Calcutta High Court
Dibyendu Bose vs South Eastern Railway on 30 August, 2018
Author: Ashis Kumar Chakraborty
Bench: Ashis Kumar Chakraborty
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
Original Side
Present : Hon'ble Justice Ashis Kumar Chakraborty
A.P. No. 1075 of 2017
Dibyendu Bose
Vs.
South Eastern Railway
For the petitioners : Mr. Sakya Sen, Advocate
Mr. Prithwiraj Sinha, Advocate
Mr. Sourav Ghosh, Advocate
Mr. Subhra Sankar Chatterjee, Advocate
Mr. Snehasish Sen, Advocate
For the respondent : Mr. Arun Kumar Mishra, Advocate
Judgment on : 30.08.2018
Ashis Kumar Chakraborty, J.
In this application filed under Sections 14 and 15, read with Section 11 of the Arbitration and Conciliation Act, 1996, as amended by the Act No. 3 of 2016 (hereinafter referred as "the Act of 1996") the petitioner has prayed for an order terminating the mandate of the arbitrator, a retired Chief Engineer of the South Eastern Railway and appointment of a fit and proper person as the arbitrator, in place and stead of the present arbitrator.
Shortly stated, the facts leading up to this application are that the petitioner is engaged in the business of supply, erection, testing and commissioning of power supply installation and allied activities. In response to a notice inviting tender issued by the South Eastern Railway for a project envisaging supply, erection, testing and commissioning of power supply installation, modification/shifting of fitter line and conversion/modification of overhead power line into underground cable between HIJ-NYA in connection with construction of new 3rd line between Kharagpur (Hijli) to Narayangarh of Kharagpur Division (hereinafter referred to as "the said project"), the petitioner submitted its tender. The petitioner became the successful tenderer and by a letter of acceptance dated March 23, 2015 (hereinafter referred to the "said letter of acceptance") the Deputy Chief Engineer (Construction) of the South Eastern Railway - Kharagpur (hereinafter referred to as the "Deputy Chief Engineer"), for and on behalf of the President of India, accepted the offer/tender of the petitioner in respect of the said project. As per the said letter of acceptance the petitioner had to submit the security deposit amounting to 5% of the contract value, that is, Rs. 14,14,639/. The earnest money deposited by the petitioner along with its offer for Rs. 2,80,000/- would be retained by the Railway as security deposit and balance amount of the security deposit of Rs. 11,34,639/- would be deducted from the petitioner's running on account bills. The said letter of acceptance further required the petitioner to furnish a performance guarantee at the rate of 5% of the contract value amounting to Rs. 14,14,639/- . The period of completion of the said project by the petitioner was stipulated within six months from the date of the said letter of acceptance. The terms and conditions under which the petitioner was to execute the said project were mentioned in the said letter of acceptance, the agreement dated August 04, 2015 as well as in "the General Conditions of Contract" issued by the respondent Railway (hereinafter referred to as "the General Conditions of Contract ").
The respondent railway, from time to time, extended the time for completion of contract till October 15, 2016. According to the petitioner, the respondent railway for its own latches extended the time for completion of the contract. The respondent railway, however, alleges that it was the petitioner who was responsible for the delay in completion of the contract and he was not in a position to complete the contract even within October 15, 2016. By a notice dated July 28, 2016 the Deputy Chief Electrical Engineer terminated the contract of the petitioner under clause 62 of the the General Conditions of Contract. By the said notice the Deputy Chief Electrical Engineer further stated that the security deposit of the petitioner shall be forfeited and the performance guarantee furnished by him shall also be encashed. As per clause 64 of the General Conditions of Contract all disputes between the parties relating to the said contract which cannot be settled under clause 63 are to be adjudicated upon by an arbitrator in arbitral proceeding under the Act of 1996.
