Gujarat High Court
A Joint Venture Of M/S China Civil ... vs Gujarat Metro Rail Corporation Limited on 17 January, 2020
Author: S.R.Brahmbhatt
Bench: S.R.Brahmbhatt
C/IAAP/119/2019 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/PETN. UNDER ARBITRATION ACT NO. 119 of 2019
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A JOINT VENTURE OF M/S CHINA CIVIL ENGINEERING
CONSTRUCTION CORPORATION
Versus
GUJARAT METRO RAIL CORPORATION LIMITED
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Appearance:
MR MIHIR JOSHI, SR. ADVOCATE WITH MR. BIJAL
CHHATERPATI, ADVOCATE WITH MR. SIDDHARTH SINJI,
ADVOCATE FOR J SAGAR ASSOCIATES(8162) for the Petitioner
MR KAMAL TRIVEDI, SR. ADVOCATE WITH MR. VINAY
BIRAGERA WITH MR ANUJ K TRIVEDI(6251) for the Respondent
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CORAM: HONOURABLE MR.JUSTICE S.R.BRAHMBHATT
Date : 17/01/2020
ORAL ORDER
1. The present arbitration petition is filed under Section 11 of The Arbitration and Conciliation Act, 1996 for the following reliefs:
a) appoint an independent and impartial person as the second arbitrator towards constitution of the three-member tribunal;
b) direct the two appointed arbitrators to appoint the third or the presiding arbitrator for adjudication of the disputes between the parties;
c) pass such other or further order(s) as this Hon'ble Court may deem fit and proper in Page 1 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER the facts and circumstances of the present case.
2. Facts in brief, as could be culled out from the memo of petition deserves to be set out as under:
2.1 The petitioner is a joint venture between China Civil Engineering Construction Corporation ("CCECC") and Tata Projects Limited ("TPL"). CCECC is a company incorporated and registered in China and is involved in providing worldwide services in, various aspect of railway construction and engineering. TPL is a company incorporated and registered in India and is involved in executing large and complex urban and industrial infrastructure projects.
2.2 The respondent is a Special Purpose Vehicle (SPV) incorporated on 04.02.2010 for implementation of the Ahmedabad - Gandhinagar Metro Rail Project. It is a 50:50 SPV of Government of India and Government of Gujarat.
2.3 On 25th January 2017, the respondent issued the letter of acceptance ("LOA") in favour of the petitioner for construction of Elevated Viaduct from Thaltej Gam to End of Western Ramp (Ch. 710 to + 7503) in E-W Corridor R2 including Bridge over Sabarmati river and 7 Stations Thaltej Gam, Thaltej, Doordarshan Kendra, Gurukul, Gujarat University, Commerce Six Road and Stadium Circle and excluding interchange Old High Court Station for Ahmedabad Metro Rail Project Phase-I ("Project"). The formal contract was singed between the parties on 18.03.2017.Page 2 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER
2.4 The total contract price was about Rs.721,03,74,206/-. The petitioner was required to complete the contract works within 32 months from the commencement date stipulated in the LOA. The commencement date was the date of the LOA (i.e. 26.01.2017) and therefore the Contract works are required to be completed by 25 September 2019.
2.5 Though the petitioner mobilized its resources and commenced the Contract works, works were repeatedly affected/suspended for the reasons beyond the petitioner's control. As a result of the delay caused, the petitioner was prevented from recovering the contractually agreed revenue for no fault of its own. At the same time the petitioner could also not utilize its resources at their optimum productivity level and was constrained to incur additional costs due to underutilization of its resources.
2.6 It is stated that on 24th April, 2019, the petitioner submitted to the respondent its (interim) claim for about Rs.140 crores towards the additional costs incurred by it due to underutilization of its resources under various heads.
2.7 It is stated that since the respondent failed to certify the claim raised by the petitioner in terms of the contract, disputes arose between the parties and on 29th May 2019, the petitioner issued the notice of dispute to the respondent in terms of Clause 17.4 of the General Conditions of Contract. On 31st May 2019, the petitioner also issued the notice inviting the respondent for conciliation under Clause 17.6 of the general conditions of contract. By its letter dated 14th June 2019, the respondent did not accept the petitioner's Page 3 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER invitation to refer the disputes to conciliation.
2.8 It is stated that by its letters dated 09th July, 2019 & 23rd July 2019, the petitioner responded to the respondent's letter dated 14th June 2019. Since, the respondent did not accept the notice for conciliation, the petitioner issued the notice of Arbitration to the respondent on 08.07.2019 (received on 16th July, 2019).
2.9 It is stated that Clause 17.9 of the general conditions of contract contemplates appointment of a three-
member arbitral tribunal (if claim is more than Rs.5 million). It is stated that the remaining procedure which provides for appointment of the tribunal from a panel of five members provided by the respondent is not a valid procedure in law. Clause 17.9 restricts/limits the right of the petitioner to choose its arbitrator only from the panel prepared and forwarded by the respondent, and that extent, clause 17.9 is invalid and unenforceable. It is stated that for constitution of the arbitral tribunal in accordance with law, in its notice of arbitration the petitioner informed the respondent that the parties may appoint their respective nominee arbitrators who can then appoint the presiding arbitrator. The petitioner appointed Shri Kanaiyalal G.Prajapati as the (first) arbitrator.
2.10 It is stated that the notice of arbitration was received by the respondent on 16th July 2019. Therefore, the respondent should have appointed the second arbitrator latest by 15th August, 2019. However, the respondent has till date failed to do so. Hence, the present petition.
