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2018 DIGILAW 1424 (GAU)

Ashok Kumar Mandhyani v. Union of India

2018-09-24

UJJAL BHUYAN

body2018
JUDGMENT : Ujjal Bhuyan, J. Though this petition has been filed under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of Arbitrator under Sub-Section-(6) thereof, the question which has ultimately arisen for consideration is whether in a proceeding under Section 11 of the Arbitration and Conciliation Act, 1996 (1996 Act), award passed by the Arbitral Tribunal in violation of the law can be declared as non-est where after fresh Arbitrator can be appointed ? 2. Heard Mr. R Hussain, learned counsel for the petitioner and Mr. B Sharma, learned counsel for the Railways. 3. Following a tender process pursuant to NIT dated 28.02.2012, petitioner was offered the contract of clearing the water way of bridge including dismantling of old sub-structure, making proper protection work and other ancillary work in between station TKG-AUB in connection with gauge conversion of AUB-SGUJ Section of N.F.Railway. Petitioner accepted the same vide acceptance letter dated 27.06.2012. As was the normal practice, petitioner commenced the work thereafter by setting up camp and mobilising men and material in view of the short duration of the contract. Belatedly, contract agreement was entered into between the parties on 15.11.2012. As per the agreement, the total value of the work was Rs. 1,36,53,793.00/- and the date of completion of the work was 26.11.2012. The agreement provided for an arbitration clause. 4. According to the petitioner, he had executed the work at one site but the other site was not handed over to him by the railway authorities for which he could not proceed with the work and ultimately had to stop the same on 22.11.2012. Respondents terminated the contract on 30.01.2015 w.e.f. 26.11.2012. 5. Petitioner lodged claim before the respondents on 11.02.2015 for an amount of Rs. 44,54,239.00/- under different heads which was disputed and denied by the respondents on 19.06.2015. 6. There is an arbitration clause, namely, Clause-1(ii) of the contract agreement dated 15.11.2012 which provided that the General Conditions of Contract, 1998 of N.F Railways would form part of the contract agreement. Clauses-63 and 64 of the General Conditions of Contract are the arbitration clauses for settlement of dispute through arbitration. 7. Petitioner invoked the arbitration clause vide notice dated 23.06.2015. Respondents responded to the claim of the petitioner and furnished panel of four railway officers for nomination of two as Arbitrators by the petitioner. Clauses-63 and 64 of the General Conditions of Contract are the arbitration clauses for settlement of dispute through arbitration. 7. Petitioner invoked the arbitration clause vide notice dated 23.06.2015. Respondents responded to the claim of the petitioner and furnished panel of four railway officers for nomination of two as Arbitrators by the petitioner. By letter dated 06.09.2015, petitioner nominated Smti A Tripathi and Sri PS Sathi as Arbitrators. On 18.11.2015, the following three railway officers were appointed by the respondents as Arbitrators, viz, (i) Sri PS Sathi (Presiding Arbitrator), (ii) Smti Shruti Agnihotri (Arbitrator) and Sri RK Singh (Arbitrator). 8. It is stated that arbitration proceedings commenced on 25.01.2016 and notice was issued by the Arbitral Tribunal on 25.01.2016 to the parties for submission of pleadings. Petitioner appeared before the Arbitral Tribunal on 22.02.2016 and sought for time to file statement of claims. On 29.03.2016, petitioner submitted statement of claims. 9. Arbitral Tribunal was re-constituted on 06.09.2016, whereby respondents appointed Sri Gurjit Singh as Arbitrator in place of Sri RK Singh. Since the period of 12 months for conclusion of arbitral proceeding was fast approaching, petitioner wrote letter dated 22.03.2017, requesting early conclusion of arbitral proceeding. However, the award could not be passed within 12 months. Though Arbitral Tribunal issued notice to the petitioner thereafter, petitioner did not appear before the Arbitral Tribunal on the ground that after expiry of the period of 12 months, the mandate in favour of the Arbitral Tribunal stood terminated. It was in such circumstances, that petitioner filed this petition under Section 11 of the 1996 Act for appointment of new Arbitrator. 10. This Court by order dated 11.08.2017 had issued notice and passed an interim order to the effect that the Arbitral Tribunal was restrained from proceeding further with the arbitral proceeding. 11. Respondents have filed affidavit-in-opposition. Basic stand taken in the affidavit is that Arbitrators were appointed by the competent authority on the request of the petitioner. Arbitrators had passed the award on 05.08.2017. Question of appointment of new Arbitrator therefore does not arise. 12. Petitioner has filed additional affidavit as well as reply-affidavit detailing therein the complete list of dates. 13. Before proceeding further, it would be apposite to mention the relevant dates. It is not disputed by either of the parties that the Arbitral Tribunal headed by Sri PS Sathi had commenced proceeding on 25.01.2016 by issuing notice to the parties. 12. Petitioner has filed additional affidavit as well as reply-affidavit detailing therein the complete list of dates. 13. Before proceeding further, it would be apposite to mention the relevant dates. It is not disputed by either of the parties that the Arbitral Tribunal headed by Sri PS Sathi had commenced proceeding on 25.01.2016 by issuing notice to the parties. According to the petitioner, he had appeared before the Arbitral Tribunal on 22.02.2016 and thereafter submitted statement of claims on 29.03.2016. From the affidavit of the respondents, it has now come to light that award was passed by the Arbitral Tribunal on 05.08.2017. 