Calcutta High Court
Gammon Encee Consortium Jv vs Rites Limited on 14 July, 2015
Author: Sanjib Banerjee
Bench: Sanjib Banerjee
AP No. 709 of 2015
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
GAMMON ENCEE CONSORTIUM JV
-Versus-
RITES LIMITED
For the Petitioner: Mr Utpal Bose, Sr Adv.,
Mr Swatarup Banerjee, Adv.
Mr Rohit Mukherji, Adv.,
Ms Anindita Ghosh, Adv.
For the Respondent: Mr Jishnu Chowdhury, Adv.,
Mr Rupak Ghosh, Adv., Mr Chayan Gupta, Adv., Mr D. R. Basu, Adv.
Heard on: July 9, 2015.
BEFORE SANJIB BANERJEE, Judge Date: July 14, 2015.
SANJIB BANERJEE, J. : -
The rationale of the modern day mantra evident in the judge-made law ruling the field on the matters in issue has been questioned by the respondent. To the extent that the reasonableness of the principle enunciated has been challenged, Article 141 of the Constitution of India is a complete answer; but in the applicability of the rule to the present facts, the journey that has to be charted will involve a discussion on the life of the rule, seeing it with both logic and experience.
2. The petition is under Sections 14 and 15 of the Arbitration and Conciliation Act, 1996. The facts are not in dispute, hence no affidavit has been called for; but the implication of the facts in the context of the law applicable thereto has been much debated upon.
3. The respondent invited tenders in October, 2006 for work relating to the construction of bridges and laying of railway tracks. The tender notice was published by the respondent as the management and executive agent of NTPC Limited. Upon the petitioner being awarded the contract of value in excess of Rs. 31 crore, the petitioner claims to have undertaken the work thereunder. Disputes arose between the parties by the middle of 2009 and the petitioner invoked the arbitration clause contained in the special conditions governing the contract by a notice of June 18, 2009. An arbitrator was appointed by the Chairman and Managing Director of NTPC Limited, as the mechanism for the constitution of the arbitral tribunal provided thus; but the petitioner was unhappy with the choice of the personnel of the arbitrator and protested the same before the arbitrator. Nothing much came of the reference: the petitioner says that its application challenging the choice of the arbitrator was not taken up in right earnest by the arbitrator; and, the respondent contends that since bias was alleged the arbitrator did not proceed with the reference. However, such aspect of the matter is not relevant for the present purpose and has been referred to only for the purpose of the completeness of the narrative.
4. The agreement was terminated by the employer in October, 2009, whereupon a fresh notice of invocation was issued by the petitioning contractor on April 9, 2010. The appointing authority again chose the same arbitrator which resulted in a petition under Section 14 of the said Act being carried to this court by the petitioner by way of AP No. 611 of 2010. Such previous petition was disposed of by an order of July 1, 2011, which noticed that the personnel of the arbitrator had been changed by the appointing authority. Since the petitioner was ready to have disputes adjudicated by the new appointee, the previous petition was disposed of accordingly.
5. Upon the officer who had been appointed as arbitrator being transferred, another senior official of NTPC Limited was nominated to take up the reference on November 22, 2011. A statement of claim was submitted before such arbitrator in September, 2012 and the respondent's counter- claim was filed by January, 2013 with a rejoinder thereto being tendered by the petitioner by February, 2013 and the reply to the rejoinder being taken on record in March, 2013. The last meeting held before such arbitrator was on June 29, 2013 which sitting appears to have been preliminary in nature. The last paragraph of the minutes promised that the date of the next hearing would be communicated by the arbitrator.
6. The present petition has been filed on April 17, 2015, complaining of the reference not really taking off and seeking the mandate of the arbitrator to be terminated and another to be appointed to adjudicate upon the petitioner's claim against the respondent. The petitioner asserts that the inordinate delay in the conduct of the reference renders the mandate of the arbitrator susceptible and eminently amenable to termination by this court. The petitioner suggests that since the claim arose in the year 2010 and the reference has not progressed beyond the preliminary pleasantries, it is evident that the mechanism for the constitution of the arbitral tribunal is flawed, and, as such, an effective arbitrator be appointed by the court so that the reference may be meaningfully concluded within a reasonable time.