Page 4 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER3. Learned senior counsel for the petitioner submitted that the conditions required to be fulfilled under Section 11(4) & 11(6) of the Arbitration Act, have been satisfied in the present case. Further, the existence of an arbitration clause is undisputed in the present case. The contract confers exclusive jurisdiction on the courts at Ahmedabad/Gandhinagar for all disputes arising out of or in relation to the Contract. The arbitration agreement is contained in Clause 17.9 of the General Conditions of Contract. The venue of arbitration is at Ahmedabad/Gandhinagar. Therefore, this Court has the territorial jurisdiction to entertain and decide the present petition.
4. Learned counsel for the petitioner further submitted that the progress of work was affected due to various breaches committed by the respondent such as (I) non-issuance of GFC drawings by the respondent (as per the approved baseline program), (ii) non-issuance of GFC drawings by the respondent in a sequential manner (as per the approved baseline program), (iii) Frequent suspension of part of the work, (iv) Delay by the respondent in approving designs/drawings/methodologies, (v) frequent variations ordered by the respondent (vi) respondent's delay in releasing payment against work done, variations executed, and claims raised (vii) non-handing over of handing over of hindrance free work-fronts in accordance with the baseline program
(viii) respondent's delay in shifting of utilities.
5. Learned counsel for the petitioner further submitted that on 24th April, 2019 the petitioner submitted to the respondent its (interim) claim for about Rs.140 crores Page 5 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER towards the additional costs incurred by it due to underutilization of its resources under the following heads: (i) Additional expenses on account of uncovered labour costs, (ii) additional expenses on account of unrecovered overhead costs, (iii) additional expenses on account of unrecovered plant and machinery costs, (iv) additional financing costs due to unrecovered establishment cost and (v) additional financing costs due to additional costs incurred.
6. Learned counsel for the petitioner further submitted that since the respondent failed to certify its claim within the stipulated time and did not accept the notice for conciliation, the petitioner issued the notice of arbitration to the respondent on 08.07.2019. Clause 17.9 contemplates appointment of a three member arbitral tribunal, if claim is more than Rs.5 million. However, the remaining procedure which provides for appointment of the tribunal from a panel of five members provided by the respondent, which may also include the respondent's officers, is not a valid procedure in law. Clause 17.9 restricts/limits the right of the petitioner to choose its arbitrator only from the panel prepared and forwarded by the respondent, and that extent, clause 17.9 is invalid and unenforceable. Further, as per law, the respondent cannot have a unilateral right to furnish a penal for appointment of an arbitrator. The petitioner has complied with procedural requirements of the dispute resolution clause under the contract bu the petitioner and the respondent merely disagree on the validity and interpretation of the said clause.
7. Learned counsel for the petitioner further submitted that Section 12 of the Arbitration and Conciliation Page 6 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER Act, 1996 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 there exists, it will give rise to justifiable apprehension of bias. The fifth schedule of the Act enumerates the grounds which may give rise to justifiable doubts of this nature. Likewise, seventh schedule mentions those circumstances which would attract the provisions of subsection 5 of section 12 and nullify and prior agreement to the contrary. If an arbitrator is an employee, a consultant, an advisor or has any past or present business relationship with a party, he is rendered ineligible to act as an arbitrator. Likewise, a person is treated as incompetent to perform the role of arbitrator, who is a manager, director or part of the management or has a single controlling influence in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration. Likewise, persons who regularly advise the appointing party or affiliate of the appointing party are incapacitated. In view of the above, clause 17.9 of the Agreement is invalid. In view of the invalidity of clause 17.9, the dispute cannot be adjudicated by appointment of arbitrators as contemplated therein, but the arbitrators would have to be independently appointed and the process adopted by the petitioner is appropriate and legal.
8. Learned counsel for the petitioner further submitted that for the constitution of the arbitral tribunal in accordance with law, in its notice of arbitration, the petitioner informed the respondent that the parties may appoint their Page 7 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER respective nominee arbitrators who can then appoint the presiding arbitrator. The petitioner appointed Shri Kanaiyalal G. Prajapati as the (first) arbitrator. The respondent did not avail the opportunity to timely nominate its arbitrator, which opportunity has since been lost.
9. Learned counsel for the petitioner placed on record the note of arguments, which, in verbatim, reproduced hereinbelow:
"Note of Arguments SR. Date Particular Reference No. 1 25th January Respondent issued a Letter of 2017 Acceptance ("LOA") in favour of the Petitioner for the Construction of Elevated Viaduct from Thaltej Gam to End of Wester Ramp (Ch.710 to + 7503) in E-W Corridor R2 including bridge over Sabarmati River and 7 Stations Thaltej Gam, Doordarshan Kendra, Gurukul, Gujarat University, Commerce Six Road, and Stadium Circle and excluding Interchange Old High Court Stations for Ahmedabad Metro Rail Project Phase -I ("Project") 2 18th Marc, A formal contract to the Annexure-
2017 aforesaid was signed A, Page 15 between the parties. The and Page total Contract price was 38 about Rs.721,03,74,206/-.
The Commencement date was the date of the LOA (i.e. 25 January 2017) and therefore,t he Contract works Page 8 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER were required to be completed by 25 September 2019. Though the petitioner diligently mobilized its resources and commenced the Contract works, the works were repeatedly affected/suspended due to the Respondent's defaults and for reasons beyond the Petitioner's control.
3 24th April, the Petitioner submitted to Annexure-
2019 the Respondent its (interim) B, Page
claim for about Rs.140 crores 150
towards the additional costs
incurred by it due to
underutilization of its
resources.
