Patna High Court
Hindustan Construction Company Ltd vs Kanti Bijlee Utpadan Nigam Ltd on 20 December, 2017
Equivalent citations: AIR 2018 (NOC) 785 (PAT.)
Author: Rajendra Menon
Bench: Chief Justice
IN THE HIGH COURT OF JUDICATURE AT PATNA
Request Case No.196 of 2017
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Hindustan Construction Company Ltd., a Company Registered under the
Companies Act, 1956 having its Registered office at HINCON House, Lal
Bahadur Shastri Marg, Vikhroli (West), Mumbai- 400083 through its
authorized representative, Sri Rajendra Kumar Mahajan, S/o- Late Madhukar
Mahajan, R/o- B/303, Lok Manya Society, Veer Savarkar Marg, Thane (W)-
400602
... ... Petitioner/s
Versus
Kanti Bijlee Utpadan Nigam Ltd. Through its Chairman cum Managing
Director having its registered office at: NTPC Bhawan, Core-7, SCOPE
Complex-7, Industrial Area, Lodi Road, New Delhi- 10003 and its Branch
Office at Vidyut Bhawan, Bailey Road, Patna, P.S. Kotwali, Pin- 800001.
... ... Respondent/s
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Appearance :
For the Petitioner/s : Mr. Mrigank Mauli, Advocate
Mr. Prince Kumar Mishra, Advocate
For the Respondent/s : Mr. Anil Kumar Sinha, Advocate
Mr. Abhimanyu Deo, Advocate
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CORAM: HONOURABLE THE CHIEF JUSTICE
CAV JUDGMENT
Date : 20-12-2017
This is an application filed by the applicant
invoking the jurisdiction of this Court under Section 14 of the
Arbitration and Conciliation Act, 1996 read with Sections 11(6)
and 12 thereof seeking termination of the mandate of an
Arbitrator already appointed and proceeding to adjudicate the
dispute, on the ground that the Arbitrator becomes de jure
unable to perform his function in view of Section 14 and the
amendment made by the Arbitration and Conciliation Act, 2015
which came into force vide notification issued on 01.01.2016
with effect from 23rd of October, 2015.
Patna High Court REQ. CASE No.196 of 2017 dt.20-12-2017
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It is stated that in view of the prohibition created
under Section 12(5), the Arbitrator's mandate should be
terminated and an independent Arbitrator appointed. This in sum
and substance is the grievance of the petitioner and the same is
based on the fact that under Clause 56 of the general conditions
of the contract, all amendments in the rules and regulations and
the statute will apply to the contract in question.
Petitioner company was awarded a contract for
construction of "Main Plant, Civil Works, Offsite Civil Works,
Chimney, Chimney Elevator Package etc. of the Muzaffarpur
Thermal Power Plant- Stage-II, located at Kanti, Bihar. The
contract was awarded vide Annexure-P/1 on 04.02.2011 and the
formal contract agreement was executed on 11.03.2011 vide
Annexure-P/2 and it is an admitted position that the contract
contains an arbitration agreement. The arbitration is by a sole
Arbitrator who happens to be the nominee of the company and
Clause 56 of the general conditions of the contract, as is
contained in the letter (Annexure-P/5 and P/6) dated 19.02.2015
speaks about the contract being subject to the provisions of all
amendments made from time to time in the statute. In fact
Clause 56 available at Page 110 of the Paper Book stipulates
that any statutory modification or re-enactment in the
Patna High Court REQ. CASE No.196 of 2017 dt.20-12-2017
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Arbitration Act and the rules framed thereunder from time to
time shall apply to the arbitration proceeding under this clause.
It, is, by emphasizing on this clause argued that now the
Arbitrator who is nominated by the company cannot proceed
and an independent and impartial Arbitrator should be
appointed.
Be it as it may be, the fact remains that in the
execution of the agreement in question, as certain disputes
arose, the Chief Executive Officer of the respondent Company
was appointed as sole Arbitrator to adjudicate the dispute
between the parties. Records indicate that the Arbitrator
proceeded with the arbitration proceedings, first hearing of the
proceedings commenced on 18.03.2015, as is evident from
Annexure-P/7. The petitioner filed their statement of claim
before the Arbitrator on 26.05.2015 vide Annexure- P/8. The
original Arbitrator one Sri Tufani Ram was replaced by Sri
Rajiv Kumar Sinha, the new Executive Officer. The new
Arbitrator held the first arbitration proceedings on 14.10.2015.