14. At this stage, it may be noticed that the 1996 Act had undergone major amendment vide the Arbitration and Conciliation (Amendment) Act, 2015. Sub-Section (8) of Section 11 and Sub-Section (1) of the Section 12 stood substantially amended by the said Amendment Act, so also Section 29-A. Sub-Section (8) of Section 11 reads as under: "(8) The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of Section 12, and have due regard to- (a) any qualifications required for the arbitrator by the agreement of the parties; and (b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator." 15. As per Sub-Section (1) of Section 12, when a person is approached for his possible appointment as an Arbitrator, he would be under an obligation to disclose in writing any circumstance, such as, existence of any relationship with any of the parties either direct or indirect, past or present, whether the relationship relates to financial, business, professional or other kind which is likely to give rise to justifiable doubts as to his independence or impartiality or on his ability to devote sufficient time to the arbitration. Sub-Section (1) of Section 12 reads as under: "12. Sub-Section (1) of Section 12 reads as under: "12. Grounds for challenge- (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances- (a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and (b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months. Explanation 1- The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Explanation 2- The disclosure shall be made by such person in the form specified in the Sixth Schedule." 16. Thus, post amendment, appointment of any officer belonging to any of the parties as Arbitrator has been affectively ruled out to ensure fair, impartial and independent arbitration. This aspect has been gone into by the Supreme Court in the case of Aravali Power Company Pvt. Ltd. -vs- Era Infra Engineering Ltd.,2017 5 RAJ 358 (SC). Summing up the position post amendment, Supreme Court held that in cases covered by the 1996 Act, as it stood before the Amendment Act came into force, the fact that the Arbitrator is an employee of one of the parties would not if so facto be a ground to raise a presumption of bias or partiality or lack of independence on his part though there can be justifiable apprehension in this regard. 16.1. In cases governed by the 1996 Act, after the amendment, Supreme Court held that appointment of an employee or officer of one of the parties as Arbitrator would be illegal and in such event, Court would be within its power to appoint such Arbitrators as may be permissible. 17. This position has been further clarified in the case of TRF Limited -vs- Energo Engineering Projects Ltd., (2017) 8 SCC 377 . 17. This position has been further clarified in the case of TRF Limited -vs- Energo Engineering Projects Ltd., (2017) 8 SCC 377 . The issues before the Supreme Court were whether once the person who was required to arbitrate upon the disputes arisen under the terms and conditions of the contract becomes ineligible by operation of law, would he be eligible to nominate a person as an arbitrator, and secondly, whether a plea that pertains to statutory disqualification of the nominated arbitrator can be raised before the Court in an application under Section 11(6) of the 1996 Act. In that case Arbitrator was appointed by the party after the application was made under Section 11 (6). It was held that such appointment after forfeiture of right was of no consequence and would not dis-entitle the dealer to seek appointment of Arbitrator under Section 11 (6). It was also reiterated that unless appointment of Arbitrator is ex-facie valid, acceptance of such appointment as a fait accompli to debar jurisdiction under Section 11(6) cannot be countenanced in law. 18. In the instant case, we find that the Arbitral Tribunal was constituted on 18.11.2015, whereas, the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) came into effect retrospectively from 23.10.2015. Thus, provisions of Section 11 (8) read with Section 12 (1) of the 1996 Act, as amended, had come into effect by operation of law before constitution of the Arbitral Tribunal. Therefore, appointment of three railway officers as Arbitrators by the respondents was contrary to the mandate of the 1996 Act, as amended. Submission of the petitioner to the arbitration proceeding would not in any manner legitimize the proceedings since the constitution of the Arbitral Tribunal was contrary to the statutory mandate. This itself would have clinched the issue. However, Court would not like to conclude the proceedings on the above issue because there is another issue of importance which requires to be dealt with. 19. Section 29-A provides for time limit for passing of arbitral award. This provision also came into effect retrospectively from 23.10.2015. Sub-Section (1) says that the award shall be made within a period of 12 months from the date the Arbitral Tribunal enters upon the reference. 19. Section 29-A provides for time limit for passing of arbitral award. This provision also came into effect retrospectively from 23.10.2015. Sub-Section (1) says that the award shall be made within a period of 12 months from the date the Arbitral Tribunal enters upon the reference. As per the explanation, for the purpose of this Sub-Section, an Arbitral Tribunal shall be deemed to have entered upon the reference on the date on which the Arbitrator or all the Arbitrators as the case may be had received notice in writing of their appointment. 19.1. As per Sub-Section (3), the parties may by consent extend the period specified in Sub-Section (1) for making of award for a further period not exceeding 6 months. 