4 The Respondent failed to
certify the said claim of the
Petitioner in terms of the
Contract. Consequently,
disputes arose between the
parties
5 29th May The Petitioner issued the Annexure-
2019 Notice of Dispute to the C, Page
Respondent in terms of 173 and
Clause 17.4 of the General Clause 17
Conditions of Contract @ Page
121,
Clause
17.4 @
Page 122
6 31st May, The Petitioner also issued the Annexure-
2019 Notice inviting the D, Page
Respondent for Conciliation 198
under Clause 17.6 of the
General Conditions of
Contract.
7 14th June The Respondent vide its Annexure-
2019 letter did not accept (on E, Page
baseless grounds) the 201
Petitioner's invitation to refer
the disputes to conciliation.
8 9th July, The Petitioner vide its Annexure-
2019 and letter(s) responded to the F, Page
23rd July, Respondent's aforesaid letter 219 and
Page 9 of 36
Downloaded on : Sat Feb 01 02:46:39 IST 2020
C/IAAP/119/2019 ORDER
2019 of 14th June, 2019 Annexure-
G, Page
231
9 8th July, As the Respondent did not Annexure-
2019 accept the Notice for H, Page
Conciliation, the Petitioner 253
issued the Notice of
Arbitration appointing its
nominee arbitrator and
giving an opportunity to the
Respondent to appoint its
nominee arbitrator.
10 The Respondent had not
appointed its nominee
arbitrator after issuance of
the Petitioner's Notice of
Arbitration and not even
responded thereto, and has
not nominated its arbitrator
prior to the filing of the
present Petition.
Submissions:
1. The arbitration provision, being clause 17.9 of the General Condition of Contract, in so far as is relevant for the present purpose, reads thus:
(a) Matters to be arbitrated upon shall be referred to a sole Arbitrator if the total value of the claim is upto Rs.5 million and to a panel of three Arbitrators if total value of claims is more than Rs.5 million. The Employer shall provide a panel of three arbitrators which may also include MEGA officers for the claims upto Rs.5 million and a panel of five Arbitrators which may also include MEGA officers for Page 10 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER claims of more than Rs.5 million. The Contractor shall have to choose the sole Arbitrator from the panel of three and/or one Arbitrator from the panel of five in
(b) case three Arbitrators are to be appointed.
The Employer shall also choose one Arbitrator from this panel of five and the two so chosen will choose the third arbitrator from the panel only who shall act as the Presiding Arbitrator. The Arbitrator(s) shall be appointed within a period of 30 days from the date of receipt of written notice/demand of appointment of Arbitrator from either party. Neither party shall be limited in the proceedings before such arbitrator(s) to the evidence or arguments put before the Engineer for the purpose of obtaining his decision. No decision given by the Engineer in accordance with the foregoing provisions shall disqualify him from being called as a witness and giving evidence before the arbitrator(s) on any matter, whatsoever, relevant to dispute or difference referred to arbitrator/s. The arbitration proceedings shall be held in Ahmedabad/Gandhinagar only. The language of proceedings, that of documents and communication shall be English.
2. Clause 17.9 to the extent that the same contemplates for the Employer (the Respondent herein) to provide a panel of five arbitrators which may include MEGA Page 11 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER OFFICERS with a requirement for the Contractor (the Petitioner herein) to choose one arbitrator from this panel of five arbitrators, is not a valid provision in law. Such a provision is violative of the amended Section 12 read with the Fifth and the Seventh Schedule of the Arbitration and Conciliation Act, 1996 (the "Act"). Neutrality of Arbitrators, their independence and partiality, is critical to the entire process. The test is not whether there is any actual bias but whether the circumstances in question give rise to any justifiable apprehension of bias. The principles of impartiality and independence cannot be discarded at any stage of the proceedings and specifically not at the stage of constitution of the Arbitral Tribunal and party autonomy has to be subject to the principals of impartiality and independence.
3. Additionally, clause 17.9 while entitling the Respondent to provide a panel, permits the Respondent to include its own officers in the panel, which in itself violates the neutrality requirement and does little to instill confidence in the arbitration process.
4. The Hon'ble Supreme Court of India, has, in its judgment dated 26 November 2019 in the matter of Perkins Eastman Architects DPC & Another v HSCC (India) Limited, while dealing with independence and impartiality of Page 12 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER the person nominated to act as an Arbitrator expressly held, following, inter alia, the judgment in the case of TRF Limited that it is the interest of the party to the outcome of disputes, which is the basis for the possibility of bias, thereby disentitling such a party to nominate an Arbitrator. The Hon'ble Supreme Court proceeded to observe (at Paragraphs 15 and 16) that:
"we are conscious that if such deduction is drawn from the decision of this Court in TRF Limited, all cases having clauses similar to that with which we are presently concerned, a party to the agreement would be disentitled to mamke any appointment of an Arbitrator on its own and it would always be available to argue that a party or an official or an authority having interest in the dispute would be disentitled to make appointment of an Arbitrator. But in our view that has to be the logical deduction from TRF Limited."
The Hon'ble Supreme Court proceeded to elaborate on the judgment in the TRF Limited case by observing that:
"the ineligibility referred to therein, was a result of operation of law, in that a person having an interest in the dispute or in the Page 13 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator"
The Hon'ble Supreme Court makes a distinction in cases where both the parties could nominate respective arbitrator of their choice, from case where only one party has a right to appoint, since such choice will always have an element of exclusivity in determining or charting the course for dispute resolution. The Hon'ble Supreme Court concludes that:
"naturally, the person who has an interest in the outcome of decision of the dispute must not have the power to appoint a sole arbitrator"
5. The Petitioner submits that if the Respondent cannot be permitted, as an Employer, to nominate an arbitrator, then the Respondent / Employer cannot also be permitted to provide or suggest a panel of arbitrators, howsoever broad based, from which the Petitioner is constrained to choose it nominee.
