Delhi District Court
Prem Lal Singh Yadav vs Delhi Development Authority on 10 December, 2020
IN THE COURT OF MS NEENA BANSAL KRISHNA
PRINCIPAL DISTRICT & SESSIONS JUDGE
SOUTH EAST: SAKET COURT, NEW DELHI.
ARBTN No. 21108/2016
Prem Lal Singh Yadav
S/o Shri Ram Adhar Singh
R/o Plot No. 63, G-Block, Qutab Vihar,
Phase-I, Post Office Gola Dairy Najafgarh,
New Delhi-110015. ......Petitioner
VERSUS
1 DELHI DEVELOPMENT AUTHORITY
Through its
(I) Vice Chairman, Vikas Sadan,
INA, New Delhi-110026
(II) The Executive Engineer,
Western Division No. 13, DDA Office Complex,
Lakkar Mandi, Kirti Nagar,
New Delhi-110015.
2 Shri D. V. Raghav
Superintendent Engineer (Arbn.)
Delhi Development Authority
B2B, Janakpuri,
New Delhi-110058. ......Respondents
Date of Award : 29.04.2016
Date of filing of Petition: 05.08.2016
Date of Decision of Petition: 10.12.2020
JUDGMENT
1. The petitioner has filed objections under Section 34 of Arbitration and Conciliation Act, 1996 to set aside the Award made and ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 1 of 31 published on 29.04.2016 vide which the claim filed by the petitioner for payment was dismissed.
2. Facts in brief are that a Tender was invited by the Respondent no. 1 through Respondent No.2 for the work of "Maintenance of Various Colonies under Dwarka Zone, Nazul A/c-II, SH: Repair of Interlocking paver blocks providing fixing RCC slabs, manhole covers and cleaning / de-silting of drain along with 30.00 mm Mtr wide R/W Sector-23, Dwarka". The bid of petitioner was accepted by the respondent vide letter No. F8 (69)/A/WD-13/DDA/2010- 11/824 dated 31.05.2011. The estimated cost was Rs.6, 01,409/- and the accepted Tender amount was Rs.3, 99,919/-. The date of award of work was 31.05.2011; date of start of work was 10.06.2011 and the time allowed for completion of work was one month and the stipulated date of completion was 19.07.2011.
3. The petitioner has claimed that he commenced the work with due diligence and completed it on 18.07.2011 and Respondent No.2 was informed about the completion of work vide letter dated 31.10.2011. Junior Engineer and Assistant Engineer, the authorized officers of Respondent No.2 prepared the First and Final bill in the Measurement Book that was duly issued by Respondent No.2, in the presence of the petitioner. The Completion Certificate was recorded by Respondent No.2 in terms of the norms of DDA and was duly signed by Assistant Engineer II and sent to Executive Engineer for rectification. The petitioner wrote a letter dated 31.10.2011 clarifying that the First and Final bill has already been prepared by the site staff and requested for the release of the payment. Other ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 2 of 31 reminder letters were posted on 04.11.2011, 07.12.2011 and 03.01.2012.
4. The Respondent No.2 vide its letter bearing No. F8 (69)/WD- 13/R1/2010-11/81 dated 17.01.2012, claimed that the work has not been completed in proper manner. Moreover, the bills were not accompanied by the vouchers and demanded the details. It is claimed that from the letter, two vital facts can be gathered which are that the work was not completed in proper manner indicating that the work had been completed but some shortfalls were noted. If the defects were found to be existing or some shortcomings were noted then it had to be communicated to the petitioner within the maintenance period of six months in terms of Clause 17 of the Agreement. The letter dated 17.01.2012 was served much beyond the Maintenance period of six months. Moreover, no details of the alleged defects were mentioned but it was vaguely stated that "the work has not been completed by you at site so far". It was asserted that despite repeated requests for release of his payments for the work duly completed the respondents failed to release the amount for ulterior motives.
5. It is further claimed that Respondent No.2 realizing the shortcomings of his letter dated 17.01.2012, improved the statement by claiming that no labour was engaged by the petitioner even though manhole covers were brought by the petitioner in October, 2011. However, the de-silting of the drain was not conducted. A Show Cause Notice dated 27.07.2012 was served by Respondent No.2 on the petitioner claiming why the contract be not terminated ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 3 of 31 under Clause 3 of the Agreement. A reply dated 23.06.2012 was immediately given by the petitioner. Another letter dated 27.07.2012 posted on 06.08.2012 by Respondent No.2 was issued to which the petitioner gave a reply vide letter dated 07.08.2012. Since the differences arose between the parties, the petitioner posted his notice to the Superintendent Engineer on 17.10.2012 and finally Engineer Member who was the persona designate under the contract, was appointed as the Arbitrator.
