Bombay High Court
Recycle Track Industries Pvt Ltd vs The Deputy Chief Engineer (Ts) Western ... on 7 January, 2023
Author: Bharati Dangre
Bench: Bharati Dangre
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN IT'S COMMERCIAL DIVISION
COMMERCIAL ARBITRATION APPLICATION (L)
No. 23548 of 2022
Recycle Track Industries Pvt.Ltd .. Applicant
Versus
Deputy Chief Engineer (TS), Western .. Respondents
Railway and ors
...
Mr. Sanket Singh i/b Meraki Chambers for the applicant.
Ms.Smita Thakur for the respondent.
CORAM: BHARATI DANGRE, J.
DATED : 7th JANUARY 2023.
JUDGMENT:-
1 The applicant, a Private Limited Company, incorporated under the Companies Act, and running its business activity in the name and style of "M/s.Recycle Track Industries Private Limited", has approached this Court, seeking appointment of independent nominee arbitrator on behalf of the respondents, and thereafter direct him to appoint a Presiding Officer along with the Arbitrator appointed by the applicant.
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A Panel of arbitrators is then requested to adjudicate the disputes that have arisen between the parties.
2 The aforesaid relief is sought in the wake of the dispute that has been referred to, in the application which has arisen in the background of the facts which are briefly narrated as under :-
The applicant, a Manufacturer of composite sleepers is an Indian Representative of the Original Equipment Manufacture (OEM) listed company; M/s.Recycle Technologies International Inc., USA and it claim that it had moved their manufacturing plant from USA to India, with a view to bring technology to this country, investing huge efforts, time and money, as a part of a process, initiated in this country in the name of "Make-in India".
The respondent no.1 Dy. Chief Engineer, Western Railway issued an e-tender on 24/7/2018, for manufacturing and supply of composite sleepers of various sizes on girder bridges for VR-ST section of Mumbai Division and as per the technical specification issued by RDSO, complete with matching fittings. The applicant submitted his bid and received the acceptance letter on 1/10/2018 for the work mentioned in the notice inviting tender for an amount of Rs.3,59,68,419.65.
The acceptance clearly stipulated that the Indian Railway Standard conditions of Contract (IRS Conditions) shall Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 ::: 3/25 CARAPL 23548-22.doc be applicable to the agreement between the parties and worth it to mention that Para no.2900 of IRS conditions contain an arbitration clause. The IRS conditions were revised on 12/12/2018 by a notification issued by the Railway Board, Ministry of Railways, Government of India.
3 At this juncture, I deem it appropriate to refer to the disagreement between the parties about the relevancy of the arbitration clause.
However, during the course of arguments, the applicant and the respondent Railway find themselves on the same page, and concede to the position that since the agreement was entered with the respondent on 1/10/2018, the IRS conditions which were in existence on the said date, would govern the relationship between the parties and necessarily, it is the notification dated 16/2/2017. Para no.2900 stood amended by the notification issued by the Railway Board on 16/2/2017 and in it's amended form, it read as under :-
(a)(i) In the event of any question, dispute or difference arising under these conditions or any special conditions of contract, or in connection with this contract (except) as to any matters the decision of which is specially provided for by these or the special conditions, i.e. excepted matters (non-arbitrable) the same shall be referred to the sole arbitration of an Arbitrator in terms of the Arbitration and Conciliation Act, 1996 as amended by Arbitration and Conciliation Act, 1996 as amended by Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 ::: 4/25 CARAPL 23548-22.doc Arbitration and Conciliation (Amendment) Act, 2015.
Arbitrator shall be a person possessing qualification laid down in para 2900 (a)(ii) and shall be appointed by the General Manager in the case of contracts entered into by the Zonal Railways and Production Units; by any Member of the Railway Board/Director General (Railway Stores), in the case of contracts entered into by the Railway Board and by the Head of the Organization in respect of contracts entered into by the Railway Board and by the Head of the Organization in respect of contracts entered into by the other Organization under the Ministry of Railways.
(a)(ii) Qualification for appointment as Sole Arbitrator :
(a) Retired Railway officer not below SAG level 3 years after his date of retirement.
(b) Age of Arbitrator at the time of appointment shall not exceed 70 years.
