Delhi District Court
M/S Eddy Current Controls (India) Ltd vs National Research Development ... on 19 July, 2023
IN THE COURT OF SH. AJAY KUMAR JAIN:
DISTRICT JUDGE COMMERCIAL COURT 03 - SOUTH EAST
DISTRICT, SAKET COURTS, NEW DELHI.
OMP (COMM) 49/2019
M/S EDDY CURRENT CONTROLS (INDIA) LTD.
Registered Office:
Eddypuram, Chalakudy,
Kerala- 680722
email :- [email protected] .....Petitioner
VERSUS
NATIONAL RESEARCH DEVELOPMENT CORPORATION
20-22, Zamroodpur Community Centre,
Kailash Colony Extension,
New Delhi - 110048 ....Respondent No. 1.
DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH Ministry of Science & Technology, Technology Bhavan, New Mehrauli Road, New Delhi - 110016 ....Respondent No. 2.
Date of Institution : 14.05.2019
Date of final arguments : 06.07.2023
Date of Judgment : 19.07.2023
Judgment
1. Vide this judgment, I shall decide the petitioner under section 34 of Arbitration and Conciliation Act, 1996 for setting aside the award dated 02.01.2019 made by Arbitral Tribunal.
M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 1 of 22VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
2. Brief facts of the case are that the petitioner 'M/s Eddy Current Control (1) Ltd (ECCIL)' is a company, engaged in the business of manufacturing of variable speed drives and related control system in collaboration with M/s Yeskawa Electric Mft. Co. Tokyo (Japan). The petitioner submitted a project proposal for "development of 90 KW Brushless Eddy Current Clutch Gear Unit of Radiator Cooling Fans in Diesel Electric Locomotives of Indian Railways" under the Technology Development Demonstration Programme (TDDP). The respondent no 2 i.e. DSIR agreed to partially fund the project of the petitioner for the above purpose. The tripartite Agreement dated 28.02.2008 was executed between respondent no 2, respondent no 1 and petitioner and the main objective of the proposed project is to develop two prototypes of 90 KW Brushless Eddy Current Clutch Gear Unit for Radiator Cooling Fans in Diesel Electric Locomotives as per the specifications of the product given in Annexure- I to the Agreement. As per the aforesaid agreement, the total cost of the project was Rs.65.00 lakhs. Out of which the respondent no.2 agreed to provide Rs.27.50 lakh and petitioner agreed to invest Rs.37.50 lakh. The petitioner will maintain separate accounts of the project and submit the duly audited statement of expenditure to the respondent no 2 and release of funds by the respondent no. 2 will be in accordance with the assessments and indications of the financial requirements of the project from time to time and based on the proportionate expenditure by the petitioner. For periodic, technical and financial M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 2 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
reviews and monitoring of the project the respondent no. 2 will setup a Project Review Committee (PRC) comprising of experts (Cl.6). Duration of the project was not exceeding 14 months from the date of commencement of the project i.e. the date of issue of first sanction. Extension of the project, if any, will be reviewed by the PRC and/or DSIR for its approval by DSIR (respondent no.2). Time schedule for the project is indicated at Annexure II of the agreement(CI.7). Responsibilities of the parties are specified in Clause 4 of the agreement.
3. Clause 15 of the Tripartite Agreement, pertains to arbitration and jurisdiction. It provides that if any dispute or difference arises, such disputes or differences shall be referred to the sole arbitration of the Secretary Department of Legal Affairs Ministry of Law and Justice, Government of India or his nominee. Dispute arose among the parties regarding payment of annual lump sum royalty, interest for delayed payments etc. The respondent no.1 sent demand notice dated 23.11.2016 and sought payment within 21 days of the receipt of the notice failing which dispute will be referred for arbitration. Consequently, the secretary Department of Legal Affairs Ministry of Law and Justice, Government of India nominated the undersigned to adjudicate upon the disputes between the parties. Consequent, to the proceedings, the impugned award is passed.
