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2015 DIGILAW 946 (GAU)

Prestressed Udyog v. Union of India

2015-08-03

HRISHIKESH ROY

body2015
JUDGMENT : Heard Mr. S.J. Sarma, the learned counsel for the petitioner. The respondent Railways are represented by Mr. U.K. Nair, the standing counsel of the N.F. Railway. 2. Nomination of arbitrator by the Court is prayed through this petition filed under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “Arbitration Act”), in connection with the dispute arising out of the contract of manufacture and supply of Mono-Block Prestressed Concrete Sleeper for Broad Gauge line, against the Tender No.CS-166 of 2013. The work order for the 50,000 units @Rs.1,589/- totaling Rs.7,94,50,000/- was issued on 17.10.2013 (Annexure-1) by the Railway authorities to petitioner. However, due to alleged default of the contractor, the contract was cancelled by the Railways on 01.05.2014 (Annexure-4). Following the cancellation order, the contractor invoked clause 2900 of the Indian Railway Standard Conditions of Contract and demanded appointment of arbitrator through their notice dated 30.05.2014 (Annexure-8). But since no response was received from the Railways, the contractor seeks nomination of arbitrator by the Court, under Section 11(6) of the Arbitration Act. 3. The case record shows that the notice demanding appointment of arbitrator under clause 2900 was received by the Railways on 15.07.2014 and the matter was immediately processed to appoint the arbitrator and accordingly one Gurjit Singh, Deputy CE/TR was chosen by the General Manager, who was the competent authority. But as it was pointed out by the Chief Technical Officer and by the DGM(G) that the selected person had dealt with the contract in question, he was replaced by Mr. S. Sarkar, Deputy Chief Engineer(G). The General Manager approved the replacement arbitrator on 19.11.2014. 4. In this case, since the application under Section 11(6) for appointment of arbitrator was filed on 04.11.2014, Mr. S.J. Sarma, the learned counsel submits that nomination of the arbitrator by the Railways under the agreed procedure after the petitioner had moved Court, is not legally permissible. In support of his contention, the counsel relies on Deep Trading Company Vs. Indian Oil Corporation & ors. reported in (2013)4 SCC 35 . Against the argument of forfeiture of rights to nominate the arbitrator raised by the petitioner, the Railways contend that the competent authority had decided on the arbitrator on 06.10.2014 itself, well before the High Court was moved on 04.11.2014. Indian Oil Corporation & ors. reported in (2013)4 SCC 35 . Against the argument of forfeiture of rights to nominate the arbitrator raised by the petitioner, the Railways contend that the competent authority had decided on the arbitrator on 06.10.2014 itself, well before the High Court was moved on 04.11.2014. But since the chosen person had dealt with the contract in question, a replacement arbitrator was nominated subsequently under sub-clause (b) of clause 2900 of the Conditions of Contract. Accordingly it is argued that the ratio of Deep Trading Company (supra) cannot be applied in the facts of the present case to hold that the Railways have forfeited their right to nominate the arbitrator under the agreed procedure. 5. The contract in question is governed by the Indian Railway Standard Conditions of Contract and clause 2900 thereof relates to appointment of arbitrator and the same being relevant is extracted herein below:- “2900. Arbitration (a) In the event of any question, dispute or difference arising under these conditions or any special conditions of contract, or in connection with this contract (except as to any matters the decision of which is specially provided for by these or the special conditions) the same shall be referred to the sole arbitrator of a Gazetted Railway Officer appointed to be the arbitrator, by the General Manager in the case of contracts entered into by the Zonal Railways and Production Units; by any Member of the Railway Board, in the case of contracts entered into by the Railway Board and by the Head of the Organisation in respect of contracts entered into by the other Organisations under the Ministry of Railways. The Gazetted Railway Officer to be appointed as arbitrator however will not be one of those who had an opportunity to deal with the matters to which the contract relates or who in the course of their duties as railway servant have expressed views on all or any of the matters under dispute or difference. The award of the arbitrator shall be final and bringing on the parties to this contract. The award of the arbitrator shall be final and bringing on the parties to this contract. (b) In the event of the arbitrator dying, neglecting or refusing to act or resigning or being unable to act for any reason, or his award being set aside by the court for any reason, it shall be lawful for the authority appointing the arbitrator to appoint another arbitrator in place of the outgoing arbitrator in the manner aforesaid. …………………..” 