(a)(c) It is further a term of this contract that no person other than the person appointed by the authority as aforesaid should act as arbitrator and that if for any reason that is not possible, the matter is not to be referred to arbitrator at all.
4 The learned counsel for the applicant concede to the position that since the above clause was prevailing at the time when the contract was awarded in its favour, the relevant arbitration clause is the one contained in this notification and therefore, he submit that though appointment of Panel of Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 ::: 5/25 CARAPL 23548-22.doc Arbitrators is the request made to this Court, instead, a Sole Arbitrator should be appointed in terms of Para no.2900 a(1), as it contemplate appointment of a sole arbitrator. He, therefore, state that his prayer shall be read as seeking appointment of a sole arbitrator as per the IRS conditions contained in the notification dated 16/2/2017.
5 The sequence of events would reveal that pursuant to the acceptance letter dated 1/10/2018, the respondent no.1 issued purchase order for the work of contractual value of Rs. 3,59,68,419.65. In terms of the letter dated 25/2/2020, the respondent no.1 extended the date of delivery to 24/5/2020, with the applicant seeking further extension to 31/12/2020, without liquidated damages on the count that the composite sleepers were produced for the first time in India with the help of foreign technologies and that RPSO had without any justifiable reasons put the approval in abeyance. It was also projected that the plant and machinery were being imported from worldwide and it was consuming some time.
However, the respondent no.3 issued a show cause notice to the applicant on 16/3/2020, intimating that they had withdrawn the provisional approval of composite sleepers of make/design. The applicant once again requested the respondent to extend the delivery date, this time on the ground that the pandemic had disrupted the operations globally and the plant was closed. However, respondent no.3, in ignorance, the request, Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 ::: 6/25 CARAPL 23548-22.doc informed the applicant that on 18/12/2020, they had de-listed the Original Equipment Manufacture (OEM list), which was under M/s.Recycle Technologies International INC, USA from the approved OEM list of Railways. Apart, the respondent no.1 also issued a letter on 24/2/2021, cancelling the purchase order awarded to the applicant.
6 The above action of the respondent no.1 resulted in the applicant invoking the arbitration clause vide letter dated 5/3/2022, making the request for appointment of Arbitral Tribunal of three arbitrators in terms of the agreement and the applicant even nominated their nominee arbitrator Mr.O.P. Bhatia, Retired ADG (Special) CPWD, Delhi and requested the respondent to appoint their nominee arbitrator so that the presiding Arbitrator can be appointed.
7 The grievance of the applicant is, the respondent no.1 has completely misread the governing arbitration clause, and issued letter dated 25/3/2022, suggesting sole arbitrator to be appointed instead of a Panel of Arbitrators.
Learned counsel for the applicant questioned the appointment of the Arbitrator by the Railway on two counts; firstly being, he is appointed by the General Manager of Western Railway, who himself is disqualified from acting as an arbitrator and on the second ground, that a retired person of the Railways being appointed as a Sole Arbitrator, create a doubt about his Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 ::: 7/25 CARAPL 23548-22.doc independence and impartiality. By specifically focussing upon the amendments made in the Arbitration and Conciliation Act, with effect from 23/10/2015, and specifically by insertion of Fifth Schedule and Seventh Schedule, the learned counsel would submit that the arbitrator is expected to be a neutral and independent person, but on account of his affiliation with the Railways and being it's ex-employee, it would give to a reasonable doubt in the mind of the claimant about his impartiality. The submission is, that this appointment is hit by a barrier, being created in the Fifth and Seventh Schedule for the Arbitrator being an employee, consultant, advisor or having any other past or present business relationship with the party in arbitration.00 In support of his submission, the learned counsel has placed reliance the decision of the Apex Court in case of Perkins Eastman Architects DPC and Ors Vs. HSCC (India) Ltd, AIR (2020)20 SCC 760.
By relying upon the aforesaid authoritative pronouncements which has carved out two categories of cases, the submission is, the General Manager of the Railway could not appoint an Arbitrator, when he himself could not have acted as an Arbitrator and the position of law being settled to the effect that once the Arbitrator has become ineligible by operation of law, he cannot nominate another person as an Arbitrator and in such a contingency, the Arbitrator becomes ineligible as per the provision contained in Section 12(5).