4. Ld. counsel for the petitioner submitted that the appointing authority is hit by schedule 7 of Arbitration and Conciliation Act M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 3 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
thereby disqualified. Ld. Counsel submitted that the tripartite agreement was executed between the respondent no.2, respondent no. 1 and the petitioner, and as per clause 15 of the said agreement the dispute is to be resolved through arbitration. Ld. Counsel submitted that the respondent no. 2 through its secretory has nominated the Arbitrator which is contrary to schedule 7 of section 12 (5) of the Arbitration and Conciliation Act, and thereby violating 7 th schedule which enumerates the conditions of the relationship between the arbitrator and the parties, as a result arbitral award is void. Ld. Counsel submitted that mere participation for adjudicating the dispute through arbitration do not validate the ineligible arbitrator under section 12 (5) of the Act. Ld. Counsel submitted that in case title 'Haryana Space Application Center Vs. M/s Pan India Consultants Pvt. Ltd., C.A No. 131/2021, dt. 20.01.2021', Hon'ble Supreme Court held that the secretory of the state would be disqualified under 7 th schedule in case where one of the parties was state government. Ld. Counsel submitted in present case, respondent no. 2 (DSIR) which is Union of India, is the party to the agreement dated 28.02.2008, therefore, secretory who is appointing authority under arbitration clause is hit by the 7th schedule. Ld. Counsel submitted that in case title 'Geeta Poddar Vs. Satya Developers Private Limited, Arb.P. 133/2019, dated. 31.08.2022' held that the secretory of Ministry of Home Affairs was an employee of Union of India and could not act as an appointing authority. Ld. Counsel further submitted that Arbitral M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 4 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
Tribunal is creature of the contract and has to follow the contract, however, wrongly held that the project was completed in 2009 when the testing is admittedly going till 2013. As per contract, the respondent has to invest Rs. 27.50 Lacs which has not been done. Therefore, the impugned award is liable to be dismissed.
5. Ld. Counsel for the respondent on the other hand submitted that the respondent NRDC (R-1) registered under companies act and is an autonomous body and established with an object of commercializing research and development efforts of India. The procedure of appointment of the Arbitrator was made as per the agreed terms entered between the parties in tripartite agreement dated 28.02.2018 where in the petitioner agreed to the appointment of the arbitrator i.e. Secretory, Department of Legal Affair or his nominee. Ld. Counsel for the respondent submitted that such consensually executed agreement are the backbone of the contract, ultimately governed by the Indian Contract Act and the Arbitration and Conciliation Act vide section 11 (2) upholds party autonomy. Ld. Counsel for the respondent submitted that Hon'ble Apex Court in case title 'Central Organization for Railway Electrification Vs. ECI-SPIC- SMO-MCML (JV) a Joint Venture Co., 2020 (1) ALT (SC) 10 : 2020 (I) ArbLR 19' upheld the party autonomy to appoint the Arbitrator in terms of the agreement and the said judgment till date not overruled by larger bench and pending for consideration before this Apex Court. The appointment of Arbitrator is not hit by section 12 (5) of the M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 5 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
Arbitration and Conciliation Act r/w schedule 5 & 7 of the Act, as appointment has been made by the secretory, Department of Legal Affairs, GOI who is not an employee/consultant or an advisor or has no past or present business relationship with the respondent. The empaneled arbitrators are not hit by the disqualification under schedule 5 & 7 hence independence, impartiality and neutrality cannot be questioned as the secretory, Department of Legal Affairs was empowered to nominate Smt. Manju Bagai (relied upon 'HRD Corporation (Marcus Oil & Chemical Division) Vs. GAIL (India) Limited (formaly Gas Authority of India Ltd.), C.A.No. 11126 of 2017, dt. 31.08.2017'). Ld. Counsel further submitted that the Ld. Arbitrator acted in terms of agreement and there is no perversity in the award passed by the Ld. Arbitrator. The entire findings were on the basis of the material on record. Hence, the present petition is liable to be dismissed.
6. Both the parties also filed the written submissions.
7. Arguments heard. Record perused.
8. The first argument raised by the Ld. Counsel for the petitioner that as per section 12 (5) of the arbitration and conciliation Act. 1996 r/w 7th schedule notwithstanding any prior agreement to the contrary, any person whose relationship with the party, or counsel, falls within any category specified in 7 th schedule shall be ineligible to be appointed as an Arbitrator. Before dealing with the merits of the M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 6 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
award this issue is to be dealt. In case, arbitrator is found ineligible then needless to appreciate other contentions.
9. After dispute arose the arbitration proceedings were conducted in terms of clause 15 of the tripartite agreement dated 28.02.2008 between the parties. The parties are as under :
(a) President of India acting through Under Secretary, Department of Scientific & Industrial Research, Ministry of Science & Technology, Technology Bhavan, New Mehrauli Road, New Delhi- 110018.
