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Madhya Pradesh High Court · body

2021 DIGILAW 67 (MP)

Vijay Energy Equipments v. West Central Railway

2021-01-22

MOHAMMAD RAFIQ

body2021
ORDER : Mohammad Rafiq, CJ. 1. This application has been filed by applicant - M/s. Vijay Energy Equipments under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short "the Act") with the prayer that this Court may appoint an independent Arbitrator as the applicable clause in the agreement between the parties is in conflict with the prevailing law. 2. According to the case set up by the applicant in the application, the respondent-Railways issued a tender on 05.07.2013 inviting bids for construction of ROB No. 152/2 at Ch 152550 (New No. 150/3 Ch 150627) with 2 x 18 m + 1 x 36 m composite girder including sub-structure and superstructure over NH-75 and allied works in connection with LAR-KHJB new B.G. Rail line project with approximate cost Rs. 599 Lakhs. The applicant also participated in the process of tender and was eventually awarded the work. The applicant submitted a bank guarantee of Rs. 31,24,550/- before the respondent. An agreement was executed between the parties on 16.06.2014. However, the respondent failed to provide the approved drawing in time despite his several requests. The applicant sent a letter on 28.07.2016 requesting that the drawing may be sent so that the work can commence. The applicant further sent reminder letters on 06.09.2016 and 08.10.2016 so much so that applicant finally requested the respondent to close the work and refund the expenditure incurred due to the tender process. Thereafter, yet another reminder was sent by the applicant on 30.11.2016. 3. The respondent by letter dated 07.12.2016 denied the claim of the applicant and stated that the contract is under process of short closure. Aggrieved thereby, the applicant wrote a further letter on 22.12.2016 invoking the arbitration clause 64 under the General Conditions of Contract (in short "the GCC"). The respondent vide letter dated 30.12.2016 advised the applicant to waive off the applicability of Sections 12(5) and 31-A(5) of the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016). However, the applicant vide letter dated 28.03.2017 requested for appointment of retired High Court Judge as independent arbitrator. The Chief Engineer-II(C), in the meantime, vide order dated 18.05.2017 closed the contract. The applicant thereafter sent multiple letters requesting the respondent for return of bank guarantee as well as for appointment of impartial arbitrator. However, the applicant vide letter dated 28.03.2017 requested for appointment of retired High Court Judge as independent arbitrator. The Chief Engineer-II(C), in the meantime, vide order dated 18.05.2017 closed the contract. The applicant thereafter sent multiple letters requesting the respondent for return of bank guarantee as well as for appointment of impartial arbitrator. Suddenly, the respondent vide letter dated 21.03.2018 informed the applicant that its claims are not arbitrable and therefore, no arbitrator can be appointed. 4. Shri Tabrez Sheikh, learned counsel for the applicant referring to Clause 64 of the GCC contended that in view of Section 12(5) and Seventh Schedule appended to the amended Act, a serving officer of the Railways cannot be appointed as arbitrator. Sub-section (5) of Section 12 of the amended Act stipulates that "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". In view of the said amendment in the Act and the decision of the Hon'ble Supreme Court in the case of TRF Limited vs. Energo Engineer Project Ltd., reported in (2017) 8 SCC 377 , the respondent cannot appoint its serving officer or even retired Railway officer as the arbitrator. 5. Shri Atul Choudhari, learned counsel for the respondent-Railways submits that after the aforesaid 2015 amendment in the Act under Subsection (5) of Section 12 and Seventh Schedule thereof, the respondent-Railways have also suitably amended Clause 64(3) of the GCC. Now if the claimant does not waive the applicability of Section 12(5) of the Act, the Railway Board will offer him panel of three retired Railway personnel out of whom he has to choose two. Thereafter, one out of them shall be appointed as his nominee arbitrator. The respondent-Railways are ready to invoke the said provision and accordingly will supply the names of three retired Railway personnel to the applicant. 6. Having heard learned counsel for the parties and perusing the material on record, I am of the considered opinion that the question involved in the present case is no more res integra in view of the authoritative pronouncement of the Supreme Court in the case of Central Organization for Railway Electrification vs. ECI-SPIC-SMO-MCML (JV) A Joint Venture Company. 