6. The Petitioner states that even Page 14 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER otherwise, upon failure of the Respondent to exercise its right to nominate its arbitrator within 30 days of the receipt of Notice of Arbitration and till the subject Petition under Section 11 of the Act came to be filed, the Respondent has lost its right to nominate its arbitrator. The Petitioner seeks to rely upon the judgement in the case of Datar Switchgears Ltd. V/s Tata Finance Ltd and Anr. (2008) 8 SCC 151 (Para 11) and Deep Trading Company V/s. Indian Oil Corporation and Others (2013) 4 SCC 35)-(Paras 15 and
19).
7. The Respondent has relied upon the case of Voestalpine Schienen GMBH V/s. Delhi Metro Rail Corporation Ltd. (2017) 4 SCC 665 to contend that it be permitted to provide a fresh panel of arbitrators, much larger than the existing panel of five names. This submission of the Respondent is not worthy of acceptance. Firstly, on facts, there is a material distinction between the present case and the Voestalpine case. In the said case, as evident from the observations made at paragraph 2, read with 8 and 13 of the judgment, the Respondent therein had itself maintained a panel of 31 arbitrators, out of which, in terms of the relevant arbitration clause, it was to forward names of five persons to the Petitioner therein. In the instant case, the Respondent has not maintained any broad Page 15 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER based panel of arbitrators, which would have been known to the Petitioner at the time of execution of the contract under dispute. In fact, even the names comprising of the panel of five arbitrators, came to be disclosed to the Petitioner, only in the reply filed by the Respondent in November, 2019, to the subject petition. Secondly, while in the aforesaid peculiar facts, the Hon'ble Supreme Court permitted the Petitioner therein to nominate any person from the entire panel of arbitrators, observing in the same breath that a panel should, "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 panel should comprise of persons with legal background like Judges and lawyers of repute as it is not necessary that all disputes that arise, would be of technical nature. There can be dispute involving purely or substantially legal issues, that too, complicated in nature. Likewise, some disputes may have the dimension of accountancy, etc. therefore, it would also be appropriate to include person from this filed as well". However, fully approving the observations of the Hon'ble Supreme Court as regards neutrality of arbitrators and their independence and impartiality, made in the Voestalpine case, the Page 16 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER Hon'ble Supreme Court in the case of Perkins went further to effectively disentitle a person who has an interest in the outcome or decision of the dispute, to have any power of appointing arbitrators.
8. The other decisions relied upon by the Respondent, in the cases of S.P. Singla Constructions (P) Ltd. V/s. Delhi metro Rail Corporation Limited - 2017 SCC OnLine Del 10689 and BCL Secure Premises (P) Ltd. V/s. Metro Railway - 2017 SCC OnLine Cal 9449 are before the law laid down in the Perkins case, which has taken further, the principals of neutrality of arbitrators and their independence and impartiality.
9. The Respondent has further submitted that its autonomy as to appointment of the Arbitrators, has to be respected. In this context, it is submitted that party autonomy cannot be exercised in disregard of the principles of impartiality and independence. The spirit of amending Section 12 is to provide for neutrality of arbitrators if an arbitration clause is found to be contrary to this spirit, appointment of arbitrators beyond the arbitration agreement is permissible and the Respondent cannot insist for appointment of arbitrators in terms of the arbitration agreement. The mere fact that the parties may have agreed to an unfair arbitration Page 17 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER agreement, is not reason enough, for such a party to be compelled to submit itself to arbitration, before an arbitral tribunal which may not inspire confidence and where neutrality is not assured or visible. The instant case is the case where giving a go-by to the agreed arbitration clause is fully justified. In the circumstances, nomination by the Petitioner of its nominee arbitrator was fully justified and in accordance with law. The very decision in the case of Voestalpine relied upon by the Respondent, notes the recommendations of the Law Commission on the issue of neutrality of arbitrators to the effect that the principals of impartiality and independence cannot be disregarded at any stage of the proceedings and that it would be incongruous to say that party autonomy can be exercised in disregard of these principles even if the same has been agreed prior to the dispute having arisen. The Hon'ble Supreme Court in the said case of Voestalpine itself noted and observed that in a number of judgments the courts have appointed arbitrators giving a go-by to the agreed arbitration clause.
10. The Petitioner relies upon the following further decisions:
(i) Perkins Eastman Architects DPC V/s.
HSCC (India) Ltd - Arbitration Application Page 18 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER No.32 of 2019-(Paras 15 to 18 and 25)
(ii) TRF Ltd. v. Energo Engineering Projects Ltd-(2017) 8 SCC 377-(Paras 15, 53 and 54)
(iii) Afcons Infrastructure Ltd. V/s. Rail Vikas Nigam Limited (2017 SCC OnLine Del 8675)- (Paras 24 to 35).
11. This is therefore a fit case for the Hon'ble Court to disregard the agreed procedure to secure the appointment of an impartial arbitrator. The Hon'ble Court may therefore appoint an Arbitrator as the Respondent's nominee and direct the two arbitrators to appoint a third and presiding Arbitrators."
10. Learned counsel for the petitioner relies on the following decisions:
(i) In case of Perkins Eastman Architects DPC V/s.
