitration clause and nominate and appoint a person outside the cadre of DTL to act as arbitrator after referring to Schedule 7 and Section 12 of the amended Act and thereafter a reminder dated 16.05.2016 was served by the petitioner to CMD (DTL).
14. Ld. Counsel for respondent urged that despite the fact that Shri S.K. Sharma, the arbitrator was eligible in view of the unamended Act, respondent in response and having regard to the request of the petitioner vide letter dated 07.04.2016 and reminder dated 16.05.2016, CMD appointed Shri Rakesh Kapoor (Retd District & Sessions Judge) as Sole Arbitrator vide letter dated 05.07.2016. It is submitted that this conduct of the petitioner clearly shows that petitioner had reposed faith in the CMD of the respondent and had demanded to appoint arbitrator outside the cadre of the DTL, which request was accepted by the CMD. It is submitted that statement of claim filed by respondent on 19 th August, 2016 and thereafter, defence statement/reply and counter claim was filed by the petitioner herein in January, 2017. Respondent filed reply to the counter claim on M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 9 of 19 18th March, 2017/12th April, 2017 and thereafter, petitioner herein filed rejoinder to the counter claim dated 15th May, 2017.
15. Counsel for the respondent further submitted that petitioner had also filed an application U/s 16 of Arbitration & Conciliation Act praying that proceedings before the Arbitral Tribunal were without jurisdiction and conducted under Arbitration Act, 1940 as it was mentioned in the arbitration clause and not under Arbitration & Conciliation Act, 1996 and that application was decided by the arbitrator Shri Rakesh Kapoor (Retd District & Sessions Judge) and the arbitrator passed a detailed order holding that application was misconceived and has no legal force. It is submitted that petitioner had not contended at that time before the arbitrator that he (i.e. subsequent arbitrator Shri Rakesh Kapoor) was ineligible. Ld. Arbitrator noted in the order dated 03 rd December, 2016 that there was not an iota of protest or objection to the conduct of the arbitration proceedings at the stage the appointment of Shri S.K. Sharma was questioned.
16. Ld. Counsel for respondent submitted that after fully participating in the proceedings, petitioner wrote a letter dated 18 th September, 2017 to the arbitrator for termination of his mandate. In the said letter, it was not specifically mentioned that arbitrator was not eligible as he was appointed by CMD of the respondent who was hit by Seventh Schedule of the Amended Act and mainly it was submitted that time has lapsed and that it was mentioned that in view of Section 29A, the mandate of the Arbitration Tribunal stand terminated and thereafter respondent approached the Hon'ble High Court for extension of time U/s 29A of the A&C Act and vide order dated 20 th March, 2018, Hon'ble High Court extended time for six months. It is submitted that by their letter as well as by conduct petitioner had reposed faith in the CMD as well as arbitration which also shows the waiver of the applicability of the said sub section.
M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 10 of 1917. Ld. Counsel for respondent drew attention of the court to the letter dated 18.09.2017 and had read it to show the the objection as is being taken now before this court was nowhere taken in this letter. It is submitted that this letter dated 18.09.2017 rather indicates that petitioner had accepted the authority of the Ld. Arbitrator and had submitted to his jurisdiction while mentioning that "mandate of the arbitration tribunal stands terminated and resultantly presently, the arbitration tribunal is coram non judice having no man date or jurisdiction to adjudicate", meaning thereby that arbitral tribunal had earlier the mandate and at that time because of lapse of time it stood terminated.
18. Counsel for respondent submitted that previous arbitrator Shri S.K. Sharma was eligible in view of prevailing legal position i.e. before the amendment on 23.10.2015. He did not conduct any proceedings in view of objections of petitioner and he was substituted by Shri Rakesh Kapoor (Retd District & Sessions Judge) on 05.07.2016. In para 10 to 14 petitioners had narrated about substitution and about the fact that arbitrator held during the course of proceedings that arbitration is not governed by the Arbitration Act, 1940 but under Arbitration & Conciliation Act, 1996. It is submitted in para 15 onwards of the letter dated 18.09.2017, petitioner has mentioned about the time having been lapsed and that in accordance with Section 29A of Arbitration & Conciliation Act, 1996 (as amended), the mandate of the instant Arbitration Tribunal stands terminated by operation of law.