(b) National Research Development Corporatin, having its registered office at : 20-22, Zamroodpur Community Centre, Kailash Colony Ext., New Delhi- 110048.
(c) M/s Eddy Current Controls (I) Ltd., having its registered office at Eddypuram Chalakudy, Kerala- 680722.
10. The clause 15 of the tripartite agreement dated 28.02.2008 regarding the resolution of dispute through arbitration is reproduced as under :
'..15. a) If any dispute or difference arises between the parties hereto as to the construction interpretation, effect and implication of any provision of this agreement including the rights or liabilities or any claim or demand of any Party (or its extent) against other party or its sub-contractor or in regard to any matter under these presents but excluding any matters, decisions or determination of which is expressly provided for in this Agreement such disputes or differences shall be referred to the sole arbitration of the Secretary of Department of Legal Affairs, Govt. of India or his nominee. A reference to the arbitration under this clause shall be deemed to be M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 7 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
submission within the meaning of the Arbitration and Conciliation Act 1996 and any modification or re-enactment thereof and the rules framed thereunder for the time being in force...'
11. The Arbitrator who conducted the present arbitration proceedings in the matter, admittedly nominated by the Secretary, Department of Legal Affair, Ministry of Law and Justice, GOI. As per tripartite agreement, the president of India acting through Under Secretary, Department of Scientific and Industrial Research is the first party (R-2), National Research Development Corporation is the second party (R-1) and the petitioner is the third party. The responsibilities of all the parties are described in clause 4 of the agreement. The responsibilities of respondent no. 2 (DSIR), is to appoint the project review committee, to provide necessary fund to ECCIL in accordance to the provision of the clause 5 of the agreement and also to assist in expediting the issues related progress in the project. Thus, the Department of Scientific and Industrial Research (DSIR) which represents the Union of India is having active interest in the project. The Secretary, Department of Legal Affairs, Ministry of Law and Justice, is also an employee of Union of India. Therefore, the moot question is whether the appointment of arbitrator by Secretary, Department of Legal Affairs, is hit by section 12 (5) r/w Schedule 7 of Arbitration and Conciliation Act.
M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 8 of 22VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
12. This issue is squarely dealt by the Hon'ble Apex Court in case title 'M/s Glock Asia-Pacific Ltd. Vs. Union of India, Arbn. Petition No. 51/2022, dt. 19.05.2023', the relevant paras are reproduced as under :
"...8. Analysis: As the objection about appointment of the arbitrator as per Clause 28 of the Conditions of Tender is based on the statutory prohibition under Section 12(5) of the Act, we will reproduce relevant part of the section for ready reference:
"12. Grounds of Challenge:...
(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances, --
... (2) ... (3) ...(4) ... (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"
(emphasis supplied)
9. The category of relationship relevant for our purposes as provided in the Seventh Schedule to the Act is as under:
"The Seventh Schedule: Arbitrator's relationship with the parties or counsel; 1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party."
Re: Submission regarding contracts expressed in the name of the President of India.
10. We will first deal with the submission of learned ASG, Ms Bhati that the contract in the present case stands on a different footing as it is entered into in the name of the President of India. Article 299 of the Constitution of India 9 provides that all contracts made in exercise of the executive power of the Union shall be expressed to be made in the name of the President. The phrase 'expressed to be made' and the word 'executed' are M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 9 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
intended to mean that there must be a deed or contract, in writing, and executed by a person duly authorized by the President of the Governor in that behalf.
11. The rationale of Article 299(1), as explained in Chatturbhuj Vithaldas Jasani v. Moreshwar Parashram & Ors 10 is that there must be a definite procedure according to which contracts must be made by the agents of the government in order to bind the government, otherwise public funds may deplete by unauthorized or illegitimate contracts. It implies that contracts not couched in the particular form stipulated by Article 299(1) of the Constitution cannot be enforced at the instance of any contracting party.
12. It must be emphasized that Article 299 only lays down the formality that is necessary to bind the government with contractual liability. It is important to note that Article 299 does not lay down the substantial law relating to the contractual liability of the Government, which is to be found in the general laws of the land. It is for this reason that, even though a contract may be formally valid under Article 299, it may nevertheless fail to bind the Government if it is void or unenforceable under the general provisions of law.