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Apart from this, according to the learned counsel, the appointed arbitrator becomes ineligible in the wake of the interest he would share in the outcome of the dispute, on the basis of the possibility of bias, whether it factually exist or not, in the background of his past relationship with the Railways.
8 The learned counsel for the respondent Ms.Smita Thakur, however placed reliance upon the decision of the Apex Court in case of Central Organization for Railway Electrification Vs. M/s. ECI-SPIC-SMO-MCML (JV), A Joint Venture Company, (2014) SCC Online 712, to canvass her proposition that merely because the Arbitrator is a retired employee who was once upon have worked with Railway, he do not incur disqualification to act as Arbitrator. She would vehemently oppose the argument that this would affect his impartiality and independence as the apprehension of bias is totally unfounded.
9 An independent and impartial Arbitral Tribunal is one of the prime focus of Arbitration law. Apropos, unilateral appointment of arbitrators raise a reasonable apprehension of partiality and bias, resulting in collapse of arbitral process. Since the procedure of appointment of arbitrator is primary an essential part of the entire arbitral process, which allows each party to chose a co-arbitrator to constitute a Tribunal, there are instances when the agreement may provide an unfettered right of appointment only upon one party.
Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 ::: 9/25 CARAPL 23548-22.doc 10 The Arbitration and Conciliation Act, being a special
legislation cannot avoid application of principles of natural justice, embodied the maxim 'Nemo judex in causa sua', 'no one can be a Judge in his own cause'.
Naturally, a person who has interest in the outcome of the decision of a dispute, must not be appointed as an Arbitrator nor shall he have the sole power to appoint the Arbitrators. The appointment of an arbitrator through a clause contained in the agreement between the parties, can provide for his appointment either by mutual consent where, or by both parties having an equal right to nominate one arbitrator, each of their choice or through unilateral appointment, where one party has a sole and exclusive right to appoint the arbitrator(s) of it's choice. The latter form of appointment, unequivocally creates doubt regarding the independence and impartiality of the person to be appointed as Arbitrator.
According to Rusell, on Arbitration, an Arbitrator is "neither more nor less than a private Judge of a private Court". An arbitrator derives its power wholly from the private law of contract and accordingly the nature and exercise of these powers, must be in conformity with the common law of the contract or of the public policy, bearing in mind that the paramount public policy, is that freedom of contract, is not likely to be interfered with.
Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 ::: 10/25 CARAPL 23548-22.doc 11 The Arbitration and Conciliation Act, 1996 contain
few safeguards to preserve the independence and impartiality of the arbitrators and even before the amendments by the 1996 Act, it had been a valid ground available u/s.12(3)(a) of the Act to challenge the appointment of Arbitral Tribunal if circumstances exist that give rise to justifiable doubts as to its independence and impartiality. The 246th Law Commission Report however, proposed drastic changes to promote the neutrality of arbitrators to maintain independence and impartiality of the Arbitral process. This report led to introduction (Amendment Act, 2015) which radically changed the landscape of appointment of arbitrators and contemplated that the Court while appointing an Arbitrator u/s.11 of the Act of 1996, may obtain a disclosure in writing from the prospective Arbitrator in terms of Section 12(1) of the Act, with regard to any qualifications required by the parties and other considerations which are likely to secure the appointment of an Arbitrator, who is independent and impartial. The amendment thus widened the grounds of challenge to the composition of the Arbitral Tribunal u/s.12 of the Act by providing that his appointment may be challenged as an arbitrator, if he failed to make necessary disclosures, when approached in connection to his appointment as an arbitrator.
The legislature by introducing the amendment adopted the international practices of the IBA guidelines on conflict of interest which enumerated the possible conflict of Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 ::: 11/25 CARAPL 23548-22.doc interest, divided into three lists i.e. the red list, orange list and green list, divided into waivable and non-waivable list, and further bifurcated the orange list and the green list. Based on the IBA guidelines, the Act introduced V, VI, VII Schedule in the enactment.
12 Schedule V of the Act enlisted certain grounds which may give rise to justifiable doubts as to the independence or impartiality of an arbitrator. The First head in the Schedule which give rise to such doubt is captioned in form of 'Arbitrator's relationship with the parties or counsel'.
Some of the specific circumstances under this head, read as under :-
"1 The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.