HSCC (India) Ltd. - Arbitration Application No.32 of 2019- and laid emphasis upon Paras 15 to 18 and 25.
(ii) In case of Afcons Infrastructure Ltd. V/s. Rail Vikas Nigam Limited, (2017 SCC OnLine Del 8675) and laid emphasis upon Paras 24 to 35.
(iii) In case of Deep Trading Company Vs. Indian Oil Corporation And Others, (2013) 4 Supreme Court cases 35, and laid emphasis upon Paras 15, 18 and 19.
Page 19 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER11. Learned senior counsel for the respondent submitted that the very basis of preferring the captioned petition is incorrect, contrary to law and in direct contradiction to and violation of the contractual terms and conditions agreed upon and between the petitioner and the respondent. Moreover, the alleged dispute, if any, has been arisen solely only on account of the actions and fault on the part of the petitioner and consequently, in any even, there is nether any merit in the alleged dispute raised by the petitioner nor is any amount payable to the petitioner, as alleged. In fact, no default has occurred at the behest of the respondent Corporation, as alleged.
12. The counsel for the respondent resisted this petition mainly on the ground that the petitioner could not have approached this Court under Section 11 as the petitioner is first required to act in accordance with the terms and conditions of the contract especially Clause 17.9 of the general terms and conditions of the contract.
13. Learned counsel for the respondent submitted that the petitioner could not have assailed the provision of Clause 17.9 of the contract and started acting unilaterally contrary to the said terms and conditions in matter of appointment of arbitrator.
14. Learned counsel for the respondent further submitted that as per the clause 17.9, the panel of the arbitrators from which the arbitrators are to be chose by the respective parties, namely; (1) Shri Hatesh Chander Syne Page 20 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER Berry (H.C.S. Berry) (2) Shri R.D. Soni (3) Shri Janak J.Sayani (4) Shri Zaverbhai Managalbhai Patel (Z.M.Patel) and (5) Shri Shailesh J.Desai. He submits that all the above arbitrators are independent Engineers, having vast knowledge of arbitration, as well. Out of the aforesaid five arbitrators, the petitioner is obligated to choose any one person, as an Arbitrator and thereafter the respondent shall select one arbitrator from the remaining four members. The two selected arbitrators shall thereafter select the presiding arbitrator from the remaining three arbitrators on the panel.
15. Learned counsel for the respondent further submitted that ulterior motive of the petitioner by way of the present petition is to have the appointment of its arbitrator indirectly confirmed which appointment is contrary to the terms and conditions of the Contract agreement, which the petitioner, itself has consented, acknowledged and accepted to be bound by. In effect, the petitioner is seeking to rewrite the terms of the contract agreement by way of this petition, which ought not to be permitted.
16. Learned counsel for the respondent further submitted that the said arbitrators are engineers of prominence and high repute and at the same time, having vast experience in arbitration matters. In view thereof, there is no question of having any room of suspicion.
17. Learned counsel for the respondent places on record the summary of propositions on behalf of the respondent Corporation, which reproduced, in verbatim, as under:
Page 21 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER"Summary of Propositions on behalf of the Respondent corporation
1. A few important dates:
Sr. Date Particulars Page no. Nos. 1 02/07/16 Respondent corporation issued a Tender 265
Notification for 'construction of Elevated Viaduct from Thaltej Gam to End of Western Ramp (ch. 710 to + 7503) in E-W Corridor R2 including Bridge over Sabarmati River and 7 Stations viz. Thaltej Gam, Thaltej, Doordarshan Kendra, Gurukul, Gujarat University, Commerce Six Road and stadium circle and excluding Interchange old High Court Station for Ahmedabad Metro Rail Project Phase-1' 2 25.01.2017 Petitioner being the successful bidder in 15-37 the aforesaid tender inquiry,was issued a letter of Acceptance ('LoA' for short), which the petitioner accepted.
3 18.03.2017 In furtherance of the above, a contract 38-55 Agreement came to be executed by and between the petitoner and the Respondent Corporation, for the total contract price of Rs. 721.03 Crore. 123 Note: Clause 17.9 of General Conditions of contact provides that if the dispute is raised having total value of claims exceeding Rs.5 million, then in that case, the same has to be adjudicated upon by a panel of 3 Arbitrators and that the Respondent Corporation is to provide a panel of 5 Arbitrators, our of which the claimant and as well as Respondent corporation shall have to choose 1 Arbitrator each and 2 Arbitrators so chosen, shall have to choose 3rd Arbitrator from the said panel, who shall act as a presiding Arbitrator.Page 22 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER
4 29.05.2019 Petitioner raised the dispute with respect 173 to the so-called interim additional cost alleged to have been incurred by the petitioner due to under-productivity of its mobilized resources to the tune of Rs. 140 crore.
5 14.06.2019 While responding to the aforesaid 201-
communication, the Respondent 218 Corporation addressed a detailed reply to the petitioner, categorically denying its claim on the ground that the same was unsustainable since under-productivity, if any, was on account of the contractor. 6 08/07/19 Despite having agreed in the matter of appointment of Arbitrators as per clause 17.9 of GCC, referred to above, the petitioner issued a Notice of Arbitration while declaring its appointment of one Shri Kanaiyalal G. Prajapati as its Nominee Arbitrator for adjudication of its alleged dispute.
7 19.08.2019 Petitioner filed the captioned petition.
8 November Respondent Corporation filed its Affidavit- 264
2019 in-reply.