6. As the present contract pertains to the Zonal Railways, the competent authority to nominate the arbitrator under sub-clause (a) is the General Manager and the record shows that he approved the name of Gurjit Singh on 06.10.2014, well before the contractor had moved the High Court under Section 11(6) of the Arbitration Act. But it is also true that appointment of Gurjit Singh was never notified as he was replaced by one S. Sarkar on 19.11.2014 and by this stage, the petition under Section 11(6) of the Arbitration Act was already filed in the High Court. Thus the issue to be decided herein is whether the Railways have forfeited their right to nominate the arbitrator under sub-clause (a) of clause 2900 and the Court should therefore nominate an arbitrator, by disregarding the appointment made by the General Manager. 7.1 The petitioner contends that neither the appointment of Gurjit Singh nor of S. Sarkar was ever made effective prior to filing of the petition under Section 11(6) of the Arbitration Act and therefore judicial notice needn’t be taken for those appointments. 7.2 Since appointment in accordance with the agreed procedure could not be made within time, Mr. S.J. Sarma, the learned counsel argues that an independent arbitrator who is not connected with either party should now be nominated by the Court. 7.3 The petitioner relies on Walter Bau AG Vs. Municipal Corporation of Greater Mumbai reported in (2015)3 SCC 800 to contend that the General Manager having nominated an ineligible officer (Gurjit Singh) as arbitrator on 06.10.2014, the competent authority failed to make the appointment as per the agreed procedure and therefore the nomination made under sub-clause (a) of clause 2900 was invalid and the Court should thus nominate an arbitrator on its own. 8.1 On the other hand, Mr. 8.1 On the other hand, Mr. U.K. Nair, the learned standing counsel for the Railways submits that nomination of the arbitrator was made by the General Manager on 06.10.2014 and only because the nominated person had dealt with the contract, he was replaced by a 2nd Officer on 19.11.2014 and therefore it is argued that the relevant date of appointment of arbitrator for applying the ratio of Deep Trading Company (supra) will be 16.10.2014 and not 19.11.2014, when the replacement arbitrator was appointed. 8.2 The respondents argue that the parties have bound themselves for adjudication of their dispute by an arbitrator to be nominated by the General Manager and since nomination was bonafide made in accordance with the agreed procedure, there can be no justification for nomination of arbitrator by the Court, under Section 11(6) of the Arbitration Act. 8.3 The standing counsel Mr. U.K. Nair has produced the Railways records to submit that the parties have agreed to adjudication of their dispute by a Gazetted Railway Officer and both Gurjit Singh and S. Sarkar are Officers of that category. But only because the former had dealt with the contract in question, he was replaced by Mr. Sarkar by the competent authority, after the matter was brought to his notice by the Chief Technical Officer and by the DGM(G) on 16.10.2014 and 30.10.2014 respectively. 8.4 Mr. Nair finally submits that the approved panel of Railway Officers are regularly deciding arbitration cases independently and on merit and he further submits that this contractor too is a beneficiary of one such recent verdict of the Railway arbitrator in a different arbitration proceeding. 9. The right to nominate a Railway Officer under clause 2900(a) subsist only till the stage the contractor does not move the Court under Section 11(6) of the Arbitration Act, but once the application is filed in the High Court, the right of the competent authority under the agreement is forfeited. [See: Deep Trading Company (supra)] Similarly under the ratio of Walter Bau AG (supra) when arbitrator is appointed by ignoring the agreement of the parties, the same is unacceptable and in that event, the Court can appoint arbitrator under Section 11(6) by departing from the agreed procedure. 10. [See: Deep Trading Company (supra)] Similarly under the ratio of Walter Bau AG (supra) when arbitrator is appointed by ignoring the agreement of the parties, the same is unacceptable and in that event, the Court can appoint arbitrator under Section 11(6) by departing from the agreed procedure. 