2 The arbitrator currently represents or advises one of the parties or an affiliate of one of the parties. 3 The arbitrator currently represents the lawyer or law firm acting as counsel for one of the parties. 4 The arbitrator is a lawyer in the same law firm which is representing one of the parties.
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.
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12 The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties".
13 Under the caption 'Other Circumstances', the following indice, may give rise to a doubt about the impartiality of the Arbitrator and it is worded as under :-
"34 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, where the affiliate is not directly involved in the matters in dispute in the arbitration".
14 Sixth Schedule contain a format in which the Arbitrator shall make his disclosure, which contemplate the following :
"Circumstances disclosing 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 your independence or impartiality (list out).
Circumstances which are likely to affect your ability to devote sufficient time to the arbitration and in particular your ability to finish the entire arbitration within twelve months (list out)".
VIIth Schedule once again enlist certain situations which give rise to a reasonable doubt about the Arbitrators impartiality and independence and they are somehow similar as to the one narrated in the Vth Schedule.
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15 Perusal of the distinct situations contemplated
in Fifth and Seventh Schedule would reveal that an arbitrator being an employee, consultant, advisor or having any business relationship, past or present with the party or the Arbitrator advising one of the parties or affiliate of one of the parties, would give rise to a reasonable doubt about his impartiality. Further, the Arbitrator being a Manager, Director or part of the management or exercising or being in a position to control/influence, in an affiliate or one of the parties, if the affiliate is directly involved in the matter in dispute in arbitration, would also create doubt about it's impartiality. Clause No.12 of Fifth Schedule creates an embargo upon a person to act as an arbitrator and this would cover a Manager, Director, or part of the management, or has a similar controlling influence in one of the parties.
16 The Hon'ble Apex Court in TRF Ltd Vs Energo Engineering Projects Ltd,and ors, (2017) 8 SCC 377 deliberated upon the unsettled issue of validity of unilateral appointment of arbitrators and declared such appointments to be invalid in light of the 2000 Amendment Act, as it specifically recorded as under :-
"The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice, would get counter balance by equal power with the other party, but in a case where only one party has a right to appoint a sole arbitrator, his choice will always have an element of exclusivity in determining or charting the course for Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 ::: 14/25 CARAPL 23548-22.doc 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".
17 In Perkins Eastman (supra), a contract was entered between the parties which contained a Dispute Resolution Clause. The clause provided, inter alia, that any dispute or difference shall be referred to arbitration before a 'Sole Arbitrator' appointed by the Chief Managing Director of the respondent. The Apex Court relied heavily on its previous decision rendered in case of TRF Ltd (supra) which had declared the unilateral appointment of the Managing Director of one party or his nominee as an arbitrator to be invalid. The Supreme Court in TRF Limited (supra), while quashing the clause, had placed reliance on the doctrine of vicarious liability i.e. 'Qui facit per alium facit per se', she who acts through another, does the act herself. It was thus categorically held that once the appointee has become ineligible to act as Arbitrator, it's unrestricted power to appoint a nominee also ceases.
The rationale in setting aside the arbitration clause was drawn from the fact that the Managing Director, having interest in the dispute represented the interest of one party, thus making him ineligible to be appointed as an arbitrator or to even appoint a nominee as an Arbitrator.
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In para-18 of the said Law Report, Their Lordships specifically recorded as under :-
"18. The issue was discussed and decided by this Court as under:-
"We are singularly concerned with the issue, whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator. At the cost of repetition, we may state that when there are two parties, one may nominate an arbitrator and the other may appoint another. That is altogether a different situation. If there is a clause requiring the parties to nominate their respective arbitrator, their authority to nominate cannot be questioned. What really in that circumstance can be called in question is the procedural compliance and the eligibility of their arbitrator depending upon the norms provided under the Act and the Schedules appended thereto. But, here is a case where the Managing Director is the "named sole arbitrator" and he has also been conferred with the power to nominate one who can be the arbitrator in his place. Thus, there is subtle distinction.
18 In short, it was ruled that once the arbitrator has become ineligible by operation of law, he cannot nominate another person to act as an arbitrator, as it is inconceivable in law that a person who is statutorily ineligible can nominate another. Needless to state that once the infrastructure collapses, the super- structure is bound to collapse.