13. Having considered the purpose and object of Article 299, we are of the clear opinion that a contract entered into in the name of the President of India, cannot and will not create an immunity against the application of any statutory prescription imposing conditions on parties to an agreement, when the Government chooses to enter into a contract. We are unable to trace any immunity arising out of Article 299, to support the contention that for contracts expressed to be made by the President of India, the ineligibility of appointment as an arbitrator as contemplated under Section 12(5) of the Act, read with Schedule VII, will be inapplicable.
14. We have no hesitation in rejecting the submission of the learned ASG that the contracts entered into by the Union of India in the name of the President of India are immune from provisions that protect against conflict of interest of a party to a contract, under Section 12(5) of the Act.
Re: Conflict of the Arbitration Clause with Section 12(5) read with paragraph 1 of the Seventh Schedule of the Act.
15. The tender notice dated 02.02.2011 was issued by the Government of India, Ministry of Home Affairs for the purchase of Glock pistols. Applicant's bid was accepted on 31.03.2011 as per the Terms and Conditions contained in the Tender No. M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 10 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
D/21013/30/3218/2.11.2011/PW-3. The said Terms and Conditions specifically provided for Arbitration as per Clause 28 of the Schedule appended to the Tender. The Arbitration clause enables the Secretary, Ministry of Home Affairs, to appoint an arbitrator for the resolution of disputes arising out of this contract. The Ministry of Home Affairs is a party to the contract. The arbitration clause enables the Secretary representing the Ministry to appoint an officer in the Ministry of Law as the arbitrator. In other words, the proposed arbitrator would be an employee of the Ministry of Law and Justice, Government of India, and at the same time, the appointing authority, the Secretary of the Ministry of Home Affairs, is also an employee of the Government of India.
16. In this very context, we can beneficially refer to the recommendation of the 246 th Law Commission Report which reflected on the issue of contracts with State entities and observed that when the party appointing an arbitrator is the State, the duty to appoint an impartial and independent adjudicator is even more onerous. Their deliberations and recommendations, which led to the introduction of Section 12(5) with the Seventh Schedule in the Act, are extracted as follows:
"56. The limits of this provision has been tested in the Indian Supreme Court in the context of contracts with State entities naming particular persons/designations (associated with that entity) as a potential arbitrator. It appears to be settled by a series of decisions of the Supreme Court (See Executive Engineer, Irrigation Division, Puri v. Gangaram Chhapolia, 1984 (3) SCC 627; Secretary to Government Transport Department, Madras v. Munusamy Mudaliar, 1988 (Supp) SCC 651; International Authority of India v. K.D.Bali and Anr, 1988 (2) SCC 360; S.Rajan v. State of Kerala, 1992 (3) SCC 608; M/s. Indian Drugs & Pharmaceuticals v. M/s. Indo-Swiss Synthetics Germ Manufacturing Co.Ltd., 1996 (1) SCC 54; Union of India v. M.P.Gupta, (2004) 10 SCC 504; Ace Pipeline Contract Pvt. Ltd. v. Bharat Petroleum Corporation Ltd., 2007 (5) SCC 304) that arbitration agreements in government contracts which provide for arbitration by a serving employee of the department, are valid and enforceable. While the Supreme Court, in Indian Oil Corp. Ltd. v. Raja Transport (P) Ltd., 2009 8 SCC 520 carved out a minor exception in situations when the arbitrator "was the controlling or dealing authority in regard to the subject contract or if he is a direct subordinate M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 11 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
(as contrasted from an officer of an inferior rank in some other department) to the officer whose decision is the subject matter of the dispute", and this exception was used by the Supreme Court in Denel Propreitory Ltd. v. Govt. of India, Ministry of Defence, AIR 2012 SC 817 and Bipromasz Bipron Trading SA v. Bharat Electronics Ltd., (2012) 6 SCC 384, to appoint an independent arbitrator under section 11, this is not enough.
