Jammu & Kashmir High Court
Sanyog Enterprises Pvt. Ltd vs Union Territory Of J&K And Others on 21 July, 2020
Author: Chief Justice
Bench: Chief Justice
HIGH COURT OF JAMMU AND KASHMIR
AT JAMMU
Arb P.No.17/2020
CM Nos.2796/2020 &
2795/2020
(Through Video Conferencing
from Srinagar)
Sanyog Enterprises Pvt. Ltd.
......Petitioner(s)
Through:- Mr. Mohit Choudhary, Advocate
(on video conference from his office at New Delhi)
With
Ms Monika Kohli, Advocate
(On video conference from her residence at Jammu)
V/s
Union Territory of J&K and others.
.........Respondent(s)
Through:- Mr H. A. Sidiqui, Sr. AAG.
(On Phone Call from 9419115064 from residence in Poonch)
Coram:
HON'BLE THE CHIEF JUSTICE.
(On Video Conference from residence at Srinagar)
ORDER
21.07.2020
01. The instant petition has been filed by the petitioner under Section 11(6) of the Arbitration and Conciliation Act, 1996, praying for appointment of an arbitrator to arbitrate on the disputes which have arisen between the parties.
02. The petitioner contends that on 27th November, 2015, the Jammu & Kashmir Medical Supplies Corporation Limited-the respondent no.3 herein, issued a composite NIT/E-bid tender bearing no.N1T/JKMSCL/Pharmacy/ 2015/1/107 inviting interested parties for opening and running a chain of 24x7 Pharmacy Shops within the hospital premises across the State of Jammu 2 Arb P.No.17/2020 & Kashmir. The petitioner had participated in the tender process and was declared the highest bidder on 11th January, 2016. The petitioner's bid was accepted and it made a payment of Rs.21.51 Crores by bank transfer in terms of the conditions imposed by the respondents. Thereupon an agreement was executed between the petitioner and the Jammu & Kashmir Medical Supplies Corporation Limited on 10th March, 2016 which was duly registered in the office of Sub-Registrar-IV (2nd Additional Munsiff), Jammu. It is submitted that under this agreement, 55 shops/locations were required to be handed over to the successful bidder to set up and operate a chain of 24 x 7 Modern Pharmacies/ Chemist Shops.
03. In the agreement, the parties had agreed upon a dispute redressal mechanism in clause 45, which reads as follows:
"45. Grievance/ Appeal 45.1 In case of any dispute, the decision of Managing Director, JKMSCL shall be final and binding.
45.2 In any dispute arises out of the contract with regard to the interpretation, meaning and breach of the terms of the contract, the matter shall be referred to the Managing Director, JKMSCL, J&K, who will appoint his senior most officer as sole Arbitrator of the dispute, who will not be related to this contract and whose decision shall be final and binding on both the parties. The Arbitrator shall deal with the grievance expeditiously, as possible and shall endeavor to dispose it off, within thirty days from the date of its submissions.
45.3 If the Part of the 2nd Part is aggrieved by the order passed by the Officer, appointed as Arbitrator, the Party of the 2nd Part may file an appeal before Final Appellate Authority 3 Arb P.No.17/2020 i.e. Secretary to Govt. Health & Medical Education Department, J&K State., within fifteen days from the expiry of the order passed by Arbitrator or the date of receipt of the order passed by the Arbitrator, as the case may be."
(Emphasis supplied)
04. The petitioner complains that the promised shops/ locations were not handed over to it, and, instead the respondents tried to evict the petitioner from some of the locations which had been handed over to it. As such, the petitioner contends that, disputes arose between the parties during the currency of agreement dated 10th March, 2016.
05. In view thereof, the petitioner issued a notice dated 28th May, 2020 in terms of clause 45 of the agreement. This notice is supposed to have been issued under Section 21 of the Arbitration and Conciliation Act, 1996. In view of the amendment effected on 23rd November, 2020 of the Arbitration & Conciliation Act, 1996 as also in terms of the law laid down by the Supreme Court in Perkins Eastman Architects DPC &Anr. vs. HSCC (India) Ltd. AIR 2020 SC 59 (hereinafter referred to as „Perkins‟) the petitioner thereby sought appointment of a neutral arbitrator.
06. The respondents repudiated the contentions of the petitioner by their response dated 9th June, 2020 inter alia asserting their entitlement to enforcement of Clause 45 of the agreement as aforesaid.
07. Aggrieved thereby, the petitioner has filed the present petition on 14 th July, 2020.
08. In response to the notice issued to show cause, the respondents have filed objections contending that the respondents had not forfeited their right to appoint an arbitrator in terms of Clause 45 of the agreement and that the parties 4 Arb P.No.17/2020 had to adhere to the terms of the agreement. The respondents have asserted that the Managing Director has the competence to appoint the arbitrator. The contentions raised in the objections have been reiterated by Mr H. A. Sidiqui, Sr. AAG, in the oral submissions. It is additionally submitted that the judgment in Perkins has no application to the present case. It is contended that the principles laid down in Perkins have no application to the present case. It is contended that in Perkins the court has not considered the impact of the proviso to Section 12(5) of the enactment. Mr Sidiqui has submitted that it is the right of the Managing Director to appoint the arbitrator in terms of Clause 45 of the agreement under the proviso to Sub-section (5) of Section 12 of the Arbitration and Conciliation Act, 1996.
