Telangana High Court
M/S Sn Envirotech Pvt Ltd vs Megha Engineering And Infrastructure ... on 1 July, 2022
Author: B. Vijaysen Reddy
Bench: B.Vijaysen Reddy
1
THE HONOURABLE SRI JUSTICE B.VIJAYSEN REDDY
Arbitration Application No.188 of 2021
ORDER:
This application is filed under Section 14, read with Sections 15 and 11 of Arbitration and Conciliation Act, 1996.
2. (a) It is stated that the respondent and its consortium was awarded contract by the then Government of Andhra Pradesh for installation, execution and commissioning of Water Treatment Plant (WTP). The respondent, considering the fact that the applicant herein specialises in the said field offered contract of designing, execution, installation/erection, maintenance etc. of 735 MLD capacity WTP at Maqdumpur which was later shifted to Mallaram by the respondent in view of the feasibility of the entire project.
(b) That the Applicant was awarded with turnkey agency and the respondent issued Work Order to the Applicant on 1.7.2009 for 735 MLD Water Treatment Plant at Maqdumpur which was later shifted to Mallaram in view of feasibility of the project. The project was to be completed within 730 days from the date of commencement. The Work Order contains Arbitration Agreement, which reads as under: 2
"The Arbitration Clause being Clause 6 of the work order, reads as under:
If a dispute of any kind whatsoever arises with the turnkey agency in connection with or arising out of this order the matter in dispute shall be settled amicably through offices of Project Controller/Project manager of MEIL failing which the dispute shall be finally resolved in accordance with the Arbitration and Conciliation Act, 1996 by a Sole Arbitrator to be nominated by the Chairman and Managing Director of MEIL, Hyderabad, the venue shall be Hyderabad. This order is governed as per laws of India and the jurisdiction of only Hyderabad courts shall apply".
(c) At the time of payment of outstanding dues and nearing the completion of project time, the respondent started raising objections of incomplete works and terminated the contract vide letter dated 18.3.2017 on the ground of delay in completion. The Applicant completed 97.99% of the work. The Applicant raised final bill on 31.3.2017 for outstanding dues amounting to Rs.14,99,88,964/- (Rupees fourteen crores ninety nine lakhs, eighty eight thousand, nine hundred and sixty four only). Due to non- payment of outstanding dues by the respondent, the Applicant vide letter dated 9.8.2017 invoked the arbitration clause under work order dated 1.7.2009. The respondent did not gave any reply and vide letter dated 8.9.2017 unilaterally appointed Sri M.Madhava Reddy (Advocate) as sole 3 Arbitrator. Thereafter, Arbitration Application No.116/2017 was filed under Sections 11(2) and (6) of Arbitration and Conciliation Act, 1996 before this Court for appointment of Arbitrator. The said application was dismissed by this Court by order dated 24.8.2018 on the premise that as per clause 6 of the Work Order, Chairman and Managing Director alone has the authority to nominate the Sole Arbitrator and held that since Arbitrator has already been appointed in accordance with the said clause, no measure needs to be taken under Section 11(6).
(d) An order was passed by this Court in Arbitration Application No.60 of 2019 dated 12.9.2019 extending the mandate of the Arbitrator (M.Madhava Reddy, Advocate) by a further period of twelve (12) months from the date of expiry of his mandate i.e. on 8.3.2019. However, the Arbitrator has not concluded the proceedings within such time and the extended period of one year expired on 7.3.2020.
3. (a) The case of the Respondent as pleaded in the counter is that the Applicant took several adjournments before the sole Arbitrator from time to time. Even for filing vakalat, the Applicant took several adjournments and later for several other reasons. In the Arbitration Application No.60 of 2019, the mandate of the Arbitrator was extended for one year from 8.3.2019. A petition was filed by the Applicant for supply of some 4 documents by the Respondent. The matter was posted for arguments on 12.11.2019, thereafter on 10.1.2020, 19.1.2020, 24.1.2020, 4.2.2020 and there was no representation for the Applicant during these hearings. Thereafter due to global pandemic Covid-19 situation, the proceedings could not take place. Since the proceedings were pending due to Covid-19 Pandemic and no application under Section 13 of Arbitration and Conciliation Act, 1996 was filed, the present application is not maintainable. Thus, it is the petitioner who is guilty for the delay and the learned Arbitrator cannot be said to have failed to act without undue delay.