6. The petitioner submitted his Claim before the Arbitrator whereby he made the following claims:
(i) Declaration that termination of contract was illegal and erroneous;
(ii) A sum of Rs.3, 77,201/- as the amount of final bill;
(iii) A sum of Rs.35, 000/- as security deposit;
(iv) A sum of Rs.25, 000/- as performance guarantee;
(v) Pendente lite and future interest @ 12% per annum; and
(vi) A sum of Rs.50, 000/- as cost of proceedings.
7. The claim of the petitioner was dismissed vide order dated 29.04.2016. Aggrieved by the said order, present objections have been filed.
8. The main grounds for challenge of the award are that the parties during the hearing dated 05.10.2015 submitted that they wanted to lead oral evidence on vital issues. The learned Arbitrator directed the parties to furnish the proposed issues. However, without waiting for the submissions of issues, the Arbitrator erroneously concluded that no oral evidence was required. The Arbitrator therefore ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 4 of 31 committed a grave error in concluding that no evidence was required. Moreover, no judicial principles / norms were followed by the Arbitrator while adjudicating the controversy. It is asserted that the award of the Arbitrator is in violation of the terms of the Agreement and is in conflict with Public Policy of India. Also, the parties were not permitted by the Arbitrator to make oral submissions and forced to give written submissions. The petitioner intended to produce certain judgments but the Arbitrator did not wait which gives rise to justifiable doubt about his independence and impartiality. Moreover, the arbitration proceedings have not been carried out in accordance with the provisions of Arbitration and Conciliation Act. Since, the total amount of the claim exceeded Rs.1, 00,000/-, the Arbitrator should have given reasons for the award which he has failed to do. It is further asserted that the Arbitrator accepted the evidence at the back of the petitioner which is evident from the perusal of the record. A reference has been made to the Vigilance Report submitted by the respondents when in fact the said Vigilance Report was never furnished by the respondents before the Arbitrator. It appears that the report was submitted at the back of the petitioner. Furthermore, learned Arbitrator referred to Completion Certificate which was in power and possession of the respondents. This Completion Certificate was never furnished by the respondents before the learned Arbitrator. Therefore, it is not understandable as to how the Arbitrator perused the completion certificate and observed that it was without the signatures of Respondent No.2. The Arbitrator at number of places had ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 5 of 31 mentioned about the Agreement whereas the copy of the agreement was neither furnished by the petitioner nor by the respondent and from where and how the document was perused by the Arbitrator is not understood. The Arbitrator acted in conflict with Public Policy of India and in a mala fide manner by accepting the evidence at the back of the petitioner.
9. It is further asserted that number of times the Arbitrator did not record the submissions correctly. On 05.10.2015, a request was made by both the parties for some time to file the proposed issues. No arguments in this regard took place but the learned Arbitrator observed that after carefully considering the oral arguments made by both the parties, there was no need to lead evidence and the case could be dealt on the basis of documents available with the Tribunal. It is asserted that no such arguments were ever addressed by the parties and the petitioner gave a letter dated 16.10.2015 clarifying this aspect. The Arbitrator agreed and directed the parties to submit the proposed issues. It is further asserted that all the findings on all the issues are without referring to the documents of the petitioner and on incorrect interpretation and thus the award is liable to be set aside and the claims of the petitioner be allowed.
10.The respondents in reply to the objections took the preliminary objections that the alleged objections did not fall within the scope of Section 34 of Arbitration and Conciliation Act. Moreover, it is not in conflict with Public Policy of India even though the petitioner has tried to bring the objections under this head. Furthermore, the Arbitrator is the sole judge of the quality and quantity of the ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 6 of 31 evidence. Appraisement of evidence by the Arbitrator is ordinarily never a matter of question before the court. The parties had selected their own forum and the learned Arbitrator after considering the pleadings, documentary evidence and rival submissions has given a well reasoned award which does not suffer from any illegality or infirmity.