57. The balance between procedural fairness and binding nature of these contracts, appears to have been tilted in favour of the latter by the Supreme Court, and the Commission believes the present position of law is far from satisfactory. Since the principles of impartiality and independence cannot be discarded at any stage of the proceedings, specifically at the stage of constitution of the arbitral tribunal, it would be incongruous to say that party autonomy can be exercised in complete disregard of these principles - even if the same has been agreed prior to the disputes having arisen between the parties. There are certain minimum levels of independence and impartiality that should be required of the arbitral process regardless of the parties' apparent agreement. A sensible law cannot, for instance, permit appointment of an arbitrator who is himself a party to the dispute, or who is employed by (or similarly dependent on) one party, even if this is what the parties agreed. The Commission hastens to add that Mr. PK Malhotra, the ex officio member of the Law Commission suggested having an exception for the State, and allow State parties to appoint employee arbitrators. The Commission is of the opinion that, on this issue, there cannot be any distinction between State and non-State parties. The concept of party autonomy cannot be stretched to a point where it negates the very basis of having impartial and independent adjudicators for resolution of disputes. In fact, when the party appointing an adjudicator is the State, the duty to appoint an impartial and independent adjudicator is that much more onerous - and the right to natural justice cannot be said to have been waived only on the basis of a "prior" agreement between the parties at the time of the contract and before arising of the disputes."
(emphasis supplied) M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 12 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
17. Following the recommendation of the Law Commission, sub- section (5) to Section 12 was inserted to the Act with effect from 23.10.2015. As the statutory mandate of Section 12(5) of the Act is to apply "notwithstanding any prior agreement", Clause 28 of the Agreement (Conditions of Tender) falls foul of Paragraph 1 of the Seventh Schedule to the Act.
18. In Perkins (supra), this Court held that any person who has an interest in the outcome of the dispute would be ineligible to be an arbitrator. Naturally, such a person should not have the power to appoint a sole arbitrator. The relevant portion of this judgment is as under:
21. But, in our view that has to be the logical deduction from TRF Ltd. Para 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 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 party 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 (3 of 2016) and recognised by the decision of this Court in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC
377.
(emphasis supplied) M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 13 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
19. In conclusion, the arbitration clause which authorises the Secretary, Ministry of Home Affairs, whose relationship with Union of India is that of an employee, to nominate an officer of the Ministry of Law and Justice to act as a Sole Arbitrator, clearly falls within the expressly ineligible category provided in Paragraph 1 of Schedule VII, read with Section 12(5) of the Act. As the grounds of challenge to the appointment of an arbitrator under Section Page 12 of 1612(5) of the Act operate notwithstanding any prior agreement to the contrary, we cannot give effect to the appointment of an officer of the Ministry of Law and Justice as an arbitrator. The submission of the learned ASG in favour of such an appointment is therefore rejected. Re: Reliance on the decision in Central Organisation of Railway Electrifications
20. We will now deal with the last limb of the learned ASG's submissions, which relates to the precedent of Central Organisation of Railway Electrifications (supra). In this case, Clause 64(3)(b) provided for the constitution of an Arbitral Tribunal consisting of three members. The appointment procedure contemplated was such that the General Manager of the Appellant was required to nominate the panel of four retired railway officers, out of which the respondent-Contractor had to select two names. The General Manager was required to appoint at least one out of the selected officers as the contractor's nominee arbitrator(s), and unilaterally appoint the remaining arbitrators as well as the presiding officer to the tribunal. The decision of Perkins (supra) was not applicable therein as the contract contemplated a three-member arbitral tribunal, while Perkins (supra) applies to cases of unilateral appointment of Sole Arbitrators. Further, the Court noted that, "absolutely, there is no bar under Section 12(5) of the Arbitration and Conciliation (Amendment) Act, 2015 for appointment of a retired employee to act as an arbitrator" 13 . The Court in Central Organisation of Railway Electrifications (supra) also relied on the principle elucidated in the case of Voestalpine Schienen GmbH v. DMRC, 14 wherein DMRC nominated a five- member panel comprising names of employees of Railways, Central Public Works Department or public sector undertakings and the Court upheld the nomination inter alia noting that empaneling of such retired persons was intended to utilise their technical expertise. 15 In Central Organisation of Railway Electrifications (supra) this Court relied on the aforementioned judgment to state that:
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"27. ... As held in Voestalpine Schienen GmbH [Voestalpine Schienen GmbH v. DMRC, (2017) 4 SCC 665 : (2017) 2 SCC (Civ) 607] , the very reason for empanelling the retired railway officers is to ensure that the technical aspects of the dispute are suitably resolved by utilising their expertise when they act as arbitrators. Merely because the panel of the arbitrators are the retired employees who have worked in the Railways, it does not make them ineligible to act as the arbitrators."