9 21.11.2019 Petitioner filed its Affidavit-in-Rejoinder. 273
13.12.2019 Respondent Corporation filed its Additional 284 Affidavit while brining on record the factum of the panel of 5 Arbitrators bing independent and not in any manner related to the Respondent Corporation. 10 02/07/16 Petitioner being the successful bidder in 265 the aforesaid tender inquiry,was issued a letter of Acceptance ('LoA' for short), which the petitioner accepted.
II. Propositions:
1. The terms and conditions of the contract Page 23 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER including one relating to the appointment of Arbitrators are binding upon the signatories of the contract and that, therefore, when the contract between the parties specifically provides for appointment of main Arbitrators, the appointment should be in terms of the contract and that no Arbitrator can be appointed in contradiction to the terms and conditions of the contract.
Pl. See: (1) judgment dated 14.11.2019 rendered by Hon'ble Supreme Court in Union of India vs. Pradeep vinod Construction Company, reported in 2019 SCC online SC 1467
- rel. Paras 1, 5, 13, 15, 17, 18 and 20
2. Clause 17.9 of the contract between the parties is valid and enforceable and the same cannot be sought to be challenged as invalid in the captioned proceeding. For getting the said clause 17.9 of the contract declared as invalid, the petitioner is required to challenge the same, before the appropriate forum in appropriate proceedings and unless and until the said clause is declared invalid by any competent forum, the same would be binding upon the petitioner and that, the petitioner shall have to choose one Arbitrator form the panel of the five Arbitrators, provided by the Respondent Corporation.
3. As far as the contention of the petitioner with respect to the forfeiture of rights of the Respondent Corporation in appointing the Arbitrator is concerned, the same is also not Page 24 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER well founded, inasmuch as, the said rights get forfeited only in case, where a party to the contract fails to act as required under the procedure appointed by the parties.
However, in the present case, admittedly, it is the petitioner who has not acted as per the procedure appointed by the parties and in total disregard to the said procedure, vide its letter dated 08.07.2019 (Page No.253) by having unilaterally appointed one Shri Kanayilal G. Prajapati, as its nominee arbitrator. Therefore, in absence of the agreed procedure having been followed by the Petitioner, there arises on question of forfeiture of the right of the Respondent Corporation of appointing its nominee director.
4. Without prejudice to what is mentioned hereinabove, it is submitted that even while considering the aspectof impartiality and independency of the arbitrator, in identical arbitration clause, the Apex Court in case of Voestalpine Schienen GMDH Vs. Delhi Metro Rail Corporation Limited, reported in (2017) 4 SCC 665, upheld the power of an Employer to select the panel of arbitrators and thereby, rejected to exercise its jurisdiction to appoint and constitute the Arbitral Tribunal. The only aspect which was set aside by the Apex Court in the said judgment was with respect to the limited options given to the Contractor to choose out Page 25 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER of the panel of 5 arbitrators, though it had a broad based panel of 31 arbitrators and in view thereof, the Apex Court directed the Employer to provide the entire broad based panel of arbitrators to the Contractor to choose its nominee arbitrator, out of the said broad based panel and not out of the five names chosen from the said panel.
Pl. see: (2) Judgment dated 10.02.2017 rendered by Hon'ble Supreme Court in Voestalpine Schienen GMDH vs. Delhi Metro Rail Corporation Limited, reported in (2017) 4 SCC 665 - rel. paras 7, 10, 13, 24, 27, 28 and 30
5. As far as the reliance placed by the Petitioner on a judgment dated 26.11.2019 rendered by the Apex Court in the case of perkins Eastman Architects DPC vs. HSCC (India) Ltd. is concerned, the same is not applicable to the facts of the present case and is altogether with respect to different situation. In the said case before the Apex Court, the question was with respect to appointment of sole arbitrator unilaterally, i.e. at the sole discretion of the Employer and without providing any opportunity to the other party to have any choice in selection of the arbitrator. However, in the present case, choice to appoint a nominee arbitrator is being given to the Petitioner, as well as to the Respondent Corporation, who (i.e. two appointed arbitrators) would thereafter appoint a third arbitrator. Thus, the aforesaid judgment would not be of any assistance to Page 26 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER the Petitioner in the present proceeding. This is more particularly in view of the fact that the aforesaid law laid down by the Apex Court in the case of Voestalpine Schienen GMDH vs. Delhi Metro Rail Corporation Limited, has been followed in the aforesaid judgment and his not been held to be a bad law.
6. In the present case, it is worthwhile to note that despite providing the list of arbitrators, at no stage, thepartiality / independence of the said arbitrators has ever been questioned by the Petitioner. However, in any case, in terms of Section 12 of the Act, the same would have to provide the necessary declarations. Therefore, there is no question of deviating from the terms and conditions of the contract, as agreed by the parties thereto.
7. In view of the above, at the best, this Hon'ble Court may direct the Respondent Corporation to prepare and furnish a longer and wider list of panel of Arbitrators, within a stipulated time with a direction to the Petitioner, as well as, the Respondent Corporation, to choose one Arbitrator each out of the said broad based panel. However, in no case, the Petitioner should be allowed to have appointed the Arbitrator of its own choice in complete disregard to the law laid down by the Apex Court, as well as, the provisions of Clause 17.9 of the contract between the parties.
Page 27 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDERPl. see: (3) Judgment dated 25.09.2017 of Hon'ble Delhi High Court in Arbitration Petition No.576 of 2017 - S.P. Singla Constructions (P) Ltd. V/s. Delhi Metro Rail Corporation Limited (4) Judgment dated 19.07.2017 of Hon'ble Calcutta High Court in Arbitration Petition No.374 of 2017 - B.C.LO. Secure Premises (P) Ltd. V/s. Metro Railway, Kolkata
8. Admittedly, the judgment of the Apex Court in case of Union of India vs. pradeep Vinod Construction Company (supra) is of a Larger Bench of Three Hon'ble Judges and rendered later in point of time and that, therefore, latter law declared by a Larger Bench of Apex Court is required to be followed."