The petitioner, however, filed a writ petition, W.P. No. 15207(W) of 2016 before this High Court praying for, inter alia, a writ of mandamus being issued commanding the respondent Railway and the Deputy Chief Electrical Engineer not to take any step or further step in respect of the said notice dated July 28, 2016. He also prayed for an order of injunction restraining the respondent Railway and its Deputy Chief Electrical Engineer from taking any step or further step in respect of the notice dated July 28, 2016. In the said writ petition, Bank of Baroda who had issued the performance bank guarantee as well as the Term Deposit Receipt towards the security deposit was impleaded as the respondent no. 3. On August 10, 2016 a learned Single Judge of this Court passed an order in the said writ petition refusing to restrain the respondent railway authorities from proceeding to re-tender the remainder of the contractual work and complete the same in accordance with law. The learned Single Judge, however, passed an order directing the respondent railway that if the security deposit has not been forfeited as yet, the said deposit shall not be forfeited as well as encashment of the bank guarantee shall not be done without the leave of the Court. Such order of restraint was directed to continue for a period of six weeks from the date of the said order or until further order, whichever is earlier. Subsequently, by an order dated March 15, 2017 another learned Single Judge of this Court held that the adjudication of the disputes between the parties would involve taking weighty evidence and entering into highly disputed questions of fact. Therefore, this Court in exercise of its writ jurisdiction should not enter into this factual controversy. The learned Single Judge further found the existence of the arbitration agreement between the parties. On the basis of such findings, by the said order dated March 15, 2017 the learned Single Judge of this Court directed the parties or either of the parties to refer the disputes to arbitration under Section 21 of the Act of 1996, by causing an arbitrator to be appointed in terms of the arbitration agreement, read with newly inserted sub-section (5) to Section of the Act of 1996 and the Seventh Schedule thereto, within four weeks from communication of the said order. It was further directed that the award should be made/published within six weeks from the date of the said order and the interim order dated August 10, 2016 passed in the writ petition will continue till publication of the award and will abide by the award to be passed by the tribunal. With the said directions, the learned Single Judge disposed of the writ petition. Thereafter, by a letter dated August 01, 2017 the petitioner informed the Deputy Chief Electrical Engineer that in terms of clause 64 of the agreement dated August 04, 2015 it has nominated Sri Saptarshi Basu, learned advocate as his nominee arbitrator to adjudicate the disputes that have arisen between the parties and called upon the Deputy Chief Electrical Engineer to nominate the arbitrator for the railway within 15 days, failing which he shall approach this High Court for appointment in terms of Section 11 of the Act of 1996. By a letter dated October 17, 2017 the Deputy Chief Electrical Engineer informed the petitioner that the notice of arbitration sent by him is not in compliance with the order passed by this Court in W.P. No. 15207(W) of 2016. Thereafter, the respondent railway requested the petitioner to submit an undertaking for waiver of the provisions contained in Sections 12(5) and 31A of the Act of 1996 to which the respondent did not agree. By a communication dated November 01, 2017 the General Manager of the respondent railway, being the appointing authority under Clause 64 of the General Conditions of Contract, appointed the present arbitrator, a retired Chief Engineer of Railway for adjudicating the disputes between the parties excepting the matters which fall under the "excepted matters" as per the agreement. The appointing authority requested the arbitrator to publish his award within reasonable period in accordance with Section 3 1 of the Act of 1996 subject to mutually agreed provisions of clauses 16(2) and 16(3) and other provisions of the General Conditions of Contract .
In the application it is the case of the petitioner that in view of the prohibitions laid down in Section 12(5), read with the Fifth and Seventh Schedule of the amended provisions of the Act of 1996, the arbitrator being a retired Chief Engineer of the respondent railway could not be appointed as the arbitrator. Without prejudice to the said ground, the petitioner has further claimed that the arbitrator has passed the direction for filing pleadings of the respective parties by his communication dated November 10, 2017 without holding any meeting of the arbitral proceeding and, as such he could not raise the objection with regard to the appointment of the arbitrator. On these grounds, the petitioner in his application has claimed that the arbitrator has become de jure unable to perform his functions by operation of law and by prescription as laid down in Section 12(5) read with the Fifth and Seventh Schedule of the Act of 1996.
The respondent contested the application filed by the petitioner. In paragraph 41 of the affidavit-in-opposition it is the specific case of the respondent that keeping in view of Section 12 and the Seventh Schedule, read with para 31 of the Fifth Schedule of the amended Act of 1996, the General Manager has prepared a list of 18 retired railway officers for appointment of arbitrators who have retired from their respective services three years back and out of the said list, the present arbitrator has been appointed to adjudicate the disputes between the parties. In the petition the petitioner has not disclosed the complete letter dated November 01, 2017 issued by the General Manager of the respondent appointing the present arbitrator. However, the respondent in its affidavit-in-opposition has disclosed the complete letter dated November 01, 2017 wherefrom it appears that the petitioner had received a copy of the said letter. In its affidavit-in-reply, the petitioner has not disputed the receipt of the said letter dated November 01, 2017 appointing the present arbitrator. According to the respondent, in the present case when the General Manager, being the appointing authority after considering the embargo put under clause 31 of the Seventh Schedule of the amended Act of 1996 appointed the present arbitrator who has retired from the service of the railway three years back and, as such, there is no infirmity or illegality in the appointment of the latter calling for any interference by this Court.
Mr. Sakya Sen, learned counsel appearing for the petitioner strenuously contended that by virtue of the amended provisions introduced by sub-section (5) to section 12, read with the Fifth and the Seventh Schedule to the Act of 1996 the arbitrator appointed by the General Manager of the respondent railway, being a retired railway employee is disqualified to adjudicate the disputes between the parties. According to him, in view of the provisions in sub-section (5) of section 12, read with the Fifth and the Seventh Schedule to the Act of 1996 when the General Manager of the respondent railway himself was disqualified to be the arbitrator to adjudicate the disputes between the parties he could not appoint the present arbitrator. In support of his contentions, Mr. Sen relied on the decision of the Supreme Court in the case of TRF Limited -Vs- Energo Engineering Projects Limited reported in (2017) 8 SCC 377. Mr. Mishra, learned counsel for the respondent railway, however, contended that said decision of the Supreme Court in the case of TRF Limited (supra) has no application in this case.