7. The arbitration clause governing the parties in the present case is as follows:
"33. ARBITRATION 33.1 Except where otherwise provided for in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, designs drawings specifications, estimates, instructions, orders or these conditions of otherwise concerning the works, or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the General Manager of NTPC (BARH, STPP) and if the General Manager/NTPC (Barh, STPP) is unable or unwilling to act, some other person appointed by the Chairman and Managing Director, NTPC Ltd., and that he had to deal with the matters to which the Contract relates and that in the course of his duties as such he had expresses views on all or any of the matter in dispute or difference. The Arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reasons as aforesaid at the time of such transfer, vacation of office or inability to act, Chairman and Managing Director NTPC Ltd. shall appoint another person to act as Arbitrator in accordance with the terms of the Contract. It is also a term of this Contract that no person other than a person appointed by Chairman and Managing Director, NTPC Ltd. shall appoint another person to act as arbitrator in accordance with the terms of the contract. It is also a term of this Contract that no person other than a person appointed by Chairman and Managing Director, NTPC Ltd. as aforesaid should act as arbitrator and if for any reason that is not possible, the matter is not to be referred to arbitration at all.
Subject as aforesaid the provision of the India Arbitration Act, 1996, the rules framed thereunder and any statutory modification thereof shall apply to the arbitration proceeding under this clause."
8. The petitioner refers to a judgment reported at (2009) 8 SCC 520 (Indian Oil Corporation Limited v. Raja Transport Private Limited) where it was held that notwithstanding the procedure for the appointment of an arbitral tribunal being provided for in an arbitration agreement, when a Chief Justice or his designate is in seisin of a request under Section 11 of the said Act, a departure may be made in certain circumstances from the procedure recognised by the arbitration agreement. Just as in the present matter where the arbitration agreement provides that "no person other than a person appointed by the Chairman and Managing Director, NTPC Ltd. shall appoint another person to act as arbitrator in accordance with the terms of the contract", there was a similar prohibition contained in the arbitration agreement in the matter before the Supreme Court. Paragraph 46 of the report enunciates the principle:
"46. This takes us to the effect of the condition in the arbitration agreement that "it is also a term of this contract that no person other than the Director, Marketing or a person nominated by such Director, Marketing of the Corporation as aforesaid shall act as the arbitrator". Such a condition interferes with the power of the Chief Justice and his designate under Section 11 (8) of the Act to appoint a suitable person as arbitrator in appropriate cases. Therefore, the said portion of the arbitration clause is liable to be ignored as being contrary to the Act."
9. A recent judgment has been placed by the petitioner, reported at (2015) 2 SCC 52 (Union of India v. Uttar Pradesh State Bridge Corporation Limited), where the Supreme Court relied on several of its previous judgments on such aspect to, in effect, hold that when an appointing authority did not constitute an arbitral tribunal which would conclude the reference within reasonable time, upon the termination of the mandate of the arbitral tribunal for not concluding the reference with due despatch, the appointing authority would also stand denuded of its right to constitute the arbitral tribunal. Paragraph 20 of the report is relevant in the present discussion:
"20. In the present case, we find the fact situation almost same as in Tripple Engg. Works and Singh Builders Syndicate. If the contention of the appellant is allowed, it would amount to giving premium to the appellant for the fault of the Arbitral Tribunal's members who were appointed by none else but by the appellant itself. As pointed above, the appellant has not questioned the order of the High Court insofar as it has terminated the mandate of the earlier Arbitral Tribunal because of their inability to perform the task assigned to them. In such a situation, leaving the respondent at the mercy of the appellant thereby giving the power to the appellant to constitute another Arbitral Tribunal would amount to adding insult to the serious injury already suffered by the respondent because of non-conclusion of the arbitral proceedings even when the dispute was raised in the year 2007. In case, the cherished and benevolent purpose and objective of speedy resolution of the disputes by arbitral proceedings is to be accomplished, it becomes the bounden duty of the persona designata to appoint such arbitrator(s) who have sufficient time at their disposal to attend to this task assigned to them and to conclude the arbitral proceedings in a speedy manner. It is a common sight that the officers who are awfully busy in their other routine functions, because of their status and position, are made arbitrators. For them, discharge of their other duties assumes more importance (and naturally so) and their role as the arbitrators takes a back seat. This kind of behaviour showing casual approach in arbitration cases is anathema to the very genesis of arbitration. Therefore, where the Government assumes the authority and power to itself, in one-sided arbitration clause, to appoint the arbitrators in the case of disputes, it should be more vigilant and more responsible in choosing the arbitrators who are in a position to conduct the arbitral proceedings in an efficient manner, without compromising with their other duties. Time has come when the appointing authorities have to take call on such aspects failing which (as in the instant case), Courts are not powerless to remedy such situations by springing into action and exercising their powers as contained in Section 11 of the Act to constitute an Arbitral Tribunal, so that interest of the other side is equally protected."