(b) The claims made by the Applicant are bogus and baseless since the Applicant has taken excess amount of Rs.8.69 crores based on the reconciliation of accounts jointly with the petitioner. The arbitration clause agreed between the parties prior to enforcement of amended Arbitration and Conciliation Act, cannot be legally nullified or taken away by the subsequent judgments passed by the Courts under the amended Arbitration and Conciliation Act. As per Section 29A of the amended Arbitration and Conciliation Act, 2019, the award shall be made by the Arbitral Tribunal within a period of 12 months from the date of completion of pleadings. In the present case, pleadings have not been completed before the sole Arbitrator as on 8.3.2020 to enable him to pass an award in 5 accordance with Section 29A(1) of the Act, therefore, the question of termination of the mandate of the Arbitrator does not arise. Moreover, the mandate of the earlier appointed Arbitrator is not terminated under Section 14 of the Act and thus the instant application is not maintainable.
4. Heard Mr. P. Raja Sripathi Rao, learned counsel for the petitioner, and perused the material on record.
5. Despite granting sufficient time, today also there was no representation for the respondent during morning session and also in the afternoon.
(i) It is contended by the learned counsel for the petitioner that the order passed by the Hon'ble Supreme Court in Suo Motu W.P. (C) No.3 of 2020 dated 10.01.2022 extending period of limitation is not applicable to the mandate of the arbitrator, as pleaded by the respondent. The mandate of the arbitrator expired on 07/08.03.2020. The COVID-19 Pandemic started in the third week of March 2020 and lockdown was imposed on 25.03.2020.
(ii) That the other plea of the respondent that period of twelve months has to be reckoned from the date of completion of pleadings as per Section 29A of the Act is baseless and the said provision cannot be applied to this case as the mandate of arbitrator was extended for a period of twelve 6 months by the order of this Court dated 12.09.2019 in A.A. No.60 of 2019 specifically mentioning that extension of further twelve months period is from the date of expiry of its mandate i.e., 08.03.2019.
6. Further, it is contended that the defence of the respondent that subsequent judgment of the Hon'ble Supreme Court after appointment of arbitrator is not applicable to this case, is untenable in view of the law laid down by the Hon'ble Supreme Court in Bharat Broadband Network Limited v. United Telecoms Limited1 and in Perkins Eastman Architects DPC v. HSCC (India) Limited2.
POINT No.1:
Whether order of the Hon'ble Supreme Court in W.P. (C) No.3 of 2020 dated 10.01.2022 extending period of limitation is applicable to the facts of the present case?
7. As seen from the record, the mandate of the arbitrator was expired on 08.03.2019 and by the order dated dated 12.09.2019 in A.A. No.60 of 2019, the mandate was extended for a period of twelve months which expired on 7/8.03.2020. As contended by the learned counsel for the petitioner, the mandate of the arbitrator was expired well before start of COVID-19 Pandemic. The first lockdown was imposed on 25.03.2020. 1 (2019) 5 SCC 755 2 2019 SCC Online SC 1517 7 The suo motu order of the Supreme Court extending period of limitation of cases is applicable to the cases which were pending as on the date of imposition of first lockdown i.e., 25.03.2020. Thus, the contention of the respondent that due to COVID-19 Pandemic and lockdown, there was delay in the arbitration proceedings and the order of the Hon'ble Supreme Court is applicable to the proceedings of the arbitrator is without any merit. Point No.2:
Whether mandate of the arbitrator expired on 7/8.03.2020 or twelve months from the date of completion of pleadings as provided under Section 29A of the Act?
8. The initial mandate of the arbitrator expired on 8.03.2019. Later it was extended for a period of twelve months i.e., till 07/08.03.2020 specifically mentioning that twelve months period shall be reckoned from 08.03.2019. The respondent has neither chosen to file an application for extension nor for modification of the order as the mandate period was extended by order of this Court. Thus, the contention of the respondent in its counter that as per Section 29A of the Act, period of twelve months commences from 07/08.03.2020 is without any legal baiss. 8 Point No.3:
Whether the provision under Section 12(5) of the Act inserted by way of Amendment Act 2016 is applicable to the instant case wherein arbitrator was appointed prior to judgments of the Hon'ble Supreme Court in Perkins Eastman Architects DPC (2 Supra) and Bharat Broadband Network Limited (1 Supra)?