6. Having heard learned counsel for the parties and perusing the material on record, I am of the considered opinion that the question involved in the present case is no more res integra in view of the authoritative pronouncement of the Supreme Court in the case of Central Organization for Railway Electrification vs. ECI-SPIC-SMO-MCML (JV) A Joint Venture Company. The Supreme Court therein considered the case of TRF Limited (supra) relied upon by learned counsel for the applicant. The Supreme Court has also considered that after amendment of the Act of 1996 w.e.f. 23.10.2015, the Railway Board made modification in Clause 64 of the GCC and issued notification dated 16.11.2016 for implementation of modification. The Supreme Court in Central Organization for Railway Electrification (supra) in paragraphs-31 and 39 of the judgment held as under: "31. As discussed earlier, as per the modified Clause 64(3)(b) of GCC, when a written and valid demand for arbitration is received by the General Manager, the Railway will send a panel of at least four names of retired railway officers empanelled to work as arbitrators. The contractor will be asked to suggest to the General Manager at least two names out of the panel for appointment as contractor's nominee within thirty days from the date of dispatch of the request by the Railway. Vide letter dated 27.07.2018, the respondent has sought for appointment of an arbitrator for resolving the disputes. The appellant by its letter dated 24.09.2018 (which is well within the period of sixty days) in terms of Clause 64(3)(a)(ii) (where applicability of Section 12(5) of the Act has been waived off) sent a panel of four serving railway officers of JA Grade to act as arbitrators and requested the respondent to select any two from the list and communicate to the office at the earliest for formation of Arbitration Tribunal. By the letter dated 26.09.2018, the respondent conveyed their disagreement in waiving the applicability of Section 12(5) of the Amendment Act, 2015. By the letter dated 25.10.2018, in terms of Clause 64(3)(b) of GCC (where applicability of Section 12(5) has not been waived off) the appellant has nominated a panel of four retired railway officers to act as arbitrators and requested the respondent to select any two from the list and communicate to the appellant within thirty days from the date of the letter for formation of Arbitration Tribunal. The respondent has neither sent its reply nor selected two names from the list and replied to the appellant. Without responding to the appellant, the respondent has filed petition under Section 11(6) of the Arbitration and Conciliation Act before the High Court on 17.12.2018. When the respondent has not sent any reply to the communication dated 25.10.2018, the respondent is not justified in contending that the appointment of Arbitral Tribunal has not been made before filing of the application under Section 11 of the Act and that the right of the appellant to constitute Arbitral Tribunal is extinguished on filing of the application under Section 11(6) of the Act. xxx xxx xxx 39. There is an express provision in the modified clauses of General Conditions of Contract, as per Clauses 64(3)(a)(ii) and 64(3)(b), the Arbitral Tribunal shall consist of a panel of three Gazetted Railway Officers [Clause 64(3)(a)(ii)] and three retired Railway Officers retired not below the rank of Senior Administrative Grade Officers [Clause 64(3)(b)]. When the agreement specifically provides for appointment of Arbitral Tribunal consisting of three arbitrators from out of the panel serving or retired Railway Officers, the appointment of the arbitrators should be in terms of the agreement as agreed by the parties. That being the conditions in the agreement between the parties and the General Conditions of the Contract, the High Court was not justified in appointing an independent sole arbitrator ignoring Clauses 64(3)(a)(ii) and 64(3)(b) of the General Conditions of Contract and the impugned orders cannot be sustained." 7. The present case will fall in the category of Clause 64(3)(b) of GCC (supra) because the applicant herein has not waived off the applicability of Section 12(5) of the amended Act. Therefore, the opposite party-Railways would be justified in forwarding the panel of three retired officers of Railways to the applicant, calling upon him to choose two of them, out of which one will be chosen as nominee arbitrator of the applicant. 