19.2. Sub-Section (4) says that if the award is not made within the period specified in Sub-Section (1) or the extended period under Sub-Section (3), the mandate of the Arbitrators shall terminate unless the Court has either prior to or after the expiry of the period so specified, extended the period. 20. A conjoint reading of Sub-Sections (1), (3) and (4) of Section 29-A of the 1996 Act, as amended, would indicate that the Arbitral Tribunal is under an obligation to make the award within 12 months from the date the Arbitrators received notice of their appointment. However, the parties may by consent extend the above period for making an award for another 6 months. The period of 12 months or 18 months as above would be the outer limit for making an award. The High Court or the Supreme Court as the case may be, may extend the period if it is approached either prior to or after expiry of the aforesaid period. If there is no award within 12 months or 18 months or within the extended period as directed by the Court, the mandate of the Arbitral Tribunal would stand terminated. Both in Sub-Section (1) and in Sub-Section (4), the expression "shall" has been used to convey the mandatory nature of the provisions. Under Sub-Section (1), the award has to be made within 12 months and as per Sub-Section (4), unless the award is so made or within the extended period, the mandate of the Arbitrators stands terminated. 21. In so far the present case is concerned, there is nothing on record to show that either party by consent had extended the period of arbitration. 21. In so far the present case is concerned, there is nothing on record to show that either party by consent had extended the period of arbitration. There is also nothing on record to show that this Court was moved by either of the parties or by the Arbitrators themselves for extension of time. Therefore, the time limit for passing of award under Section 29-A (1) was 12 months from the date of receipt of notice of appointment by the Arbitrators. 22. Documents on record disclose that the Arbitral Tribunal had issued notice to the parties on 25.01.2016. So this would mean that the Arbitrators had received notice of appointment prior to this date. Therefore, this date can safely be construed to be the date on which the Arbitral Tribunal had entered upon the reference. If that be so, than the period of 12 months would expire on 24.01.2017. From the affidavit of the respondents themselves, it has come on record that the arbitral award was passed on 05.08.2017 which is not only beyond the period of 12 months but after the present application was filed before this Court on 10.07.2017. 23. Before concluding the deliberation, it will be useful to refer to Section 34 of the 1996 Act which provides for filing of application for setting aside the arbitral award on the grounds and conditions mentioned in Sub-Section (2) thereof. 24. This is a case where first of all the Arbitral Tribunal was constituted in violation of the law by appointing officials of the Railways as Arbitrators. Though the petitioner had subjected himself to the arbitral proceeding, that in my mind would not clothe the Arbitral Tribunal with any legitimacy since constitution of the Arbitral Tribunal itself was illegal. This is further compounded by the fact that for the period of 12 months since constitution, the Arbitral Tribunal did not pass the award. As discussed above, use of the expression 'shall' in Section 29 -A is indicative of the obligatory nature of this provision and failure to adhere to the stipulation of this provision had divested the Arbitral Tribunal of its jurisdiction to arbitrate on the dispute between the parties any further after expiry of the period of 12 months on 24.01.2017. As discussed above, use of the expression 'shall' in Section 29 -A is indicative of the obligatory nature of this provision and failure to adhere to the stipulation of this provision had divested the Arbitral Tribunal of its jurisdiction to arbitrate on the dispute between the parties any further after expiry of the period of 12 months on 24.01.2017. Thus, Court is of the view that the Arbitral Tribunal headed by Sri PS Sathi lacked jurisdiction and by the subsequent turn of events, lost its mandate to pass the award. Therefore, the award passed on 05.08.2017 would be non-est in the eye of law and it is declared to be so. If the award is non-est in the eye of law, there is no question of filing of an application by the aggrieved party under Section 34 of the 1996 Act to set aside such award because in the eye of law, such an award does not exist. 25. A similar situation had arisen before the Lucknow Bench of the Allahabad High Court in Universal Construction & Trading Company -vs- Garhwal Mandal Vikas Nigam Ltd., 2004 1 RAJ 528 (Allahabad) where also the award passed by the Arbitrator was declared to be without jurisdiction though under somewhat different circumstances. After declaring the same to be non-est in the eye of law, Court went ahead and appointed an Arbitrator. 26. Upshot of the above discussion is that the question posed by this Court would have to be answered in the affirmative as there would be no bar for this Court to now appoint an Arbitrator under Section 11 (6) of the 1996 Act to arbitrate the dispute between the parties in accordance with law. 27. Learned counsel for the petitioner submits that Mr. Justice (Retd) HN Sarma, a former Judge of this Court be appointed as an Arbitrator to arbitrate the dispute between the parties. Mr. B Sharma, learned counsel for the respondents submits that he does not have the instruction to either support or oppose this submission. 28. Be that as it may, on due consideration, I hereby appoint Mr. Justice (Retd) HN Sarma, a former Judge of this Court as Arbitrator to arbitrate the dispute between the parties subject to consent and disclosure under Sections 11 (8) and 12 (1) of the 1996 Act, as amended. 29. Arbitration petition is accordingly allowed. No cost.