10. The respondent has relied on a judgment reported at AIR 2009 Cal 59 (Niraj Kumar Bohra v. Union of India) where a Division Bench dealt with the arbitration clause contained in the general conditions governing railway contracts and opined that when the arbitration agreement provided for only gazetted railway officers being entitled to be appointed on the arbitral tribunal, to appoint any other would be in derogation thereof. However, it is now regarded that the reference to a gazetted railway officer is a qualification of the appointee and such factor has to be kept in mind in view of Section 11(8) of the Act.
11. The substance of the respondent's submission is that since it is open to the parties to an agreement to provide whether or not the disputes under the agreement would be referred to arbitration, it is equally possible for the personnel of the arbitrator, the manner of the constitution of the arbitral tribunal and such incidental matters to be provided for in the arbitration agreement itself. The respondent says that whatever is contained in an arbitration agreement should be taken as a complete package or not at all.
12. This argument of the petitioner is unacceptable in view of the clear jurisprudence that emerges from the Raja Transport Private Limited judgment. The Supreme Court made a distinction between an arbitration agreement where the named arbitrator was a substantive part of the arbitration agreement and where it was not. A further distinction was made between an arbitrator named in person in an arbitration agreement and an arbitrator being indicated by designation therein. The Supreme Court reasoned that if the substantive agreement as to arbitration could be severed from matters which were incidental thereto, notwithstanding the arbitration agreement specifically providing that there would be no arbitration if the nomination of the arbitrator was not made by the appointing authority, the nomination can be supplied by the Chief Justice or his designate in exercise of their statutory authority under Section 11 of the said Act.
13. The doctrine of the severability of the substantive agreement to go to arbitration from the incidental matters covered by the arbitration agreement has not been developed in recent times and it has been a part of arbitration law for a considerable period. This doctrine of severability has to be seen in the light of Section 5 of the said Act of 1996 which is a statutory prohibition on a judicial authority to intervene in matters governed by Part I of the said Act "except where so provided in this part." The provision would instruct that not only must the court refrain from interfering with the conduct or the result of any arbitral reference except as provided in the part pertaining to domestic arbitral references, it is also a bar on a judicial authority to tinker with the agreement between the parties or the manner of the constitution of the arbitral tribunal. Such aspect of the matter does not appear to have been considered in the judgment of Raja Transport Private Limited, though the dictum therein remains binding under Article 141 of the Constitution. It is the same philosophy which has permeated in some of the subsequent Supreme Court judgments, culminating in U.P. State Bridge Corporation Limited where the Supreme Court observed that "Courts are not powerless to remedy such situations by springing into action and exercising their powers as contained in Section 11 of the Act to constitute an Arbitral Tribunal, so that interest of the other side is equally protected."