19. It is urged that objection on behalf of the petitioner that arbitral tribunal of Shri Rakesh Kapoor was ineligible is not tenable. It is submitted that objection that petitioner had brought to his notice that he was ineligible being nominee of CMD is against record and not correct and that their objection was only as regards lapse of time and, therefore, arbitrator lacked jurisdiction to M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 11 of 19 proceed further. It is submitted that thereafter respondent had approached High Court U/s 29A of A&C Act for extension of time and vide order dated 23.03.2018, time was extended for six months and then the award was passed on 03.07.2018. Counsel for respondent submitted that the judgments relied upon by counsel for petitioner are not applicable because in all those cases, appointment of arbitrator as such was in issue and unlike the present case, the arbitrator had not been appointed prior to the amendment Act, 2015 and thus, at the request of petitioner, and petitioner in those cases had not participated in the arbitration proceedings without any protest or reservation.
20. Learned counsel for the respondent submitted that on 09.04.2018, Hon'ble High Court had made observation regarding the objections of the petitioner as regards ineligibility of the arbitrator which was declined for the purpose of staying the arbitral proceedings. It is submitted that on 03.07.2017, TRF judgment of the Hon'ble Supreme Court was passed and thereafter on 18.09.2017, petitioner had written a letter to the arbitrator and the said letter does not mentions about ineligibility of the arbitrator and the same focused on extension of time and arbitral tribunal having become coram non judice on the ground that requisite time had lapsed and, therefore, his mandate stood terminated.
21. It is argued that judgment of TRF had come on 03.07.2017, whereas petition U/s 14 & 15 of the Act was preferred by the petitioner in March, 2018. It is submitted that proceedings were concluded and except passing of award nothing was left. It is submitted that in view of peculiar facts of this case, judgments referred by the petitioner are not applicable. It is submitted that in the first appointment of arbitrator on 16.10.2015, before the Amendment Act, 2015 came into force, admittedly, there was no defect and petitioner fully participated M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 12 of 19 in the proceedings conducted by the second arbitrator on the request of the petitioner, after amendment.
22. To appreciate the facts as a whole, a date wise account of the event may be outlined in the present case. On 16.10.2015, Shri S.K. Sharma, General Manager, nominee of CMD was appointed as Arbitrator pursuant to arbitration clause 46.1 of the agreement between the parties. On 23.10.2015, amendment to the Act came into force which prohibited appointment of any person as arbitrator who is having interest in the subject matter or related to one of the party in view of Section 12(5) r/w Seventh Schedule.
23. Then, on 07.04.2016, petitioner wrote a letter to CMD requesting to appoint some other arbitrator in view of the amendment and thereafter they wrote another reminder dated 16.05.1016 to the CMD for change of arbitrator in view of the amendment to the Act. Having regard to the request of the petitioner, CMD appointed Shri Rakesh Kapoor (Retired District & Sessions Judge) as Arbitrator on 05.07.2016. Thereafter Arbitrator entered upon the reference, he conducted proceedings. On 03.12.2016, application filed by the petitioner U/s 16 of the Act was decided by the Ld. Arbitrator. Admittedly, both the parties participated in the proceedings. Petitioner filed statement of defence and counter claim. After pleading, oral and documentary evidence was recorded by the arbitrator. Case of the petitioner is mainly based on the fact that on 03.07.2017, Hon'ble Supreme Court passed judgment in TRF Ltd.'s case and thereafter, on 18.09.2017 petitioner wrote a letter to the arbitrator stating that his mandate had terminated. On 20.03.2018, respondent filed a petition U/s 29A of the amended Act for extension of time for completion of proceedings by the arbitrator. Order dated 20.03.2018 shows that petitioner had pointed out that he had already filed petition U/s 14 & 15 of the Act before the Hon'ble High Court regarding which Hon'ble M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 13 of 19 High Court observed that the said petition U/s 14 & 15 of the Act would be decided by the Hon'ble High Court on its own merits. On 19.04.2018, Hon'ble High Court dismissed the interim application filed by the petitioner seeking stay of the arbitral proceedings in the petition U/s 14 & 15 of the Act. OMPT Comm 28/18. On 18.09.2018, petition U/s 14 & 15 of the Act filed by the petitioner was disposed off giving the petitioner liberty to raise all the objections. By that time award has already been unreservedly passed on 03.07.2018 by the Ld. Arbitrator. Thereafter on 06.10.2018, petitioner preferred this petition U/s 34 of the Act raising objections including the objections as regards ineligibility of the Ld. Arbitrator to adjudicate the dispute U/s 34(2)(5) of the Act.