(emphasis supplied)
21. In contrast, the arbitration clause in the present case enables a serving employee of the Union of India, a party to the contract, to nominate a serving employee of the Union of India as the Sole Arbitrator. Such an authorisation is clearly distinct from the arbitration clause in Voestalpine Schienen GmbH (supra) and Central Organisation of Railway Electrifications (supra), and is in conflict with Section 12(5) of the Act. It was informed at the bar that the correctness of judgement of Central Organisation of Railway Electrifications 16 has been challenged and referred to a larger bench in Union of India v. M/s Tantia Constructions Ltd 17 as well as JWS Steel Ltd v. Southwestern Railways and Anr 18 . As we have noticed that the decision in Central Organisation of Railway Electrifications (supra) is not applicable in the present case, its reference to the larger Bench will have no bearing on the outcome of the present case.
13. In this case, the Hon'ble Supreme court held merely on the basis of the fact that the contracts expressed to be made in the name of the President of India, do not get any immunity arising out of Article 299 regarding the ineligibility of Arbitrator appointed in violation of section 12 (5) of the Act r/w schedule 7. In the said case also, the arbitration clause enable the secretary, representing the Ministry of Home Affairs to appoint an officer in Ministry of Law and Justice. Therefore, both the Secretary, Home Affairs as well as Arbitrator are employees of Govt. of India, thus, clearly falls within the expressly M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 15 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
ineligible category provided in para 1 of Schedule 7 r/w section 12 (5) of the Act. In present case also, the Secretary, Department of Legal Affair, being the employee of the Union of India is ineligible under Schedule 7 r/w section 12 (5) of the Act. Consequently, he is also not entitled to nominate the present arbitrator, as per Perkins judgement.
14. The petitioner, however, not objected to the appointment of arbitrator prior to the arbitration or in arbitration proceedings and fully participated in the same, but this will not preclude the petitioner to raise this argument of ineligibility of the arbitrator in the present proceeding. Admittedly, there is no consent of the petitioner in writing obtained post the dispute to appoint the present arbitrator, therefore, mere participation is not waiver of the condition of consent in writing as mandated by section 12 (5) of the Arbitration and Conciliation Act. Hon'ble Delhi High Court in case title 'Man Industries (India) Limited Vs. Indian Oil Corporation Limited, OMP (COMM) 252/2018, dt. 01.06.2023' has squarely dealt with issues and relevant paras as under :
"....11. He submits that in the present case, the petitioner has never challenged the eligibility of the learned Sole Arbitrator to adjudicate on the disputes between the parties. He submits that, in fact, the learned Arbitrator was appointed at the request of the petitioner. The learned Arbitrator before entering upon the reference submitted his disclosure as required under Section 12 of the Act. The petitioner never raised any objection to the eligibility of the learned Sole Arbitrator. Thereafter, the petitioner, in fact, twice filed applications under Section 29A of the Act seeking extension of the mandate of the learned Arbitrator. He submits that the filing of the application under Section 29A of the Act by the petitioner would, in fact, satisfy the Proviso to Section 12(5) of the M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 16 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
Act and the ineligibility, if at all, attached to the learned Sole Arbitrator would be waived.
12. On the merits of the Arbitral Award, he submits that the agreement between the parties provides for a „Delay Delivery Discount‟ of a maximum of 10% of the total contract value. In the present case, the learned Arbitrator has found the petitioner guilty of delay in making supply of the pipes. Thereafter, in terms of the judgment of the Supreme Court in M/s Construction & Design Services v. Delhi Development Authority, (2015) 14 SCC 263, the learned Arbitrator has observed that the contract in question, being of public interest, there can be a presumption of the delay having resulted in damages to the respondent on account of such delay. He submits that the view taken by the learned Arbitrator is a plausible view and this Court in exercise of its limited jurisdiction under Section 34 of the Act would not be entitled to interfere in the same.
13. I have considered the submissions made by the learned counsels for the parties.
14. At the outset, it is important to emphasize that the respondent has not disputed that, though in terms of the Arbitration Agreement and on the request of the petitioner, the learned Arbitrator was appointed by the respondent alone. The Arbitration Agreement between the parties was contained in Clause 4.26.1 of the Special Conditions of Contract attached to the Purchase Order and is reproduced hereinbelow :-
"4.26.1 Any dispute or difference of any kind at any time(s) between the Purchaser and the vendor arising out of in connection with or incidental to the contract (including any dispute or difference regarding the interpretation of the contract or the termination thereof, or resulting from a termination thereof), shall be referred to arbitration by a Sole Arbitrator appointed by the General Manager. The provisions of the Arbitration & Conciliation Act, 1996 and all statutory re-enactments and modifications thereof and the Rules made thereunder shall apply to all such arbitrations. The venue of the arbitration shall be New Delhi (India)."