Before the new Arbitrator on 15.01.2016 the statement of claim
was filed and it was at this point of time that the petitioner
raised an objection vide Annexure-P/10 and indicated that in
view of Clause 56 of the general terms and conditions and
Patna High Court REQ. CASE No.196 of 2017 dt.20-12-2017
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amendment to the Arbitration Act by Act of 2015 the matter
should be transferred and a new Arbitrator, independent in
nature, appointed. It was also emphasized that the NITI Aayog
vide circular dated 05.09.2016 (Annexure-P/12) has instructed
all Public Sector Undertakings to transfer pending proceedings
under the amending Act to the new Arbitrator. Grievance of the
petitioner is that instead of accepting this application, the
Arbitrator has proceeded with the matter and has not
relinquished or withdrawn from the proceedings. It is argued
that he is disqualified to proceed with the arbitration in view of
the amendment made to Section 12. He being an officer of the
department cannot proceed with the arbitration as he is not an
independent person.
Learned counsel appearing for the petitioner took
me through the provisions of Clause 56 of the agreement, the
amendment incorporated vide Amending Act of 2015,
incorporation of Section 12 thereof, the requirement of
Schedule-VII and argued that by virtue of the amendment the
Arbitrator becomes de jure unable to perform his functions and,
therefore, his mandate should be terminated under Section 14.
Learned counsel heavily relied upon a judgment of the Delhi
High Court in this regard filed as Annexure-P/15, a decision
Patna High Court REQ. CASE No.196 of 2017 dt.20-12-2017
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rendered in ARB.P. 537/2016 on April 11, 2017 in a dispute
between Ratna Infrastructure Project Pvt. Ltd. Vs. Meja
Urja Nigam Private Limited [MUNPL] to say that once the
Amending Act of 2015 comes into force and the Arbitrator
appointed by the department is not found to be an independent
person, his mandate can be terminated. That apart, learned
counsel invited my attention to a judgment of the Supreme
Court in the case of Indus Mobile Distribution Private
Limited. Vs. Datawind Innovations Private Limited and
others- (2017) 7 SCC 678 with regard to rebuttal to the
question of jurisdiction raised by the respondent and
maintainability of the proceeding before this Court and their
objection that the proceedings are not maintainable in Patna, it
has to be raised before the appropriate Court at Delhi. Learned
counsel also relied upon another judgment in the case of
Thyssen Stahlunion GMBH Vs. Steel Authority of India
Ltd.-(1999) 9 SCC 334 in support of his contention that the
mandate of the Arbitrator is required to be terminated now and
the entire amendment made to Section 12 by the Amending Act
of 2015 will apply in the present case and, therefore, it is a fit
case where the mandate of the Arbitrator should be terminated.
Elaborate arguments were raised in support of the
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aforesaid contention to say that the application should be
allowed.
Respondents have raised three objections, one with
regard to territorial jurisdiction of this Court in dealing with the
matter by contending that the parties have agreed to submit to
the jurisdiction of the Courts in Delhi. The second argument is
that even if the mandate of the Arbitrator is liable to be
terminated under Section 14, it can be done only by a Court
coming within the purview of a Court as defined under Section
2(e) of the Arbitration and Conciliation Act and as this Court is
not the Court of original jurisdiction, as defined under Section
2(e), the application is not maintainable. Finally, placing
reliance on a judgment of the Supreme Court recently rendered
on 12th of September, 2017 in the case of Aravali Power
Company Pvt. Ltd. Vs. M/s Era Infra Engineering Ltd.-
(2017) SCC OnLine SC 1072 it was argued that similar
contentions advanced has been rejected by the Hon'ble Supreme
Court, this application is liable to be dismissed.
I have heard learned counsel for the parties at
length and perused the record.