Since the decision in this case involves the scope and purport of the amended provisions of Section 12 of the Act of 2016 I think it appropriate to reproduce the said section which runs as follows :
"12. Grounds for challenge.-- (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,-
(a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and
(b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months.
Explanation 1. - The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator.
Explanation 2. - The disclosure shall be made by such person in the form specified in the Sixth Schedule.
(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.
(3) An arbitrator may be challenged only if--
(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or
(b) he does not possess the qualifications agreed to by the parties.
(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.
(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:
Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing."
Since it was emphasised by the petitioner in view of the Fifth and Seventh Schedule to the amended Act of 1996, I find it expedient to consider the relevant clauses of the said two schedules. The Seventh Schedule has three parts, namely, (i) the arbitrator's relationship with the parties or counsel; (ii) relationship of the arbitrator to the dispute; and (iii) arbitrator's direct or indirect interest in the dispute.
In the present case, we are concerned with the first part of the Seventh Schedule which contains 14 items. For the purpose of the present controversy, the relevant clauses are 1, 5 and 12, which read as follows :
(1) The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.
..........
(5) The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration.
...............
(12) The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.
.............
Since the petitioner has claimed that even the Fifth Schedule of the Act of 1996 prohibits the appointment of the present arbitrator, it is expedient to consider clauses 1, 22, 24 and 31 of the said Fifth Schedule, which are as follows:
(1) The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.
...........
(22) The arbitrator has within the past three years been appointed as arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties. .............
(23) The arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration on a related issue involving one of the parties or an affiliate of one of the parties.
.......
(31) The arbitrator had been associated within the past three years with a party or an affiliate of one of the parties in a professional capacity, such as a former employee or partner.
............
In the present case, the arbitrator is the retired Chief Engineer of the respondent railway and admittedly he retired from his service three years before his appointment as the arbitrator. He is neither an employee, nor a consultant nor an advisor of the respondent railway nor does he have any past or present business relationship with the respondent railway. The arbitrator being the retired Chief Engineer of the railway cannot be said to have any "business relationship" with the respondent railway. Thus, the present arbitrator does not suffer the prohibition under clause 1 of either the Fifth or Seventh Schedule of the Act of 1996. It is also not the case of the petitioner that within the past three years, the present arbitrator was appointed as arbitrator on two or more occasions by the respondent railway or he suffers any prohibition either under clause 23 or clause 24 of the said Fifth Schedule. Similarly, the appointment of the present arbitrator cannot be held to be prohibited either under clause 5 or clause 12 of the Seventh Schedule. It is the specific case of the respondent railway that in order to avoid the prohibition stipulated in clause 31 of the Fifth Schedule, the General Manager appointed the present arbitrator after being satisfied that he had retired from the service of railway three years back.
In the case of TRF Ltd.(supra) relied by the petitioner, the arbitration agreement contemplated that all disputes between the parties thereto were to be referred to the sole arbitration of the Managing Director of the respondent or his nominee. Disputes having arisen between the parties and the appellant invoking the arbitration clause, the Managing Director of the respondent referred the same for arbitration to his nominee. In those facts of the said case, the Supreme Court held that when in view of the prohibitions contained in the clauses of the Fifth and Seventh Schedule of the Acct of 1996 (which are already quoted above) when the Managing Director of the respondent could not have himself act as the arbitrator he also lacked the authority in law to nominate an arbitrator. However, in the facts of the present case when the General Manager of the respondent railway is not to act as the arbitrator, the said decision of the Supreme Court in the case of TRF Ltd.(supra) has no application. It is settled law that judgments should not be read as statutes. A decision is an authority for which it decided and not what can logicaliy deduced therefrom. It is also well settled that a little difference in facts or additional facts may make a lot of difference in precedential value of a decision.
For all the foregoing reasons, I do not find any merit in this application and the same stands rejected.
The arbitrator is directed to fix the venue and hold the sittings of the arbitral proceedings after serving notice on the parties. The arbitrator shall also make a disclosure in the form specified in the Sixth Schedule of the Act of 1996 and pass fresh directions for filing of the statement of claim, statement of defence/counter-statement and rejoinder by the respective parties.
The arbitrator is requested to make and publish the award in the arbitral proceeding within one year from the date of filing of the statement of claim by the present petitioner. The parties are also directed to render full cooperation to the arbitrator to make and publish his award as directed above.
With the above directions, the application A.P. 1075 of 2017 stands disposed of. There shall , however, be no order as to costs.
Let, urgent certified copy of this judgment be made available to the parties, subject to compliance with the required formalities.
(Ashis Kumar Chakraborty, J.)