(Emphasis Supplied)
15. The petitioner invoked the Arbitration Agreement vide its notice dated 15.01.2016, requesting as under:-
"We, therefore, in terms of Arbitration Clause request you to nominate a person to act as an Arbitrator. Please ensure that names being proposed meet the requirement of M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 17 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
independence and impartiality as envisaged in the Arbitration and Conciliation (Amendment) Ordinance, 2015."
16. On the above request, the respondent appointed the learned Arbitrator vide letter dated 15.02.2016.
17. Relying upon its earlier judgment in TRF Limited (supra), the Supreme Court in Perkins Eastman Architects DPC (supra) has held that the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a Sole Arbitrator. A party to the Agreement, therefore, would be disentitled to make any appointment of an Arbitrator.
18. In Bharat Broadband Network Limited (supra), the Supreme Court held that Section 12(5) of the Act provides for de jure inability of an Arbitrator to Act as such. The only way in which this ineligibility can be removed is by fulfilling the conditions in the Proviso to Section 12(5) of the Act, which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing. The „express agreement in writing‟ has reference to a person who is interdicted by the Seventh Schedule, but who is stated by the parties (after the disputes have arisen between them) to be a person in whom they have faith notwithstanding the fact that such person is interdicted by the Seventh Schedule. It was held that where the Arbitrator is unable to perform his function, being ineligible under Section 12(5) of the Act, the appointment of the Arbitrator itself was void.
19. In Govind Singh (supra), a Division Bench of this Court considering the above judgments held that even if the party does not raise an objection to the appointment of the Arbitrator and participates in the arbitral proceedings without raising any objection to the appointment of the Arbitrator, it is not a waiver of such party‟s right under Section 12(5) of the Act. It was further held that an Arbitral Award passed by an Arbitrator who is ineligible to act as an Arbitrator cannot be considered as an Arbitral Award at all. The ineligibility of an Arbitrator goes to the root of his jurisdiction and the Arbitral Award cannot be considered as valid.
20. In MS Bridge Building Construction Co. Pvt. Ltd. (supra), a learned Single Judge of this Court, relying upon the above judgments, rejected the plea of the respondent therein that the petitioner therein having filed applications for extension of the mandate of the Arbitrator is deemed to have waived the M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 18 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
applicability of Section 12(5) of the Act and cannot assail the Award on that ground.
21. In JMC Projects (India) Ltd. (supra), another learned Single Judge of this Court again rejected the plea of the respondent observing that the filing of applications for extension of time for continuance and completion of the arbitral proceedings, or applications to the Arbitrator for extension of time to file the affidavit of evidence etc., cannot constitute an "agreement in writing" within the manner of the Proviso to Section 12(5) of the Act.
22. In view of the above authorities, there can be no doubt that the learned Arbitrator appointed by the respondent was de jure ineligible to act as such. The petitioner by its participation in the arbitration proceedings or by its filing of applications under Section 29A of the Act seeking extension of the mandate of the learned Arbitrator, cannot be said to have waived the ineligibility of the learned Arbitrator under Section 12(5) of the Act, and, therefore, the Arbitral Award passed by the learned Arbitrator is invalid.
23. The only question, therefore, left to be considered by this Court is whether the petitioner can now be allowed to agitate the above ground by way of an amendment application, which admittedly has been filed much beyond the period prescribed in Section 34(3) of the Act.
24. In Hindustan Construction Company Limited (supra), the Supreme Court has held that the effect of Section 34(3) of the Act is not to completely rule out any amendment being allowed to be made in the application for seeking setting aside of the Award howsoever material or relevant it may be. The Court held as under:-
"29. There is no doubt that the application for setting aside an arbitral award under Section 34 of the 1996 Act has to be made within the time prescribed under sub-section (3) i.e. within three months and a further period of thirty days on sufficient cause being shown and not thereafter. Whether incorporation of additional grounds by way of amendment in the application under Section 34 tantamounts to filing a fresh application in all situations and circumstances. If that were to be treated so, it would follow that no amendment in the application for setting aside the award howsoever material or relevant it may be for consideration by the court can be added nor existing ground amended after the M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 19 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
prescribed period of limitation has expired although the application for setting aside the arbitral award has been made in time. This is not and could not have been the intention of the legislature while enacting Section 34.