11.On merits, it is asserted that the estimated cost of work was Rs.6, 01,409/- and the stipulated date of completion was 09.07.2011 and not 19.07.2011 as claimed. It is denied that the work was completed on 18.07.2011. It is further asserted that no Completion Certificate was ever recorded by the officers of Respondent No.2 who were delegated such powers. In terms of the contract only the Executive Engineer who is Engineer in charge is empowered to record completion in terms of Clause 6 of the agreement. Moreover, the contractor was required to give in writing the notice of completion of work to the Engineer in Charge who was to thereafter inspect the work to check if there were no defects and then issue the Completion Certificate. No notice of completion within 10 days was given by the petitioner and it is only on 31.10.2011 that a letter was written by the petitioner to Engineer in Charge falsely claiming that the work has been completed. He, in connivance and collusion with the junior officials, got recorded a fictitious Completion Certificate and also got prepared a forged first and final bill without the work being executed. The Completion Certificate, on which reliance has been placed by the petitioner has no sanctity as it was not signed by Engineer in Charge and had been procured in connivance with the ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 7 of 31 AE and JE. A Vigilance Enquiry was initiated against them and penalties have been imposed on both the JE as well as AE. It is thus, claimed that the work was not executed by the petitioner and therefore, there was no question of making the payment. The respondent vide its letter dated 17.01.2012 had duly communicated to the petitioner about non completion of work and thus no payment of the claimed amount was due from the respondents.
12.It is asserted that the respondent vide its letter dated 17.01.2012 had called upon the petitioner to execute and complete the work which is the stage before the maintenance period was to commence. Clause 17 was to become applicable only after the completion of work which was never done by the petitioner. It is asserted that petitioner has made irresponsible and malicious averments without an iota of evidence and has managed to forge Completion Certificate and bill in connivance with JE and AE who have already been found guilty in Vigilance Enquiry.
13.It is further asserted that in response to the letter dated 20/23.06.2011 of the petitioner, a reply dated 07.07.2012 was given by the respondent wherein it was pointed out that the site had been inspected on 11.07.2011 and instructions issued in site order book on 12.07.2011 making it evident that till 11.07.2011 the petitioner had not commenced any of the items provided in the schedule of quantities except cleaning and desilting of manhole portions of the covered drains which served no purpose without cleaning of drains. In fact, no work had been executed till 12.07.2011 and it is not believable that the work of one month would thereafter be ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 8 of 31 completed within 6 days. A show cause notice was thus validly served upon the petitioner. It is asserted that a new point of not providing the copy of the Agreement to the petitioner has been raised for the first time after more than a year of award of work and is blatantly false and afterthought. It is not comprehendible as to how petitioner executed the work without the copy of Agreement.
14.The allegations against the conduct of the learned Arbitrator that he did not record the proceedings fairly or wrongly denied the opportunity to the parties to lead oral evidence, are asserted to be incorrect. It is submitted that the proceedings have been recorded correctly by the learned Arbitrator who has fairly decided the claims filed by the petitioner. It is explained that the learned Arbitrator after hearing the parties held that no evidence was required to be led by the parties and the matter can be dealt on the basis of the documents filed by the parties. The petitioner again made a prayer for leading evidence but the learned Arbitrator again concluded that the evidence was not required. Another application seeking permission to lead evidence was filed by the petitioner which was opposed by the respondent and the application was heard on 02.11.2015 and again rejected. It is submitted that at no point of time did both the parties agree for leading the evidence. Rather, the respondent had opposed the application of the petitioner and it cannot be stated that there was any agreement in regard to leading of evidence between the parties.
15.It is further submitted that the petitioner had been put to notice during the proceedings that Vigilance investigation was underway ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 9 of 31 against JE and AE. The respondent came to know about the completion of vigilance enquiry and accordingly intimated the Arbitrator before the pronouncement of the award. Moreover, in the Award the observations that the Completion Certificate was not signed and that the final bill had been prepared by AE and JE in collusion with the petitioner are based on the submissions made by the petitioner in his claim and did not require any perusal of the documents. It is thus asserted that the award had been rightly adjudicated by the learned Arbitrator and the objections are without merit and are liable to be dismissed.
16.The written arguments have been submitted on behalf of the petitioner wherein the same issues as mentioned above have been raised.
17.The respondents also filed the written arguments reiterating the defence taken by them in their reply.
18.I have perused the written submissions as well as the evidence and the record. My observations are as under :
19.The main grounds of challenge are that no opportunity was given to the petitioner to lead evidence despite repeated requests; not recording the submissions correctly; accepting evidence behind the back of petitioner and not giving a reasoned award whereby violating principles of natural justice and public policy of India. The other challenge was to the independence and impartiality of the Arbitrator and it was claimed that his conduct was malafide.
ARBTN No. 21108/2016Prem Lal Singh Yadav vs. DDD & Others Page No. 10 of 31 A. Applicability of the Arbitration and Conciliation (Amendment) Act, 2015
20.Before considering the rival contentions of the parties it has to be considered whether the objections are to be decided in accordance with the Arbitration & Conciliation Act, 1996 or by the Amendment Act, 2015 considering that the arbitration proceedings were commenced on 25.05.2015 i.e. before the Amendment Act, 2015 became effective though the objections have been filed on 14.12.2016, i.e post amendment.