24. The principal contention of the petitioner is that the arbitrator appointed is ineligible to act as an arbitrator as in terms of the decision of the Supreme Court in TRF Ltd.'s case, the ChairmancumManaging Director of the respondent is ineligible to make any such appointment but in the present case, Arbitrator had admittedly been appointed prior to the Amendment Act, 2015.
25. It is worth noting that vide order dated 3 rd December, 2016, Ld. Arbitrator had disposed off an application U/s 16 of the A&C Act filed by the petitioner herein praying that arbitral tribunal was not having jurisdiction. Vide a detailed order after discussing the legal position, Ld. Arbitrator had rejected the assertion of the petitioner that Shri S.K. Sharma was disqualified to act as an Arbitrator as per Schedule Seven. He observed that there was not an iota of protest or objection to the conduct of arbitration proceedings at the stage the appointment of Shri S.K. Sharma was questioned and having taking recourse to remedy provided under the A&C Act, 1996 it now does not lie in the mouth of respondent (petitioner herein) to say that arbitration could not be conducted under the provisions of A&C Act, 1996.
M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 14 of 1926. As per Section 85 of A&C Act, 1996, the Arbitration Act, 1940 has been repealed and Section 85(2) reads as under : (2) Notwithstanding such repeal
(a) the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force.
27. In TRF Ltd's case (supra), the arbitration clause stated that unless otherwise agreed, the sole arbitrator was to be Mg. Director of the respondent or his nominee. Hon'ble Supreme Court held that since the respondent' Mg. Director was not eligible to be an arbitrator (as he was an employee), any nominee picked by him would also be ineligible as that would tentamount to carrying on the proceedings of arbitration by himself. In Bharat Broadband's case (supra), where also arbitrator agreement provided that Chairman of the petitioner or his nominee was to be appointed as sole arbitrator, the provision would ordinarily have been unenforceable on the basis of TRF's case, however, Court noted that the condition in Section 12(5) of the Act could be waived by the parties subsequent to the dispute having arisen, by an express agreement in writing.
28. In the present case, this court is of the considered view that arbitrator, Shri Rakesh Kapoor (Retd. District & Sessions Judge) who was later on changed after Amendment Act, 2015, on the request/demand of the petitioner and passed the award, stepped into the shoes of Shri S.K. Sharma, previous arbitrator, who was appointed and the arbitration proceedings were initiated on 16th October, 2015, in this case is not hit by Seventh Schedule r/w Section 12(5) of the Amended Act. Subsequent to the entering of reference by the Ld. Arbitrator, Shri Rakesh Kapoor (Retd District & Sessions Judge), petitioners M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 15 of 19 participated in the proceedings without any protest or reservation. Admittedly, substituted arbitrator is not covered by any of the clauses of Seventh schedule and there is nothing on record to show his relationship with the parties or counsels in any manner. Petitioners have not pointed out any defect or flaw in the award on merits passed by the Ld. Arbitrator. Petitioner has failed to show any prejudice or any perversity in the award. There is nothing on record to call for interference.
29. The legal position is well settled that while considering the objection to the award, court has to see that the award is not perverse. The scope of challenge is not for reappreciation of evidence the arbitrator is the master of the quantity and quality of the evidence and it is not open for the court to take upon dues the task of being a judge of the evidence recorded before the arbitrator. However, the award may be challenged, if the arbitrator has passed the award in such a way that could be something that no fair minded or reasonable person could do. Also when the award is based on a finding based on no evidence and the arbitral tribunal takes into account something irrelevant to the decision which it arrives at, or ignores vital evidence in arriving at its decision, such decision would be termed as perverse and a subject matter of challenged U/s 34 of Arbitration & Conciliation Act.
30. In a recent decision, S.P. Singhla Construction Pvt. Ltd. Vs. State of Himachal Pradesh6, decided on 4th December, 2018, Hon'ble Supreme Court of India clarified that if an employee arbitrator has been appointed pursuant to the terms of arbitration agreement prior to the Amendment Act of 2015, a party cannot approach the Court U/s 11(6) of the Act to seek appointment of independent arbitrtor and it was further observed that it is fairly well settled that 6 Civil Appeal No. 1182411825 of 2018, decided on 04.12.2018 (Arising out of SLP (C) No. 127475 of 2018 M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 16 of 19 any challenge to the appointment of arbitratror ought to have bene raised by the arbitrator himself in the first instance and any challenge regarding the appointment of an arbitrator as per the terms of the agreement between the parties must be viewed in the context of the agreement between the parties.