The above pronouncement of law by the Highest Court was followed by this Court in Lite Bite Foods Pvt.Ltd versus Airports Authority of India 2019 SCC Online Bom 5163, Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 ::: 16/25 CARAPL 23548-22.doc where Justice Gautam Patel has succinctly recorded the proposition of law as under :-
"23. The present case may not be within the confines of TRF Ltd, i.e. the tender approving authority is not both arbitrator and, if disqualified, the sole repository of arbitrator- appointing power. He is only the latter. But that now matters at all. Perkins Eastman clearly holds the field and it covers a situation precisely such as the present one where AAI -- and only AAI -- has the exclusive right of appointed (not merely nominating) an arbitrator. The question is not, as Ms Munim would have it, the perceived bias or impartiality of the arbitrator. He may well be an unknown entity. The question is of one-sidedness in the arbitral tribunal appointment procedure itself. This is the destination to which Perkins Eastman takes us for it requires that there be neutrality in the dispute resolution process throughout. If I might be permitted a license, in my reading of it, what Perkins Eastman says is this: that you cannot have an impartial arbitration free from all justifable doubt if the manner in which the arbitral tribunal is constituted itself is beset by justifable doubt.
24. There is also little point in Ms Munim now showing me a list of empanelled officers and saying that Lite Bite may choose from any of them, presumably to bring it into line with her reading of Voestalpine Schienen. But that is a misreading of Voestalpine Schienen, as we have seen. The Supreme Court specifically deprecated the preparation of narrowly-tailored panel and required the drawing up of a far more broad-based one. It specifically required that the petitioner and the two nominee arbitrators be given the freedom of choice not from a short-list or any bespoke panel of retired engineers, etc., but from a much wider spectrum.
25. Ms Munim's last submission is that the only prohibition is against a named person being the arbitrator or Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 ::: 17/25 CARAPL 23548-22.doc empowered to appoint an arbitrator. This is clearly incorrect. The interdiction runs against any one party being given unilateral or one-sided power in the matter of constitution of the arbitral tribunal.
26. In summary, the legal principles are these:
(a) An officer or employee of one party cannot be the arbitrator or, upon eligibility, the person empowered to appoint an arbitrator. This is the TRF Ltd category or rule.
(b) Where the arbitration clause provides for nomination by each side, and for the appointment of an umpire by the two nominee arbitrators, of a person from a panel: (i) that panel cannot be hand-picked by one side; and (ii) it must be broad-based and inclusive, not narrowly tailored to persons from a particular category.
The opponent and the two nominee arbitrators must have the plenitude of choice. This is the rule in Voestalpine Schienen. Conceivably, a broad-based panel commonly agreed in the contract by both sides would serve the purpose.
(c) A clause that confers on one party's employee the sole right to appoint an arbitrator, though that employee is himself not to the arbitrator, is also not valid, and this is a logical and inescapable extension of the TRF Ltd doctrine. It makes no difference whether this power is to be exercised by choosing from a panel or otherwise. This is the rule in Eastman Perkins.
The guiding principle is neutrality, independence, fairness and transparency even in the arbitral-forum selection process.
Further, in case of ITD Cementation India Ltd Vs. Konkan Railway Corporation, 2019 SCC Online Bom Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 ::: 18/25 CARAPL 23548-22.doc 5349where a similar clause where the authority was conferred on the respondent Konkan Railway to appoint a standing Arbitral Tribunal by referring to the decision of the Apex Court in case of TRF Ltd (supra), the Court observed that the Standing Tribunal, as constituted by the respondent, has lost it's validity and would stand wide out, considering the provision laid down by the Apex Court in case of Voestalpine Schienen Gmbh vs. Delhi Metro Rail Corporation, (2017) 4 SCC 665 TRF Ltd (supra) and a decision in Perkins Eastman (supra).
In paragraph no.53 and 54, the following pertinent observation is recorded :
"53 The standing arbitral tribunal as constituted by the respondent in the present case had lost its validity and would stand wiped out, considering the clear position in law as laid down by the Supreme Court in the decisions in Voestalpine Schienen GmbH Vs. Delhi Metro Rail Corporation Ltd. (supra), TRF Ltd vs. Energo Engineering Projects Ltd. (supra); Bharat Broadband Network Ltd. Vs. United Telecoms Ltd. (supra) and Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd. (supra).