21.In Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. and Ors. AIR 2018 SC 1549, the Apex Court explained that there are two rounds of proceedings, one which are initiated before an arbitrator and the second which are initiated in the court. It was explained that if the proceedings in the court by way of Section 34 or 36 are commenced after the amendment, then it is the Amendment Act, 2015 which shall be applicable even though the arbitral award to which the objections under Section 34 pertain may have been made before the Amendment Act became effective i.e. 23.10.2015.
22. In Sangyong Engineering and Construction Co. Ltd. v. National Highway Authority of India (NHAI) 2019 (VIII) AD SC 189 it was again reaffirmed and clarified that the amendment introduced to Section 34 of the Act w.e.f. 23.10.2015 would apply to all such applications filed after October 23, 2015 even if the underlying arbitration itself was commenced prior to the Amendment.
ARBTN No. 21108/2016Prem Lal Singh Yadav vs. DDD & Others Page No. 11 of 31
23.In the present case, the Arbitrator SE (Arbitrator), DDA has been appointed as Sole Arbitrator by Engineer Member, DDA vide letter dated 20.05.2015. Ld. Arbitrator entered into arbitration vide letter dated 25.05.2015 wherein a reference was made to the letter of Engineer Member DDA empowering him to proceed with the reference. The arbitrator commenced his proceedings on 25.05.2015. The arbitration award was delivered on 05.09.2016 and the Objections under Section 34 have been filed on 14.12.2016 i.e. after 23.10.2015. Therefore, Section 34 as amended by Amendment Act, 2015 would be applicable. The objections in regard to the Award need to be considered in the light of Amendments brought by Amendment Act, 2015.
B. Appointment of Arbitrator under the Arbitration and Conciliation Act as amended in 2015: Independence and competence.
24.The basic question is: can an officer of the respondent Department competent to be appointed as an Arbitrator in matters where the Respondent is a party to the Lis.
25.The Arbitrator in the present case was Mr. D. V. Raghav, the Superintendent Engineer (Arbitration). He is an employee of Delhi Development Authority. The first aspect which arises for consideration is whether the Superintendent Engineer who is the employee of respondent/DDA was competent to act an Arbitrator.
26.Learned counsel on behalf of the respondent has asserted that in the present case the original Arbitrator was appointed on 26.03.2013 ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 12 of 31 and thereafter, there was change of Arbitrator and present Arbitrator was appointed on 04.03.2015 i.e. before the Amendment Act, 2015 became effective. Therefore, the present case shall be covered by the Act as it existed before the Amendment Act, 2015 under which there was no bar for the officer of the Department to act as an Arbitrator in the matters pertaining to the department. Reliance has been placed upon Rajasthan Small Industries Corpn. Ltd. Vs. Ganesh Containers Movers Syndicate (2019) 3 SCC 282; S. P. Singla Constructions (P) Ltd. Vs. State of H.P. (2019) 2 SCC 488; Union of India Vs. Parmar Construction Co. (2019) 15 SCC 682 and State of Rajasthan Vs. Ferro Concrete (2009) 12 SCC 1 wherein it was held that in cases where the arbitral proceedings have commenced before the Amendment Act, 2015 became effective from 23.10.2015, the proceedings shall continue as per the unamended Arbitration Conciliation Act. In terms of Section 26 of the Amendment Act, the provisions of Amendment Act, 2015 shall not apply to the arbitral proceedings commenced in accordance with the provisions of Section 21 of the Principal Act before the commencement of this Act unless the parties so agree.
27.All these judgments relied upon by the Respondent deal with the arbitration proceedings and none of them are in respect of objections under Section 34 which are commenced after the Amendment Act became effective.
28.Fundamentally, where an arbitration agreement provides for arbitration by an Arbitrator, the courts should normally give effect to the provisions of the arbitration agreement and it is only when ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 13 of 31 there is material to create a reasonable apprehension about the independence or impartiality of such person that the Chief Justice or his designate may, after recording reasons for not following the agreed procedure and appoint an independent Arbitrator in accordance with Section 11 (8) of the Act. In Northern Railway Administration, Ministry of Railway, New Delhi Vs. Patel Engineering Co. Ltd. (2008) 10 SCC 240 a three judges Bench of the Apex Court observed that the appointment of the named Arbitrator shall be the first choice and ignoring such person and nominating an independent Arbitrator shall be an exception to be resorted for valid reasons.