8. Therefore, the opposite party-Railways would be justified in forwarding the panel of three retired officers of Railways to the applicant, calling upon him to choose two of them, out of which one will be chosen as nominee arbitrator of the applicant. 8. The contention that since the General Manager of the Railways was himself not eligible to be appointed as an arbitrator, he cannot nominate any other person to be an arbitrator was also specifically considered by the Supreme Court in the case of Central Organization for Railway Electrification (supra) in paragraph 32 and was repelled by relying on earlier judgment of the Supreme Court in Perkins Eastman Architects DPC and another v. HSCC (India) Limited as would be evident from paragraphs 32 and 34 of the case of Central Organization for Railway Electrification (supra). Paragraphs 32 and 34 thereof are reproduced hereunder: "32. Stand of the learned counsel for the respondent is that by virtue of Section 12(5) read with Schedule VII of the Act, General Manager himself is made ineligible to be appointed as an arbitrator and hence, he cannot nominate any other person to be an arbitrator. The essence of the submission is "that which cannot be done directly, may not be done indirectly". In support of his contention, the learned counsel for the respondent placed reliance upon TRF Limited v. Energo Engineering Projects Limited (2017) 8 SCC 377 wherein the Supreme Court held as under:-- "54. 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. As stated earlier, we are neither concerned with the objectivity nor the individual respectability. We are only concerned with the authority or the power of the Managing Director. 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. 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, 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." 34. Considering the decision in TRF Limited, in Perkins Eastman Architects DPC v. HSCC (India) Limited 2019 SCC On Line SC 1517, the Supreme Court observed that there are 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 authorized to appoint any other person of his choice or discretion as an arbitrator. Observing that if in the first category, the Managing Director was found incompetent similar invalidity will always arise even in the second category of cases, in para (20) in Perkins Eastman, the Supreme Court held as under: "20. ....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. 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 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." 9. The matter can be examined from another angle. The Supreme Court in the case of Union of India vs. Parmar Construction Company, reported in (2019) 15 SCC 682 , held that conjoint reading of Section 21 of principal Act and Section 26 of the amendment Act, 2015 leaves no manner of doubt that the provisions of the 2015 Amendment Act shall not apply to such of the arbitral proceedings which have commenced in terms of the provisions of Section 21 of the Principal Act unless the parties otherwise agree. The Supreme Court also held that the request by respondent contractors for referring the dispute to arbitration was made and was received by the appellants much before the 2015 Amendment Act came into force. Thus, the applications/requests made by the respondent contractors have to be examined in accordance with the principal Act, 1996 without taking resort to the 2015 Amendment Act which came into force from 23.10.2015. This was also the view taken by the Supreme Court in BCCI vrs. Kochi Cricket Private Ltd. (2018) 6 SCC 287 . 10. Thus, the applications/requests made by the respondent contractors have to be examined in accordance with the principal Act, 1996 without taking resort to the 2015 Amendment Act which came into force from 23.10.2015. This was also the view taken by the Supreme Court in BCCI vrs. Kochi Cricket Private Ltd. (2018) 6 SCC 287 . 10. Having regard to the submissions made by the learned counsel for the parties and considering the provisions of the amended Clause 64 of the GCC, the present application is disposed of, requiring the respondent to send a proposal to the applicant of three retired Railway officers, not below the rank of SAG, within a period of 30 days, out of whom two names shall be selected by the applicant and communicated to the respondent-Railways, whereafter the respondent-Railways shall appoint at least one out of the said two names as contractor/applicant's nominee and the respondent-Railways shall also appoint its own nominees either from its panel or from outside the panel duly indicating the Presiding Officer from amongst the three arbitrators so appointed so as to complete the exercise within 30 days thereafter. 11. The application is accordingly disposed of.