14. Since arbitration by definition is consensual in nature, it is open to the parties to an agreement governed by an arbitration clause to provide for the circumstances and the manner of its operation. If an arbitration agreement gives the authority to one of the parties to nominate the arbitrator and the validity of such provision - which is an exception of the general principle that a litigant cannot chose his judge - is upheld on the high altar of consensus ad idem, it is equally open to an arbitration agreement to provide for the resolution of some disputes by such mechanism and for other disputes not being covered thereby. If a harsh clause as one pertaining to "excepted matters" rules out a claim in respect of an excepted matter or even on the ground of interest, if that is precluded, it would appear that the parties to an arbitration agreement may be free to devise and write there own arbitration agreement which the court may not re-write; just as in other situations the court merely interprets and does not write out a different contract for the parties.
15. Unlike a prohibition placed by a clause in the agreement pertaining to excepted matters that precludes a dispute in respect of any such matter being raised - and the validity whereof has been upheld in this country notwithstanding how harshly it may operate against a party - if an arbitration agreement is extinguished on the ground that it is unworkable or the nomination thereunder is not possible, it does not leave either party to the agreement without a remedy. At the highest, the resolution of the disputes between the parties cannot be achieved by arbitration, the right of either party to bring a civil suit will still remain; and the law of limitation provides ample opportunity for the time bone fide spent in pursuing the remedy elsewhere to be excluded for the purpose of computing the period of limitation.
16. In most of the judgments dwelling on the right of nomination of the arbitrator or the arbitral tribunal and the circumstances in which such right would stand forfeited, the matters involved at least one government organisation as a party. It is possible to develop a reasonable jurisprudence on arbitration agreements where a behemoth as a government organisation is one of the parties since the other party would have little scope of negotiating the terms of the agreement, including any arbitration clause relating thereto, and would, for all practical purposes, be called upon to sign on the dotted lines to obtain the contract. But it would be quite a different matter if the principle enunciated in the judgments of Raja Construction Private Limited and Uttar Pradesh State Bridge Corporation Limited and all those in between were to be regarded as the law as would be applicable in every situation.
17. The 1996 Act is not only a departure from the Arbitration Act, 1940, but it ushers in an unmistakable change in the ethos of arbitration law. There is no equivalent of Section 35 of the 1940 Act in the later avatar. The parties and the arbitral tribunal are free to agree on the time to be taken for a reference and extend the same without reference to court; unlike Section 28 of the 1940 Act. The judgment in Uttar Pradesh State Bridge Corporation Limited opens up several possibilities when it says that the courts are not powerless to address the malady of delay in the conduct of arbitral references. It may then be possible to fix time limits when the mandate of an arbitrator is terminated and another is appointed; and for such time limit to be binding unless the parties to the reference consent to extend the same.
18. On the facts of the present case, however, the respondent has no justifiable basis to suggest that another arbitral tribunal constituted by the appointing authority named in the arbitration agreement would result in the speedy conclusion of the reference. It must be acknowledged that the respondent had not contested the termination of the mandate of the present arbitrator who has not found it convenient to even convene a sitting for nearly two years; the respondent only asserts that upon the termination of the mandate of the present arbitrator, Section 15(2) of the Act would require that the ball be lobbed back to the appointing authority's court for the same endless game to start afresh. In view of the law as recognised, that the lack of expedition on the part of the arbitral tribunal will tell upon the future power of the nominating authority recognised in the arbitration agreement to make a further nomination, the pendency of the arbitral reference for more than five years in this case would warrant the appointment of the arbitrator being made in the same sweep as terminating the mandate of the present recalcitrant without reference to the nominating authority under the arbitration agreement.
19. Accordingly, AP No. 709 of 2015 is allowed by terminating the mandate of Arun K Chatterjee who had last taken up the reference on June 29, 2013 and by appointing Mr Ashis Dey, a retired Chief Engineer of the State, at a consolidated remuneration of Rs. 8 lakh to be shared by the parties in equal measure at the initial stage, subject to any order as to costs that may be contained in the final award. The arbitrator should take up the reference from where it was left off before the immediate erstwhile arbitrator and endeavour to conclude the reference within a year of the receipt a copy of this order.
20. The petitioner will be entitled to the costs of the present proceedings assessed at 1000 GM.
21. Urgent certified website copies of this judgment, if applied for, be supplied to the parties subject to compliance with all requisite formalities.
(Sanjib Banerjee, J.)