30. More so, Section 34(2)(b) enables the court to set aside the arbitral award if it finds that the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force or the arbitral award is in conflict with the public policy of India. The words in clause
(b) "the court finds that" do enable the court, where the application under Section 34 has been made within prescribed time, to grant leave to amend such application if the very peculiar circumstances of the case so warrant and it is so required in the interest of justice."
25. In Lion Engineering Consultants (supra), the Supreme Court held that even without an amendment in the petition, a plea of lack of jurisdiction of the Arbitrator can be raised even though no such objection was raised under Section 16 of the Act.
26. In Hindustan Zinc Limited (HZL) (supra), the Court held that if there is an inherent lack of jurisdiction of the Arbitrator, the plea can be taken up any stage and also in collateral proceedings. Such plea can be taken even where the party has consented to the appointment of the Arbitrator.
27. Applying the above principles to the facts of the present case, the plea of the Arbitrator being de jure ineligible to act as such is a plea of lack of jurisdiction. This plea can be allowed to be raised by way of an amendment and even without the same.
28. In Friends and Friends Shipping Pvt. Ltd. (supra), relied upon by the learned counsel for the respondent, the grounds that were sought to be added by way of an amendment were on the challenge to the neutrality of the Arbitrator. A ground to demonstrate fraud was also sought to be inserted. The Court, in fact, distinguished the judgment of the Supreme Court in Ellora Paper Mills Limited v. State of Madhya Pradesh, (2022) 3 SCC 1, by observing as under:-
"8. At the outset it is necessary to bear in mind that by way of the proposed amendment the grounds which are now being sought to be inserted have absolutely no foundation in the petitioner's application preferred under Section 34 of the Arbitration Act. As has been rightly noticed by the learned District Judge at no point of time any objection about neutrality of the Arbitrator was raised by resorting to Section M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 20 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
12, 13 or 15 of the Arbitration Act. This needs to be emphasized for the sole reason to ascertain as to if, the proposed amendment merely intends to add some facts to the pending challenge to the award or is it that it is intended to put forth absolutely new challenge xxxxx
10. True it is that in the matter of Ellora Paper Mills Limited (supra), the Section 12(5) which is inserted in the year 2015 has been held to govern a pending arbitration proceeding.
However, it is to be borne in mind that it was a proceeding which was initiated under Sections 11, 14 and 15 and although the Arbitral Tribunal was constituted many years ago it had never commenced its proceeding. This is not the fact situation in the matter in hand. In this matter, without raising any objection at any earlier point of time on account of neutrality of the arbitrator by resorting to Sections 12, 13 and 14, an award has been passed and even it has been put to execution. Therefore, the petitioner is not entitled to derive any benefit from the decision in the matter of Ellora Paper Mills Limited (supra) as well."
29. The above judgment would, therefore, not come to the aid of the respondent, as in the present case, the objection on the learned Arbitrator is under Section 12(5) of the Act and of him being de jure ineligible to act as an Arbitrator.
30. In view of the above, it has to be held that the learned Arbitrator was de jure ineligible to act as such and the Award passed by the learned Arbitrator is void and unenforceable. The same is, therefore, set aside.
15. Ld. Counsel for the respondent relied upon the judgement of 'Central Organization for Railway Electrification (Supra)', however the said judgement duly distinguished by the Hon'ble Apex Court in 'Glock Asia-Pacific Ltd. (Supra)' and also not applicable in present facts and circumstances. Mere participation is no waiver. The objection could be taken in present proceedings first time.
M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 21 of 22VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .
16. In view of the above discussion, the present arbitration proceedings was conducted by the Ld. Arbitrator who is de-jure ineligible, therefore, the impugned award passed is non-est in law, hence, liable to be set aside. Accordingly, the impugned award dated 02.01.2019 passed in favour of the claimants/respondents is set-aside. The present petition allowed and disposed of accordingly.
17. File be consigned to Record Room after due compliance. Announced in the open court on 19th July, 2023 (Ajay Kumar Jain) District Judge (Commercial Courts- 03), SE/Saket Courts/Delhi M/S EDDY CURRENT CONTROLS (INDIA) LTD. Dated. 19.07.2023 Page 22 of 22 VS. NATIONAL RESEARCH DEVELOPMENT CORPORATION & ANR. .