54. In my opinion, the respondent had no authority to reject the request of the petitioner to have an appointment of an independent and neutral arbitral tribunal and more particularly when the standing arbitral tribunal as constituted by the respondent, by operation of law had become invalid as clearly held by the Supreme Court in Bharat Broadband Network Ltd. Vs. United Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 ::: 19/25 CARAPL 23548-22.doc Telecoms Ltd. (supra) and Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd. (supra). The inevitable consequence would be that an independent arbitral tribunal is required to be constituted and the respondent having failed to do so, this Court necessarily would have to exercise jurisdiction under Section 11(6) read with Sections 14 and 15 of the Arbitration Act.
19 The decision rendered by the Supreme Court in Perkins Eastman (supra) was a step forward towards achieving independence and impartiality on the arbitration proceedings. The question as to whether the party have consented to the unilateral appointment by according formal consent or by act of acquiescence, for e.g. a non-appointing party without protest participated in the proceedings by filing their response or claim was, however, not addressed in Perkins (supra). Further, a situation where non-appointing party have failed to resist appointment at the time of constitution of the Tribunal but question the unilateral appointment in a Petition filed u/s.34 also cropped up.
Then, came the decision of the Apex Court in case of Central Organisation for Railway Electrification V. ECI-SPIC- SMO-MCML (JV) AJoint Venture Company (supra), where the Court upheld the mutually agreed asymmetrical procedure for appointment of arbitrator. This involve a contract with the Railway comprising of it's retired Officers, where the respondent Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 ::: 20/25 CARAPL 23548-22.doc contactor was asked to select the Arbitral Tribunal from the said Panel and the Apex Court while allowing the Appeal of the Railway Department, quashed the High Court's appointment of a sole arbitrator.
20 Though the learned counsel for the respondent has assertively relied upon the said decision, on its careful reading, I do not think it occurs to her benefit. The Railway which awarded a work contract to the respondent company, contain an arbitration clause. Subsequent to coming into force, the Arbitration and Conciliation (Amendment Act) 2015 with effect from 23/10/2015, the Government of India, Ministry of Railway made a modification to clause 64 of the General Conditions of contract and issued a notification dated 16/11/2016, implementing the modification. The modified clause 64(3)(a)(ii) inter alia provided that in cases where total value of all claims exceed Rs.1 crore, the Arbitral Tribunal shall consist of a panel of three gazetted Railway Officers not below J.A (Junior Administrative - Grade-A) to Railway Gazetted Officers not below J.A. Grade and a retired Railway Officer, not below the rank of S.A (Senior Administrative) Grade as Arbitrators.
On the contract being terminated as per clause 62 of the General Conditions of Contract, the respondent requested the appellalnt for appointment of Arbitral Tribunal for resolving the disputes between the parties, and in reply, the appellant Railway sent a list of four serving Railway Electrification Officers of J.A Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 ::: 21/25 CARAPL 23548-22.doc Group to act as Arbitrators. The respondent was asked to select any two and communicate to the appellant for formation of Arbitral Tribunal Panel. Another panel comprising four retired Railway Officers was forwarded and the respondent was asked to select any two from this list within 30 days.
The respondent did not forward any reply but filed Arbitration Petition, seeking appointment of sole arbitrator. Contending that the panel of arbitrators proposed by the appellant was statutorily ineligible since they were either serving or retired employees of the appellant. It was contended that as per the amendment Act, 2015, all employees, present or past, are statutorily made ineligible for appointment of arbitrator and since the general manager himself being ineligible, he cannot nominate any person to act as an arbitrator. The Apex Court, therefore, ruled upon three issues, the important one being whether the retired Railway Officers are eligible to be appointed as arbitrators u/s.12(5) r/w Schedule 7 and whether the General Manager was eligible to nominate the arbitrator.
21 While deliberating on the said issue, their Lordships of the Apex Court categorized two sets of cases, the first where the Managing Director himself is named as an arbitrator with an additional power to appoint any other person as an arbitrator and in the second category, the Managing Director is not to act as an arbitrator himself, but is authorized to appoint any other person as per the agreement procedure.