09. Appearing for the petitioner, Mr. Mohit Choudhary, ld. counsel, on video conference, however, has reiterated the contentions raised in the petition.
10. The issue which arises for consideration is narrow. For expediency, I may extract Section 12(5) of the Arbitration and Conciliation Act, 1996, incorporated by a statutory amendment effected on 23 rd October, 2015, which reads thus:
"(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) 5 Arb P.No.17/2020
11. It is an admitted position that the amendment to Section 12 of the Arbitration and Conciliation Act, 1996, was effected on 24th October, 2015. The parties have entered into the registered agreement only on 10th March, 2016 which contains the arbitration agreement between the parties in terms of Clause 45 of the agreement.
12. It is nobody‟s case before us that there were any disputes between the parties on 10th March, 2016.
13. On 25th November, 2019, the Supreme Court of India laid down the binding principles of law with regard to competencies to appoint arbitrators, paras 20 and 21 of Perkins whereof reads as follows:
"20. 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 always be present irrespective of whether the matter stands under the first or second category of cases. We are conscious that if such deduction is drawn from the decision of this Court in TRF Limited, all cases having clauses similar to that with which we 6 Arb P.No.17/2020 are presently concerned, a party to the agreement would be disentitled to make any appointment of an Arbitrator on its own and it would always be available to argue that a party or an official or an authority having interest in the dispute would be disentitled to make appointment of an Arbitrator.
21. But, in our view that has to be the logical deduction from TRF Limited. Paragraph 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 (Act 3 of 2016) and recognised by the decision of this Court in TRF Limited"
(Emphasis Supplied) 7 Arb P.No.17/2020
14. Clause 45 as aforesaid takes the choice out of the hands of the Managing Director, JKMSCL, as there is a mandate on him therein and he can only appoint the "senior most officer" of the Corporation as a sole arbitrator.
15. The Supreme Court has observed that the incompetency of an authority to appoint an arbitrator and invalidity of an appointment made by him rests on the fact that such a person would have interest in the outcome of the decision of the arbitration. The "senior most officer of JKMSCL" would also be having a similar interest in the outcome or the result and would be incompetent to function as an independent arbitrator. Neither the Managing Director nor the senior most officer of JKMSCL could be expected to function independently or be neutral. In view of the law laid down in Perkins, the Managing Director of the respondent No.3 was precluded from being an arbitrator and precluded from appointing the Senior Most Officer as the arbitrator to adjudicate the dispute between the parties.
16. So far as the contention that the respondents had not waived the right to appoint an arbitrator is concerned, this submission is based on a misconception with regard to the impact of the proviso to Section 12(5). The proviso to Section 5 of Section 12 clearly postulates that waiver of the applicability of the sub-section (5) has to be subsequent to disputes arising between the parties and expressed in writing. Clause 45 contained in the agreement dated 12 th March, 2016 was agreed upon and executed on a date when there was no dispute between the parties. The disputes had arisen between the parties only during the working of the agreement. Admittedly, there is no waiver by the petitioner or, for that matter the respondents, let alone an agreement in writing, waiving the applicability of sub-section 5 of Section 12 before us. In this view of the 8 Arb P.No.17/2020 matter, the objection of the respondents premised on Section 12(5) and the proviso thereto, is completely untenable.
17. In view of the above, clause 45 of the agreement dated 10th March, 2016 contained in the arbitration clause, has to be worked in consonance with the principles laid down by the Supreme Court of India and an independent and neutral arbitrator has to be appointed by this Court to arbitrate upon the disputes between the parties.
18. The parties before me have submitted that any retired judge of this court may be appointed as Arbitrator to arbitrate the disputes arisen between the parties.
19. In view of the above, it is directed as follows:
i) The disputes between the parties are referred to Justice Permod Kohli (Retd.), who shall arbitrate the same in accordance with the Arbitration and Conciliation Act, 1996.
ii) The parties shall be at liberty to file claims, take all objections as may be available on facts and law and raise counter claims, if any, before the learned Arbitrator.
iii) The arbitrator shall render his award within the prescribed statutory period.
iv) The arbitrator shall be entitled to fix his own fee in terms of the Schedule to the Arbitration and Conciliation Act, 1996.
v) The arbitrator shall also be entitled to all incidental expenses which may be incurred. The fee and the expenses shall be paid by the petitioner at the first instance. The same would be apportioned by the 9 Arb P.No.17/2020 Arbitrator between the parties. The same shall form part of the costs which are finally awarded by the Arbitrator.
vi) Nothing herein contained is an expression of opinion on the merits of the case or any objection of the respondents.
vii) The parties or their authorized representative shall appear before the arbitrator on video conferencing, if necessary, at 12 noon on 22nd July, 2020, for directions.
This petition is accordingly allowed in the above terms.
(GITA MITTAL) CHIEF JUSTICE Jammu 21.07.2020 Abdul Qayoom, PS RAJ KUMAR 2020.07.21 15:35 I attest to the accuracy and integrity of this document