29.In the Act, 1996 the principles of impartiality and neutrality were as sacrosanct as under the Amendment Act, 2015. However, ipso facto being the Director, Manager or an employee of either party to the arbitration was not a disqualification under 1996 Act and it had to be further shown that his conduct was mala fide or biased. This principle was explained in Indian Oil Corporation Ltd. & Ors. Vs. Raja Transport Private Ltd. (2009) 8 SCC 520 wherein it was observed that even under the new Act (of 1996) there is no bar for an arbitration agreement to provide for an employee of the Government/statutory corporation/Public Sector Undertaking to act as an Arbitrator. What Section 18 requires is that the Arbitrator must treat the parties with equality that is to say without bias and give each party equal opportunity to present his case. Nothing in Sections 11, 12, 18 or other provisions of the Act suggest that naming an Arbitrator would be invalid if such named Arbitrator is ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 14 of 31 an employee of one of the parties to the agreement. Merely because the Arbitrator is an employee would not ipso facto raise a presumption of bias or partiality or lack of independence on his part. However, a justifiable apprehension may be there if such person was the controlling or the dealing Authority in regard to the subject contract or if he is a direct subordinate to the officer whose decision is the subject matter of the dispute. However, where the named Arbitrator is a senior officer and had nothing to do with the execution of the subject contract, there can be no justification for doubting his impartiality or independence in the absence of any specific evidence. Such officers not associated with the contract are considered to be independent and impartial and are not barred from functioning as Arbitrators.
30.Despite there being no bar of an employee being an Arbitrator under the 1996 Act, the Courts have consistently held that the policy of the Government / Statutory Authorities to appoint their employee as the Arbitrator is a vexed problem which requires reconsideration. This led to the amendment of the Act, 2015 effective from 23.10 2015.
31.Section 12 (5) of the Amendment Act, 2015 provides that where 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 he shall be ineligible to be appointed as an Arbitrator.
Clause 1 & 5 of Seventh Schedule read as under:
ARBTN No. 21108/2016Prem Lal Singh Yadav vs. DDD & Others Page No. 15 of 31 "1.The Arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.
2. ...
3. ...
4. ...
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."
32.It is common parlance oft-quoted aphorism "Not only must Justice be done; it must also be seen to be done." The reason is that Rules are moral constructs that are meant to serve higher value. Section 12 has been amended with the objective to induce neutrality of Arbitrators' viz. their independence and impartiality. The amended provision is enacted to identify the "circumstances" which give rise to "justifiable doubts" about the independence or impartiality of the Arbitrator. It emphasizes that the existence of any relationship or interest of any kind is likely to give rise to justifiable doubts as to his neutrality is to be avoided and any employee, manager, director, who has a controlling influence / relationship with the party to the dispute should not be appointed as an Arbitrator.
ARBTN No. 21108/2016Prem Lal Singh Yadav vs. DDD & Others Page No. 16 of 31
33.The Fifth Schedule to the Act enumerates the grounds which may give rise to justifiable doubts of this nature. However, the Seventh Schedule mentions those circumstances which would attract the provisions of sub- section (5) of Section 12 and ipso facto without anything further, would nullify any prior agreement to the contrary. If an Arbitrator is an employee, a consultant, an advisor or has any past or present business relationship with a party, he is rendered ineligible to act as an Arbitrator. Likewise, that person is treated as incompetent to perform the role of Arbitrator, who is a manager, director or part of the management or has a single controlling influence in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration. Similarly, persons who regularly advised the appointing party or affiliate of the appointing party are incapacitated. A comprehensive list is enumerated in Schedule 5 and Schedule 7 of the Amendment Act, 2015.
34.Section 12(5) relates to the de jure inability of an Arbitrator to act as such. Under this provision, any prior agreement to the contrary is wiped out by the non- obstante clause in Section 12(5) the moment any person whose relationship with the parties or the counsel or the subject matter of the dispute falls under the Seventh Schedule. The sub-section declares that such person shall be "ineligible" to be appointed as Arbitrator. The only way in which this ineligibility can be removed is by the Proviso which again is a special provision which states that parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 17 of 31 express agreement in writing. What is clear, therefore, is that where under any agreement between the parties, a person falls within any of the categories set out in the Seventh Schedule; he is as a matter of law, ineligible to be appointed as an Arbitrator. The only way in which this ineligibility can be removed, again, in law, is that parties may after disputes have arisen between them, waive the applicability of this sub-section by an "express agreement in writing". The "express agreement in writing" has reference to a person who is interdicted by the Seventh Schedule, who is stated by 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.