It is clear that the amendment to the Arbitration and
Conciliation Act by the Amending Act of 2015 was gazetted on
Patna High Court REQ. CASE No.196 of 2017 dt.20-12-2017
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1st of January, 2016 and according to Section 1(2) of the
Amending Act, it is deemed to have came into force with effect
from 23rd of October, 2015.
Even though from the arguments advanced by
learned counsel for the petitioner prima facie it can be held that
the amending provisions would apply to the present arbitration
proceedings by virtue of the terms and conditions of the
arbitration agreement particularly Clause 56 of the general terms
and conditions, it is an admitted position further that in this case
the Arbitrator was appointed much before coming into force of
the amendment and in fact the statement of claim was filed
before the Arbitrator on 18.03.2015 and I am informed that the
entire arbitration proceedings is now in the final stage of
adjudication.
Be it as it may be, after considering various
submissions made before me at length, I find that the dispute
involved in the matter and the legal question involved stands
answered by the Hon'ble Supreme Court in the case of Aravali
Power Company Pvt. Ltd. (supra) cited by learned counsel for
the respondents before me. In the said case also a contract was
awarded in the matter of construction of a township for Indira
Gandhi Super Thermal Power Project at Jhajjar, Haryana and in
Patna High Court REQ. CASE No.196 of 2017 dt.20-12-2017
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the execution of the agreement certain dispute arose. In that
contract also clause 56 of the general conditions of the contract
was exactly like the one in the present case. In fact, in both
these cases i.e. in the case before this Court and before the
Hon'ble Supreme Court the contract was awarded by NTPC and
the arbitration agreement are identical in nature. In the case
before the Hon'ble Supreme Court, the dispute arose and the
dispute was referred for arbitration on 07.10.2015. The parties
appeared before the Arbitrator on 07.10.2015 and the
proceedings commenced thereafter. Like in this case in the case
before the Hon'ble Supreme Court also the arbitration
proceedings commenced prior to coming into force of the
amending Act of 2015. In that case also an application under
Section 14 and Section 11 for terminating the mandate of the
Arbitrator as prayed for before this Court was allowed by the
High Court and identical prayer made as is made before me was
accepted. On a challenge made to the said order passed by the
learned High Court of Delhi the Supreme Court examined the
matter in detail and found that in the case before the Hon'ble
Supreme Court invocation of the arbitration was made on
27.09.2015. The Arbitrator was appointed on 19.08.2015, parties appeared and submitted their statement of claim before the Patna High Court REQ. CASE No.196 of 2017 dt.20-12-2017 9/14 Arbitrator on 07.10.2015 well before the date on which the amending Act came into force i.e. 23.10.2015 and similar argument advanced was considered. Hon'ble Supreme Court from Paragraph 17 onwards took note of the statutory provisions i.e. Sections 12, 13 and 14, Clause 56 of the general terms and conditions of the agreement and various judgments of the Supreme Court in the matter of giving effect to the arbitration agreement, the principle governing appointment of an independent Arbitrator, amendment to the Arbitration Act brought into force in the year 2015 and after elaborately dealing with various aspects of the matter in Paragraph 25 crystallizes the legal principle in the following manner:-
"25. The principles which emerge from the decisions referred to above are:-
A. In cases governed by 1996 Act as it stood before the Amendment Act came into force:-
(i) The fact that the named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or partiality or lack of independence on his part. There can however be a justifiable apprehension about the independence or impartiality of an employee arbitrator, if such person Patna High Court REQ. CASE No.196 of 2017 dt.20-12-2017 10/14 was the controlling or 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.
(ii) unless the cause of action for invoking jurisdiction under Clauses (a), (b) or (c) of sub- section (6) of Section 11 of 1996 Act arises, there is no question of the Chief Justice or his designate exercising power under sub-section (6) of Section 11.
(iii) The Chief Justice or his designate while exercising power under sub-section (6) of Section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause.
(iv) while exercising such power under sub section (6) of Section 11, if circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate Patna High Court REQ. CASE No.196 of 2017 dt.20-12-2017 11/14 may, for reasons to be recorded ignore the designated arbitrator and appoint someone else.