18. Learned counsel for the respondent relied upon the following judgments:
(i) In case of Voestalpine Schienen Gmbh Vs. Delhi Mrtro Rail Corporation Limited , reported in (2017) 4 Supreme Court Cases 665 and laid emphasis upon Paras 7, 10, 13, 24, 27 and 28.
(ii) In case of BCL Secure Premises (P) Ltd. Vs. Metro Railway, Kolkata, (2017 SCC OnLine Cal 9449) and laid emphasis upon Paras 14 to 18.
(iii) In case of S.P. Singla Constructions (P) Ltd. Vs. Delhi Metro Rail Corporation Limited , rendered in ARB.P. 576/2017 dated 25.09.2017 by Delhi High Court.
Page 28 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER(iv) In case of Union of India Vs. Pradeep Vinod Construction Company, reported in 2019 SCC OnLine SC 1467.
19. The Court has heard learned counsels for the parties and perused the petition and the documents. Before adverting to the rival contentions of the parties, it is appropriate to set out few indisputable aspects emerging therefrom namely;
(i) The parties have entered into an agreement in respect of the work in question on 18.03.2017. The Letter Of Acceptance was issued on 26.01.2017. As per the original agreement, the work was to be completed within 32 months i.e. by 25.09.2019.
(ii) The petitioner raised a claim of Rs.140 crores on 24.04.2019.
(iii) On 29.05.2019, petitioner issued notice of dispute under clause 17.4 of the general terms and conditions of the contract.
(iv) On 31.07.2019, petitioner issued notice of conciliation under clause 17.6 of the general terms and conditions.
(v) On 14th June, 2019, the respondent sent in reply not accepting any of the contentions of the petitioner .
Page 29 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER(vi) The petitioner issued notice for arbitration on 08.07.2019 which is said to have been received by the respondent on 16.07.2019 under clause 17.9 of the general terms and conditions a part whereof is setout hereinbelow:
17.9 (a) Matters to be arbitrated upon shall be referred to a sole Arbitrator if the total value of the claim is upto Rs.5 million and to a panel of three Arbitrators if total value of claims is more than Rs.5 million.
The Employer shall provide a panel of three arbitrators which may also include MEGA officers for the claims upto Rs.5 million and a panel of five Arbitrators which may also include MEGA officers for claims of more than Rs.5 million. The Contractor shall have to choose the sole Arbitrator from the panel of three and/or one Arbitrator from the panel of five in case three Arbitrators are to be appointed. The Employer shall also choose one Arbitrator from this panel of five and the two so chosen will choose the third arbitrator from the panel only who shall act as the Presiding Arbitrator. The Arbitrator(s) shall be appointed within a period of 30 days from the date of receipt of written notice / demand of appointment of Arbitrator from either party. Neither party shall be limited in the proceedings before such arbitrator(s) to the evidence or arguments put before the Page 30 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER Engineer for the purpose of obtaining his decision. No decision given by the Engineer in accordance with the foregoing provisions shall disqualify him from being called as a witness and giving evidence before the arbitrator(s) on any matter, whatsoever, relevant to dispute or difference referred to arbitrator/s. The arbitration proceedings shall be held in Ahmedabad/Gandhinagar only. The language of proceedings that of documents and communication shall be English.
(vii) The petitioner appointed one Shri K. G.Prajapati, as an arbitrator expecting the other side to appoint their arbitrator in terms of the contract and as per the say of the petitioner the respondents were required to appoint their arbitrator by 15th August, 2019 i.e. within the period of 30 days from the date of receipt of the same.
(viii) The respondent failed in appointing the arbitrator and petitioner was compelled to file this petition under Section 11 of the Arbitration And Conciliation Act.
20. The petitioner has placed heavy reliance upon the decision of the Supreme Court in case of Perkins Eastman Architects DPC (supra) in support of his contention that clause 17.9 would indicate being contrary to the provision of the Arbitration & Conciliation Act specially provision 12 of schedule 5 and 7. The same could not have been insisted upon as it would amount to permitting the party to appoint its own Page 31 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER arbitrator without leaving any room of choice to the petitioner. The Supreme Court has also in case of Perkins Eastman Architects DPC (supra) relying upon T.R.F. observation held that the party to the arbitration proceedings are not entitled to nominate its arbitrator so as to compel the other side to accept the same.
21. The respondent's counsel invited Court's attention to the decision of the Delhi High Court indicated that a broad based panel, as it is existing there with the respondent there would have been sufficient compliance with the provisions and therefore the same could be suggested in the instant case also.
22. The counsel for the respondent further submitted to resist the petitioner's claim that the petition cannot be said to be filed in accordance with law as, so far as the existence of clause 17.9 is concerned, the same has not been challenged and when the same is enuring and it has not been forfeited by any competent Court, the same would have binding upon the petitioner and therefore the petitioner shall have no right to challenge the same or deviate therefrom. The counsel for the respondent submitted that the petition is therefore misconceived and deserves to be dismissed.