35.Where an Arbitrator becomes "ineligible" to be appointed as an Arbitrator in terms of Schedule VII, there is no question of challenge to such Arbitrator, before such Arbitrator. In such a case, i.e., a case which falls under Section 12(5), Section 14(1)(a) of the Act gets attracted inasmuch as the Arbitrator becomes, as a matter of law i.e. de jure, unable to perform his functions under Section 12(5), being ineligible to be appointed as an Arbitrator. This being so, his mandate automatically terminates, and he shall then be substituted by another Arbitrator under Section 14(1) itself. Thus, in Section 12(5) cases, there is no challenge procedure to be availed of. If an Arbitrator continues as such, being de jure unable to perform his functions as he falls within any of the categories mentioned in Section 12(5) read with the Seventh Schedule, a party may apply to the Court which will then decide on whether his ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 18 of 31 mandate has terminated. Questions which may typically arise under Section 14 may be as to whether such person falls within any of the categories mentioned in the Seventh Schedule, or whether there is a waiver as provided in the proviso to Section 12(5) of the Act. As a matter of law, it is important to note that the proviso to Section 12(5) must be contrasted with Section 4 of the Act. Section 4 deals with cases of deemed waiver by conduct; whereas the proviso to Section 12(5) deals with waiver by express agreement in writing between the parties only if made in writing subsequent to disputes having arisen between them.
36.In Aravali Power Company Pvt. Ltd. v M/S. Era Infra Engineering Ltd (2017) 15 SCC 32 (which was post the Amendment Act, 2015) it was observed that in cases governed by 1996 Act as it stood before amendment, the fact that the named Arbitrator is an employee of one of the parties is not ipso facto a ground to raise presumption of bias or impartiality or lack of independence on his part. However, in cases governed after the Amendment Act, 2015 if an Arbitration clause finds foul with the amended provisions the appointment of the Arbitrator even if apparently in conformity with the arbitration clause in the agreement, it would be illegal and the court would be within its powers to appoint such Arbitrator as may be permissible. It was further observed that as per Sub-section (5) of Section 12 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 ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 19 of 31 Seventh Schedule, he shall be ineligible to be appointed as an Arbitrator. Similar were the observations made by the Apex Court in Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Limited (2017) 4 SCC 665.
37.In HRD Corporation v. GAIL (India) Ltd., (2018) 12 SCC 471, Apex Court, after setting out the amendments made in Section 12 and the Fifth, Sixth, and Seventh Schedules to the Act, held as follows:
"12. After the 2016 Amendment Act, a dichotomy is made by the Act between persons who become "ineligible" to be appointed as Arbitrators, and persons about whom justifiable doubts exist as to their independence or impartiality. Since ineligibility goes to the root of the appointment, Section 12(5) read with the Seventh Schedule makes it clear that if the Arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes "ineligible" to act as Arbitrator. Once he becomes ineligible, it is clear that, under Section 14(1)(a), he then becomes de jure unable to perform his functions inasmuch as, in law, he is regarded as "ineligible". In order to determine whether an Arbitrator is de jure unable to perform his functions, it is not necessary to go to the Arbitral Tribunal under Section 13.
13. Since such a person would lack inherent jurisdiction to proceed any further, an application may be filed under Section 14(2) to the Court to decide on the termination of his/her mandate on this ground. As opposed to this, in a ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 20 of 31 challenge where grounds stated in the Fifth Schedule are disclosed, which give rise to justifiable doubts as to the Arbitrator's independence or impartiality, such doubts as to independence or impartiality have to be determined as a matter of fact in the facts of the particular challenge by the Arbitral Tribunal under Section 13. If a challenge is not successful, and the Arbitral Tribunal decides that there are no justifiable doubts as to the independence or impartiality of the Arbitrator/Arbitrators, the Tribunal must then continue the arbitral proceedings under Section 13(4) and make an award. It is only after such award is made, that the party challenging the Arbitrator's appointment on grounds contained in the Fifth Schedule may make an application for setting aside the arbitral award in accordance with Section 34 on the aforesaid grounds.