31. In S.P. Singhla's case (referred above), as per clause 65 of GCC, the dispute was to be referred to the sole arbitration appointed by the Engineer In Chief/Chief Engineer, HP, PWD. The proviso in Clause 65 of the GCC was to the following effect "Subject as aforesaid the provision of the Arbitration Act, 1940 or any statutory modification or reenactment thereof and the rules made thereunder and for the time being shall apply to the arbitration proceeding under this clause." {underlining added}. In the said case, the issue before the Hon'ble Supreme Court of India was "whether the apointment of an arbitrator in arbitration proceeding commenced prior to the Amendment Act would attract the disqualification prescribed in Section 12(5) of the Act". Hon'ble Supreme Court had quoated Board of Control for Cricket in India Vs. Kochi Cricket Private Limited & Ors.7 wherein it was held that the provisions of Amendment Act, 2015 (with effect from 23.10.2015) cannot have retrospective operation in the arbitral proceedings already commenced unless the parties otherwise agree. It was held that Amendment Act applies prospectively in respect to abritral proceedings and that Section 12(5) of the Act does not apply to the present proceeding unless the parties agree otherwise and thereafter, clause 65 was examined to determine if the parties had agreed that the Amendment Act is applicable and in clause 65 of the Contract Act it was stated "that the agreement is subject to any statutory modification or reenactment thereof and rules made thereunder and for the time being shall apply to the arbitration proceeding under this clause." It was held that 7 (2018) 6 SCC 287 M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 17 of 19 clause 65 of the Contract Act cannot be taken to be the agreement between the parties in order to apply the Amendment Act and thus, appointment of employee arbitrator pursuant to clause 65 of the Contract was not affected by Section 12(5) of the Amendment Act. Hon'ble Supreme Court reinstated the settled procedure that must be followed by the parties to challenge the appointment of arbitrator. A party must file an application with the arbitral tribunal U/s 13 and if such applicaiton is rejected, the party can challenge the resulant award U/s 34 of the Act.
32. To sum up, admittedly in the present case, arbitration had been invoked on 16.07.2015 i.e. prior to the Amendment Act, 2015. As per Clause 46.1 of the Agreement dated 13 th October, 2009, matter in dispute had to be referred to Arbitration of ChairmancumMg. Director, Delhi Transco Ltd or his nominees whose decision was final and binding on both the parties. In the present case, provision in the arbitration clause 46 of the agreement between the parties had provision similar to the abovementioned clause 65 in S.P. Singhla's case i.e. "The provision o Indian Arbitration Act, 1940 as amended from time to time shall apply to such arbitration proceedings. Therefore, in the facts and circumstances, this portion of the Clause 46 of the Agreement i.e. "Indian Arbitration Act, 1940 {as amended from time to time shall apply to such arbitration proceedings}" cannot be taken to be an "express agreement" between the parties in order to apply the Amendment Act and thus, employee arbitrator Shri S.K. Sharma who was appointed prior to the coming into force of the Amended Act, cannot be held to be ineligible and, therefore, later on his substitution by Shri Rakesh Kapoor (Retd District & Sessions Judge) pursuant to the requests of the petitioner was not affected by Section 12(5) r/w Seventh Schedule of the Amendment A&C Act, 2015 in view of the decision of Hon'ble M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 18 of 19 Supreme Court in the aforenoted S.P. Singhla Construction Pvt. Ltd.'s case.
33. In view of the aforesaid reasons, this court find no merits in the contentions raised by the Ld. Counsel for petitioner. In the result, petition U/s 34 of the A&C Act deserves to be dismissed. Order accordingly. File be consigned to the record.
(Announced in the open court today i.e. on 07.03.2020) N VINAY KUMAR KHANNA District Judge (Commercial Court02) South Distt., Saket, New Delhi/07.03.2020 M.J. Engineering Works Pvt. Ltd. Vs. Delhi Transco Ltd. Page 19 of 19