23. The Court has infact to bear in mind the provision of Arbitration Act in which Section 12 read with schedule 5 and schedule 7 would clearly indicate that the arbitration clause will have to be in consonance therewith. The judgment of the Supreme Court in case of Perkins Eastman Architects DPC (supra) would clearly indicate that the clause which Page 32 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER permits one party to even restrict the other party's choice for arbitrators would not be applicable and the parties will have to abide by the provision of law, as it is amended and in the instant case the notice for arbitration is after the amendment and therefore the same will have to be taken into consideration.
24. The Court is of the view that the decision cited on behalf of the respondent needs to be examined in light of the facts on which they have been rendered. The respondent's counsel placed heavy reliance upon the decision of the Supreme Court in case of Voestalpine Schienen Gmbh Vs. Delhi Mrtro Rail Corporation Limited (supra) to indicate that the panel of arbitrators existing was suggested to be acted upon for the arbitrators chosen and in the instant case also it was contended by the respondent's counsel that the panel of five arbitrators independent in nature is suggested, but if there is a need be Court may ask the respondent to broad based the panel. The Court is of the view that this submission would not be tenable in eye of law as the facts in case of Voestalpine Schienen Gmbh Vs. Delhi Mrtro Rail Corporation Limited (supra) would indicate that the panel of 31 arbitrators was already in existence and known to all the parties when the contract was being executed. As against that, in the instant case, as it is submitted by the petitioner and not controverted by the respondent that for the first time the five names in the panel were disclosed in the reply affidavit in the present proceedings by the respondent and therefore it can well be said that the parties were not ad idem when the contract was being executed qua the selection of panel or selection of arbitrators for adjudicating the dispute under the Page 33 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER provision of Arbitration Act and one need not loose sight of the fact that the counsel for the petitioner also invited Court's attention to the observations of the Supreme Court in the aforesaid case, wherein the Court did observe that apart from serving and retired engineers of Government Departments, the prominent and reputed engineers of private sector should be included and the persons with legal background like Judges and Lawyers of repute be included, as it is not always that the dispute would contain only technical aspect. Thus, the Supreme Court did advert to the requirement of neutrality and independence of the arbitrators. The counsel for the respondent thereafter relied upon the decision in case of S.P. Singla Constructions (P) Ltd. Vs. Delhi Metro Rail Corporation Limited (supra) and BCL Secure Premises (P) Ltd. Vs. Metro Railway, Kolkata (supra), which were said to be the decisions rendered prior to the decision of the Supreme Court in case of Perkins Eastman Architects DPC (supra) and hence the ratio of the judgment of the Perkins Eastman Architects DPC (supra) case would prevail and accordingly the interested party in dispute cannot restrict the choice of the arbitrators, so far as the other parties are concerned. In the case of Union of India Vs. Pradeep Vinod Construction Company (supra), the question was considered when the request for appointment of arbitrator was made before the Amendment Act, 2015, which came into effect from 23.10.2015. It was contended that the proceedings will have to be proceeded in accordance with the pre-amended provision of the Act of 1996 and it was contended that the High Court erred in appointing an independent arbitrator instead of directing the General Manager, Railway Administration to appoint an arbitrator as per the terms and conditions of clause 64 of GCC which Page 34 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER stipulated "accepted matters". The said judgment thereafter contain extract of the observation of the Court in S.P. Singla Constructions (P) Ltd. Vs. Delhi Metro Rail Corporation Limited (supra). In the instant case, it is required to be noted that the provision of Section 12 read with Schedule 5 and 7 is a provision indicating that how and in what manner the neutrality in the arbitrators are to be of paramount concern and therefore, the clauses and arbitration contract will have to be strictly in consonance therewith. In the instant case, therefore, when the said provision is followed and the arbitrators' panel which had never been disclosed while the contract was being executed, then in light of the observation of the Supreme Court judgment in case of Perkins Eastman Architects DPC (supra) it can well be said that the petitioner did have a right to nominate his own arbitrator likewise petitioner was not required to call for the panel of arbitrators which on the face of it would not be in consonance with the provision cited hereinabove. The procedure for appointment is required to be followed and therefore the so called right of the respondent in suggesting five persons' name, decision of which the petitioner is essentially required to choose one name who will act as an arbitrator and one name will be chosen by the employer and those two will have no other go but to appoint the 3rd arbitrator. Decision of the panel in itself would indicate that there is virtually no choice and freedom left to the petitioner for making appointment, which in my considered opinion, would be contrary to the provision of Section 12 and therefore, the clause 17.9 of the contract will have to be made operational whereunder both the parties may have liberty to appoint their respective arbitrators and those arbitrators in turn would appoint third arbitrator.
Page 35 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020 C/IAAP/119/2019 ORDER25. The aforesaid procedure, mentioned hereinabove, would be a procedure in consonance with the procedure for appointment of arbitrator as provided under clause 17.9 and the respondent's insistence for choosing the arbitrator from amongst the panel being contrary to the observation of the Supreme Court as well as contrary to the provision of Section 12, schedule 5 and 7, the same could not be insisted to be applied and as a result thereof both the parties are to be given liberty to appoint one arbitrator each of their choice and those two may be asked to appoint the third arbitrator and the arbitration proceedings be commenced and completed in accordance with the Arbitration Act, 1996.
26. In view of the aforesaid discussions, the Court is of the view that this petition is required to be allowed and accordingly it is allowed. The Court is of the considered view the matter is required to be posted on 24.01.2020 so that the consensual names of the arbitrators be received from the parties' counsel. In case, if that is not coming forward, the Court would appoint arbitrators in accordance with provision of Section 11(6). Put up on 24.01.2020.
(S.R.BRAHMBHATT, J.) Pankaj Page 36 of 36 Downloaded on : Sat Feb 01 02:46:39 IST 2020