14. The enumeration of grounds given in the Fifth and Seventh Schedules have been taken from the IBA Guidelines, particularly from the Red and Orange Lists thereof. The aforesaid guidelines consist of three lists. The Red List, consisting of non-waivable and waivable guidelines, covers situations which are "more serious" and "serious", the "more serious" objections being non-waivable. The Orange List, on the other hand, is a list of situations that may give rise to doubts as to the Arbitrator's impartiality or independence, as a consequence of which the Arbitrator has a duty to disclose such situations. The Green List is a list of ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 21 of 31 situations where no actual conflict of interest exists from an objective point of view, as a result of which the Arbitrator has no duty of disclosure. These Guidelines were first introduced in the year 2004 and have thereafter been amended, after seeing the experience of arbitration worldwide. In Part 1 thereof, general standards regarding impartiality, independence and disclosure are set out."
xxx xxx xxx "17. It will be noticed that Items 1 to 19 of the Fifth Schedule are identical with the aforesaid items in the Seventh Schedule. The only reason that these items also appear in the Fifth Schedule is for purposes of disclosure by the Arbitrator, as unless the proposed Arbitrator discloses in writing his involvement in terms of Items 1 to 34 of the Fifth Schedule, such disclosure would be lacking, in which case the parties would be put at a disadvantage as such information is often within the personal knowledge of the Arbitrator only. It is for this reason that it appears that Items 1 to 19 also appear in the Fifth Schedule."
38.In TRF Limited v. Energo Engineering Projects Ltd. (2017) 8 SCC 377, the Apex Court referred to Section 12(5) of the Act in the context of appointment of an Arbitrator by a Managing Director of a Corporation, who became ineligible to act as Arbitrator under the Seventh Schedule. The Court held:
ARBTN No. 21108/2016Prem Lal Singh Yadav vs. DDD & Others Page No. 22 of 31 "50. First, we shall deal with Clause (d). There is no doubt and cannot be, for the language employed in the Seventh Schedule, the Managing Director of the Corporation has become ineligible by operation of law. 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. 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 In such a context, the fulcrum of the controversy would be, can an ineligible Arbitrator, like the Managing Director, nominate an Arbitrator, who may be otherwise eligible and a respectable person. By our analysis, we are obligated to arrive at the conclusion that once the Arbitrator has become ineligible by operation of law, he cannot nominate another as an Arbitrator. The Arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as the sole Arbitrator is lost, ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 23 of 31 the power to nominate someone else as an Arbitrator is obliterated. Therefore, the view expressed by the High Court is not sustainable and we say so."
39.The principles enumerated in TRF Ltd were elaborated by the Apex court in Perkins Eastman Architects DPC v. HSCC (India) Limited 2019 (9) SCC OnLine SC 1517 as follows:
We thus have two categories of cases. The first, similar to the one dealt with in TRF Limited where the Managing Director himself is named as an Arbitrator with an additional power to appoint any other person as an Arbitrator. In the second category, the Managing Director is not to act as an Arbitrator himself but is empowered or authorised to appoint any other person of his choice or discretion as an Arbitrator. If, in the first category of cases, the Managing Director was found incompetent, it was because of the interest that he would be said to be having in the outcome or result of the dispute. The element of invalidity would thus be directly relatable to and arise from the interest that he would be having in such outcome or decision. If that be the test, similar invalidity would always arise and spring even in the second category of cases. If the interest that he has in the outcome of the dispute, is taken to be the basis for the possibility of bias, it will ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 24 of 31 always be present irrespective of whether the matter stands under the first or second category of cases.
40.The Bombay High Court in the matter of Lite Bite Foods Pvt. Ltd. v. Airports Authority of India 2019 SCC OnLine Bom 5163 succinctly explained the different situations enumerated in these judgments. The Court observed:
"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 ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 25 of 31 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'.
41.In the light of law as enumerated above it can be summed up that any Officer himself or an employee appointed by him to act as an Arbitrator, is disqualified to be an Arbitrator. The Ld. Arbitrator in the present case is the Superintendent Engineer (Arbitration) who had been appointed by Engineer Member, DDA on behalf of DDA in terms of Clause 25(ii) of the Agreement who suffers from a dejure disqualification according to Section 12 read with Schedule 7 and the arbitration award so delivered by him is liable to be set aside on this ground itself.
C. Award is violative of Public Policy of India and Principles of Natural Justice:
42.The award has also been assailed on the grounds that the Arbitrator did not consider the documents of the petitioner and also did not give any opportunity to the petitioner to lead any evidence in support of its claim and has violated principles of natural justice and Public Policy of India.
43.The grounds to challenge an Award have been enumerated in S.34 of the Amendment Act, 2015. The scope of challenge has been explained in Ssangyong Engineering and Construction Co. Ltd.
(supra) wherein it was observed that the grounds of challenge of an award under Section 34 have been amended by Amendment Act, ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 26 of 31 2015. The amended Sub Section 2A of Section 34 which was added by way of amendment rules as follows:
"34. Application for setting aside arbitral award.-
XXX XXX XXX (2A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re appreciation of evidence.