B. In cases governed by 1996 Act after the Amendment Act has come into force:-
If the arbitration clause finds foul with the amendment provisions, the appointment of the Arbitrator even if apparently in conformity with the arbitration clause in the agreement, would be illegal and thus the Court would be within its powers to appoint such arbitrator(s) as may be permissible."
Sub Para A of the aforesaid Paragraph 25 clearly indicates that merely because the named Arbitrator is an employee of one of the parties it is not ipso facto a ground to rise a presumption of bias or partiality or lack of independence. The Court further goes to hold that unless a cause of action for invoking the jurisdiction under Clause (a), (b) or (c) of sub section (6) of Section 11 does not arise, there is no question to exercise power under sub section (6) of Section 11 and thereafter in Paragraphs 3 and 4 it has been held that the Chief Justice or his designate while exercising power under sub section (6) of Section 11 has to give endeavour to give effect to Patna High Court REQ. CASE No.196 of 2017 dt.20-12-2017 12/14 the appointment procedure prescribed in the arbitration clause and while exercising such power if circumstances exist giving rise to justifiable doubt as to the independence or impartiality of the person nominated, by recording reasons, a fresh Arbitrator can be appointed. Under sub clause (B) the cases governed after the amendment have been crystallized. Thereafter, the order passed by the High Court for terminating the mandate of the Arbitrator merely on the basis of amendment has been set aside.
That being so, now, in the backdrop of the aforesaid principle of law laid down, this Court is required to apply the principle of law laid down by the Supreme Court as indicated hereinabove and take a decision. Admittedly, this is a case where the Arbitrator was appointed prior to amendment which came into force on 23.10.2015 and the case would be governed by the principle concerned stipulated in Paragraph 25A above and to invoke the jurisdiction of this Court to terminate the mandate of the Arbitrator or even to invoke the jurisdiction under sub section (6) of Section 11 there has to be circumstances existing giving rise to justifiable doubt as to the independence or impartiality of the person nominated or circumstances have to be pointed out warranting appointment of an independent Arbitrator. If the requirement, as envisaged by Patna High Court REQ. CASE No.196 of 2017 dt.20-12-2017 13/14 the Hon'ble Supreme Court in the aforesaid case, is scrutinized in the present case, it would be found that except for contending that by virtue of Clause 56 all amended provisions, rules and regulations will apply and now in view of the amendment brought into force with effect from 23.10.2015 if independent Arbitrator should be appointed not an iota of evidence, whisper or assertion is made to show that circumstances exist which give rise to a case for invoking the jurisdiction of this Court under Section 11 sub Section (6) and there are existing grounds and circumstances giving rise to a justifiable ground about the independence or impartiality of the person nominated as an Arbitrator and circumstances do exist for appointing an independent Arbitrator. Except for contending that the independent Arbitrator should now be appointed by virtue of the amendment brought into force, none of the factual circumstances or ingredients necessary to bring the case within the purview of parameters laid down by the Hon'ble Supreme Court in Paragraph 25A are made out in the present case. Merely because the amendment brought into force on 23.10.2015 will apply to the present proceedings, that by itself is not a sufficient ground to allow this application. To change the Arbitrator, as laid down by the Supreme Court in the case of Patna High Court REQ. CASE No.196 of 2017 dt.20-12-2017 14/14 Aravali Power Company (supra), it is further necessary to establish that the circumstances and ingredients necessary, as detailed in Paragraph 25A, are made out. It is only if both these conditions are fulfilled that the jurisdiction of this Court can be invoked. In the present case, the second condition i.e. the circumstances justifiable in nature for changing the Arbitrator having not been made out in a case governed under Paragraph 25A, this Court cannot make any indulgence into the matter.
That being so, once the legal principle for invoking the jurisdiction of this Court as laid down by the Hon'ble Supreme Court in the case of Aravali Power Company (supra) is not made out, in the present case, I see no reason to make any indulgence into the matter.
The application is, therefore, dismissed.
(Rajendra Menon, CJ)
P.K.P.
AFR/NAFR N.A.F.R.
CAV DATE 13.12.2017
Uploading Date 20.12.2017
Transmission Date