10. In the present case, under sub-clause (a) of clause 2900 arbitration by a Gazetted Railway Officer is envisaged and the first person nominated by the General Manager on 06.10.2014 satisfies this criteria. But when it was pointed out that Mr. Gurjit Singh had dealt with the contract in question, the 2nd Railway Officer was nominated by the General Manager on 19.11.2014 under sub-clause (b) of clause 2900. Thus the competent authority bonafide acted within the permitted time and if Gurjit Singh wasn’t ineligible, his appointment on 06.10.2014 can’t be questioned as per the agreed procedure. But when he had to be replaced by another Officer on 19.11.2014, the decision taken on 06.10.2014 does not in my view ipso facto, get obliterated. Therefore, I am of the considered opinion that the ratio of Deep Trading Company (supra) cannot be applied here to conclude that the agreed decision was taken only after the High Court was moved under Section 11(6) of the Arbitration Act. 11. The next issue to be decided is whether the appointment of an ineligible Officer by the General Manager on 06.10.2014 will warrant application of the ratio of Walter Bau AG (supra) to the present case. In the case before the Supreme Court, when the parties fail to finalize the panel, the matter is to be decided by the International Centre for Alternative Dispute Resolution in India (in short “ICADR”). But in that case the ICADR was ignored and instead one retired Judge was nominated and in that context the Apex Court concluded that the appointment of the retired Judge was contrary to the agreed provision for appointment of arbitrator from the ICADR centre and was thus non-est. Therefore it was held that exercising power under Section 11(6) was justified in the facts of that case. 12. But what is striking in the present case is that the competent authority i.e. the General Manager had nominated a Railway Officer of the competent category on 06.10.2014 and only because this Officer had dealt with the contract in question, he was replaced by another Railway Officer on 19.11.2014. 12. But what is striking in the present case is that the competent authority i.e. the General Manager had nominated a Railway Officer of the competent category on 06.10.2014 and only because this Officer had dealt with the contract in question, he was replaced by another Railway Officer on 19.11.2014. Thus the exercise undertaken for appointment of arbitrator on 06.10.2014 appears to be a bonafide exercise and only when the specific ineligibility of the nominated officer was realised by the Chief Technical Officer on 16.10.2014, the first nominee was replaced by Mr. S. Sarkar, through a bonafide process. Of course, the decision for appointment of the arbitrator came to be communicated only after the contractor’s petition was filed on 04.11.2014 in the High Court but this shouldn’t have any implication in the context of these facts. 13. The records produced by Mr. Nair reflects that a list of 6 empanelled officers was placed before the competent authority and Mr. Gurjit Singh, from that list was chosen by the General Manager on 06.10.2014. At that stage the association of the nominated person with the contract in question wasn’t known to the competent authority. But subsequently when the mistake was realised by the CTE and recommendation was made for replacement by the DGM(G), Mr. S. Sarkar, was nominated as the replacement. Thus a bonafide mistake was corrected by invoking sub-clause (b) of clause 2900 and in my considered opinion, the decision taken on 19.11.2014 is nothing but a follow up rectificatory step to the earlier decision taken on 06.10.2014. As this was a continuous process and the decision to appoint the arbitrator was taken on 06.10.2014 itself, I hold that the ratio of Walter Bau AG (supra) and Deep Trading Company (supra) are inapplicable in the present matter. 14. It must also be recorded that the Railway Officers entrusted with arbitration are known to have independently decided large number of high stake cases involving their own employer as a litigating party and therefore, when the petitioner doesn’t produce anything for a contrary conclusion, it can’t be said a biased verdict will emanate from the railway officer. In fact the Court is informed by Mr. Nair that a substantial award was given in favour of the very same contractor by a Railway Officer acting as an arbitrator, in a recent decision of March, 2015. 15. In fact the Court is informed by Mr. Nair that a substantial award was given in favour of the very same contractor by a Railway Officer acting as an arbitrator, in a recent decision of March, 2015. 15. In view of the discussion made in the preceding paragraph(s), I hold that since Mr. S. Sarkar was nominated in accordance with the agreed procedure he should adjudicate the dispute on merit. But if the latter events provide due cause, this verdict will not preclude the right of the contractor to challenge the proceeding/decision, under Section 12 of the Arbitration Act. With such declaration this case is disposed of by rejecting this application filed under Section 11(6) of the Arbitration Act. It is ordered accordingly. No cost.