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Holding that if both the parties had the advantage of nominating an arbitrator of their choice, then in such cases, the advantage of one party not appointing an arbitrator may be counter blast by equal power with the other party, it was held that it is permissible for Managing Director to nominate arbitrators as per agreement procedure despite being ineligible to appoint as arbitrator. Specifically focusing upon the clause before it where the contractor was asked to suggest to the general manager atleast two names out of the Panel for appointment as contractors' nominee, and the general Manager to appoint atleast one of them, as contractor's nominee, it was held that the General manager will simultaneously appoint the balance number of arbitrators from the Panel or from outside the panel, duly indicating the presiding arbitrator' from amongst the three arbitrators so appointed. It was held that since the respondent had given power to select two names from out of the four names of the panel, the power of the appellant nominating its arbitrator gets counter balance by the power of choice given to the respondent. It was specifically held as under :-
"Thus, the power of General Manager to nominate an arbitrator is counter balance by the power of the respondent to select any of the two nominees from out of the four names suggested from the panel of retired officers, and in view of the modified clause 64(3) (a)(ii) and 64(3)(b) of General Conditions, it cannot be said that the General Manager has become ineligible to nominate the arbitrators Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 ::: 23/25 CARAPL 23548-22.doc and constitute the Arbitral Tribunal as per the agreement prescribed.
22 The aforesaid proposition of law enunciated in the above decision, however, deal with an arbitration clause which provided for constitution of Arbitral Tribunal, but not in case of a sole arbitrator.
As it has been clearly noticed above that the clause which govern the parties before me contemplate appointment of sole arbitrator, as per the notification dated 16/2/2017 and for this reason, the principle governing the present case would be the one laid in Perkins (supra). If the sole arbitrator is a retired Railway Officer, as contemplated in clause 2900 (a)(ii) specifying his qualification read with clauses 2900 (c), it gives rise to a reasonable doubt that the proceedings shall be tilted in favour of the party appointing him and would give rise to a reasonable doubt, about his impartiality and neutrality.
In the light of the aforesaid discussion, with the modified prayer of the petitioner, I deem it appropriate to appoint Advocate Tanmayee Gadre as a Sole Arbitrator to adjudicate the disputes between the parties by the following order :-
TERMS OF APPOINTMENT
(a) Appointment of Arbitrator :
Advocate Tanmayee Gadre, is hereby appointed as a Sole Arbitrator to decide the disputes and differences between the parties under the documents referred to above.
Tilak
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(b)Communication to Arbitrator of this order :-
(i) A copy of this order will be communicated to the learned Sole Arbitrator by the Advocates for the applicant/ petitioner within one week from the date this order is uploaded.
(c) Disclosure : The learned Arbitrator, within a period of 15 days before entering the arbitration reference, shall forward a statement of disclosure as per the requirement of Section 11(8) read with Section 12(1) of the Arbitration and Conciliation Act, 1996, to the Prothonotary & Senior Master of this Court, to be placed on record of this application, with a copy to be forwarded to both the parties.
(d)Appearance before the Arbitrator : The parties shall appear before the Sole Arbitrator within a period of two weeks from today and the learned Arbitrator shall fix up a first date of hearing in the week commencing from 23/1/2023. The Arbitral Tribunal shall give all further directions with reference to the arbitration and also as to how it is to proceed.
(e) Contact and communication information of the parties : Contact and communication particulars are to be provided by both sides to the learned Sole Arbitrator. This information shall include a valid and functional E-mail address as well as mobile numbers of the parties, participating in the process as well as of the Advocates.
(f) Section 16 application : The respondent is at liberty to raise all questions of jurisdiction within the meaning of section 16 of the Arbitration Act. All contentions are left open.
Tilak
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(g) Fees : The Sole Arbitrator shall be entitled for the
fees as per the IVth Schedule of the Arbitration and Conciliation Act, 1996 and the arbitral costs and fees of the Arbitrator shall be borne by the parties in equal portion and shall be subject to the final Award that may be passed by the Tribunal.
(h) Venue and seat of Arbitration : Parties agree that the venue and seat of the arbitration will be in Mumbai.
(i) Procedure : These directions are not in derogation of the powers of the learned Sole Arbitrator to decide and frame all matters of procedure in arbitration.
Arbitration Application stands disposed off in the aforesaid terms.
( SMT. BHARATI DANGRE, J.) Tilak ::: Uploaded on - 20/01/2023 ::: Downloaded on - 28/05/2023 03:17:39 :::