9. In paragraph No.21 of the judgment in Perkins Eastman Architects DPC (2 Supra), the Hon'ble Supreme Court held as under:
"21. But, in our view that has to be the logical deduction from TRF Limited. Paragraph 50 of the decision shows that this Court was concerned with the issue, "whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an Arbitrator" the ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the 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 next sentences in the paragraph, further show that cases 9 where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a p[arty may derive by nominating an arbitrator of its choice would get counter balanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) and recognized by the decision of this Court in TRF Limited."
10. In Bharat Broadband Network Limited (1 Supra), the Hon'ble Supreme Court having considered the provisions under Sections 11, 12, 13 and 14 of the Act and also amended provisions inserted by the Amendment Act, more particularly, Sections 11(8), 12(5) and 14(8) of the Amendment Act, terminated the mandate of the arbitrator who was appointed by the CMD of BBNL as per the arbitration agreement under the contract. It was held by the Hon'ble Supreme Court that arbitrator who was appointed by the CMD by the letter dated 17.01.2017 at the instance of respondent 10 therein (who challenged the mandate of arbitrator) has become dejure unable to perform his functions as an arbitrator and by taking into consideration, the judgment in TRF Limited v. Energo Engineering Projects Limited3, terminated mandate of the arbitrator.
11. In BBNL's case, the dispute arose pursuant to purchase order dated 30.09.2014 and arbitrator was appointed by letter dated 17.01.2017. The Amendment Act came into force with effect from 23.10.2015. In the instant case, the work order is dated 01.07.2019. The arbitrator was appointed by the CMD of the respondent as per Clause 6 of the work order on 08.09.2017. A.A. No.116 of 2017 for appointment of arbitrator was dismissed on 24.12.2018. However, application for extension of mandate filed under Section 29A of the Act in A.A. No.60 of 2019 was allowed by the order dated 12.09.2019 extending the period of mandate of the arbitrator for a period of twelve months from 08.03.2019. The contention of the respondent in its counter that subsequent judgment of the Hon'ble Supreme Court would not affect appointment of arbitrator made by this Court is devoid of merit. The arbitrator was not appointed by this Court. In fact, the arbitrator was appointed by CMD vide letter dated 08.09.2017. The application filed under Section 11(2) and (6) of the Act was dismissed 3 [(2017) 8 SCC 377] 11 holding that as per the agreement between the parties under Clause 6, it is the CMD who has power to appoint the arbitrator. So, there is no merit in the contention of the respondent that arbitrator was appointed by the Court. Repelling contention of the applicant on similar issue, in Bharat Broadband Network Limited (1 Supra), the Hon'ble Supreme Court held as under:
"Whether such ineligible person could himself appoint another arbitrator was only made clear by this Court's judgment in TRF Ltd. on 3-7-2017, this Court holding that an appointment made by an ineligible person is itself void abinitio. Thus, it was only on 3- 7-2017, that it became clear beyond doubt that the appointment of Shri Khan would be void ab initio. Since such appointment goes to "eligibility" i.e. to the root of the matter, it is obvious that Shri Khan's appointment would be void. There is no doubt in this case that disputes arose only after the introduction of Section 12(5) into the statute book, and Shri Khan was appointed long after 23-10-2015. The judgment in TRF Ltd. nowhere states that it will apply only prospectively i.e. the appointments that been made of persons such as Shri Khan would be valid if made before the date of the judgment. Section 26 of the Amendment Act, 2015 makes it clear that the Amendment Act, 2015 shall apply in relation to 12 arbitral proceedings commenced on or after 23-10- 2015. ... ..."
12. Thus, in the opinion of this Court, the judgment of this Court in Bharat Broadband Network Limited (1 supra) is squarely applicable to the facts of this case and it is held that the arbitrator Mr. M. Madhava Reddy, Advocate, who was appointed by CMD of respondent has become dejure ineligible to continue as arbitrator.
13. With the above observations, the application is allowed, appointing Sri Justice Bhavani Prasad, Former Judge, as Arbitrator to arbitrate on the disputes between the applicant and the respondent and the said Arbitrator shall enter on reference and proceed with, as enjoined by the Act.
______________________ B. VIJAYSEN REDDY, J Date: 1.7.2022 DA 13 THE HONOURABLE SRI JUSTICE B.VIJAYSEN REDDY Arbitration Application No.188 of 2021 1.7.2022 DA 14