44.It was observed that it is now clear that the expression "public policy of India" as contained in Section 34 would now mean the "fundamental policy of Indian law" as explained in Associate Builders (supra) i.e. the fundamental policy of Indian law would be relegated to the Renusagar (Supra) understanding of this expression. However, principles of natural justice as contained in Section 18 and 34(2) (a) (iii) of 1996 Act shall continue to be the ground of challenge of an award as is provided in the case of Associate Builders (Supra). It was noted that the ground for interference in so far as interest of India is concerned; it has been deleted and therefore no longer survives. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". This would apply only to such ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 27 of 31 arbitral awards that shock the conscience of the court and that can be set aside on this ground.
45.The public policy is now constricted to mean firstly that a domestic award is contrary to the fundamental policy of Indian law. Secondly, such award is against basic notions of justice or morality. An additional ground is now available under Sub Section 2A added by the Amendment Act, 2015 to Section 34. Here, there must be patent illegality appearing on the face of award which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within the fundamental policy of Indian law namely the contravention of a statute not linked to public policy or public interest cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality. Thirdly, it is also made clear that re-appreciation of evidence which is what an appellate court is permitted to do cannot be permitted under the ground of patent illegality appearing on the face of the award. This was elucidated in Associate Builders (Supra) namely a mere contravention of the substantive law of India by itself is no longer a ground available to set aside an arbitral award. However, if the Arbitrator gives no reasons for an award and contravention Section 31(3) of the 1996 Act, that would certainly amount to patent illegality on the face of the award. A change that has been brought in by the Amendment Act, 2015 is that the construction of the terms of a contract is primarily for an Arbitrator to decide, unless the Arbitrator construes the contract in a manner that no fair-
ARBTN No. 21108/2016Prem Lal Singh Yadav vs. DDD & Others Page No. 28 of 31 minded or reasonable person would; in short that the Arbitrator's view is not even a possible view to take. Also, if the Arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of justification and would fall within the new ground of patent illegality added under Section 34(2A).
46.It has been further explained in Ssangyong Engineering and Construction Co. Ltd. (supra) that it is important to note that a decision which is perverse, may no longer be a ground for challenge under "public policy of India" but would certainly amount to patent illegality appearing on the face of the award. A finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additional findings based on documents taken behind the back of the parties by the Arbitrator would also qualify as a decision based on no evidence in as much as such decision is not based on evidence led by the parties and therefore, would also have to be characterized as perverse. Section 34 (2) (a) does not entail a challenge to an arbitral award on merits.
47.The main ground of challenge on merits is the petitioner was not given an opportunity to lead the evidence even though he made various applications in this regard and that documents were submitted by the Respondents before the back of the petitioner without giving any notice to him.
48.The Arbitrator in the present case had concluded that no evidence is required. However, in the present case, there is a dispute on facts as ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 29 of 31 to when the contract was completed. While the petitioner was claiming that it was completed well within time, this was disputed by the respondent, who asserted that the work never got completed. When the facts are in dispute the only way to decide them is by giving them an opportunity to adduce the evidence. The learned Arbitrator should have thus granted an opportunity to the parties to adduce evidence. By denying opportunity there is violation of principles of natural justice which is also a valid reason for setting aside the award.
49.Not only this, it is evident that the documents, namely Vigilance Report was considered by the Ld. Arbitrator after conclusion of arguments and no notice of the same was given to the petitioner. There is also an assertion that the Completion Certificate was also considered even though it was never brought on record. The Petitioner has been able to show that documents have been provided behind his back which amounts to patent illegality. Conclusion:
50.The objections have been filed in the court on 05.08.2016 which is after the commencement of Amendment Act 2015 which became effective from 23.10.2015. The learned Arbitrator was not competent to act as an Arbitrator. Also, the principles of natural justice have not been followed which is against the public policy of India.The award also suffers from patent illegality of considering documents behind the back of petitioner.
51.It is thus held the award under challenge suffers from patent illegality as is based on no evidence and also the learned Arbitrator ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 30 of 31 was disqualified by virtue of Section 12 (1) & (5) read with Schedule 7 of the Amendment Act, 2015. Hence, the arbitral award is hereby set aside. The parties are at liberty for initiation of arbitration proceedings afresh as per law.
52.Parties to bear their own costs.
Digitally signed 53.File be consigned to record room. by NEENA NEENA BANSAL BANSAL KRISHNA Date: KRISHNA 2020.12.12 11:56:56 +0530 Announced in the open court on this 10th day of December 2020 (NEENA BANSAL KRISHNA) Principal District & Sessions Judge South East, Saket Courts, New Delhi ARBTN No. 21108/2016 Prem Lal Singh Yadav vs. DDD & Others Page No. 31 of 31