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2022 DIGILAW 347 (GUJ)

Bhagwati Construction v. Western Railway

2022-02-25

ARAVIND KUMAR

body2022
ORDER : 1. Heard learned advocate Mr. Sukhwani appearing for the petitioner and learned advocate Ms. Archana Amin appearing for the respondents. Perused the records. 2. Petitioner is seeking appointment of a sole arbitrator contending inter alia that it is a registered partnership firm and having got itself registered as a Government approved Contractor, is carrying on the business. Pursuant to tender called for by the respondents, petitioner was awarded the contract for rebuilding of covering shed over Platform No. 1 & Platform surfacing, construction of foot over bridge with ramps and other miscellaneous work in connection with utility shifting for the proposed DFC parallel alignment on Pansar – Palanpur section and an agreement dated 12.06.2018 came to be entered into between the parties in this regard. As agreed under the agreement, the rate was fixed at Rs.7,67,04,303.87. This was proceeded by the acceptance of tender and submission of performance guarantee as well as irrevocable bank guarantee amounting to Rs.38,35,215/- submitted by the petitioner in favour of the Western Railway. The agreement stipulated the time for completion of work as 12 months. Petitioner has alleged that for completion of work, respondents were required to provide drawings and it was belatedly furnished and the work for platform was awarded only on 30.07.2018 and on account of there being live water line and electric cable line, it was not possible to speed up the work. Petitioner is said to have appraised the Deputy Chief Engineer of the bottlenecks faced in execution of the work by communication dated 01.10.2018 and as such sought for extension, which is said to have been granted upto 31.03.2019. Petitioner is said to have sought for dismantling old shed, as it was not possible to do new work on the ground that it would endanger human life and as such requested the respondent for dismantling old shed and sought for providing drawing for covering shed and finalizing the drawing for foot over bridge. Petitioner is said to have received 48 hours notice from the office of Deputy Chief Engineer dated 02.01.2019 in terms of Clause 62 of the Standard General Conditions of contract, which is said to have been duly replied by the petitioner and assured that the work would be completed on or before 31.03.2019 and requested the respondent to withdraw 48 hours notice issued. Thereafter the respondent is said to have issued 7 days notice on 01.02.2019 resulted in petitioner informing the respondent by communication dated 12.02.2019 that petitioner was not provided with entire scope of work and only 30% was provided. Subsequently, Deputy Chief Engineer by communication dated 15.02.2019 is said to have rescinded the contract on the ground that termination of the contract is in terms of Clause 62. Contending said termination is wrongful and illegal and it was valid till 31.03.2019, as also the fact that time was not the essence of the contract, notice came to be issued to respondent by the petitioner on 26.02.2019 seeking payment of 1,15,05,645/- with interest @ 18% p.a. from the date of termination of the contract and also sought for release of FDRs within a period of 30 days and informing the respondent that failure to comply with the demands made thereunder, petitioner would be constrained to file a petition seeking for referring the disputes for being adjudicated through arbitration. On account of said demand having not been complied nor notice being replied, present petition has been filed. 3. On service of notice, respondents have appeared and filed their reply contending inter alia that Union of India is not a party and Western Railway is owned by the Union of India and the above petition is essentially against the Union of India and as such, proceedings should have been against the Union of India as contemplated under section 79 of Code of Civil Procedure and as such it is contended present petition is not maintainable. Denying the averments made in the petition and contending that remedy of the petitioner is to file a suit for recovery of the alleged amount due, if any, and petitioner could not take recourse to Clause 38 which provides for settlement of disputes, the respondent has sought for dismissal of petition. It is also contended that respondent has sent a form to be filled up by the petitioner either for waiving or not of the provisions of Section 12(5) and section 31A(5) of the Act and same has not been received and as such respondent has prayed for dismissal of the petition. It is the contention of Mr. It is also contended that respondent has sent a form to be filled up by the petitioner either for waiving or not of the provisions of Section 12(5) and section 31A(5) of the Act and same has not been received and as such respondent has prayed for dismissal of the petition. It is the contention of Mr. Sukhwani, learned counsel appearing for the petitioner that arbitration clause in the agreement clearly envisages that disputes between the parties is to be settled under the Arbitration and Conciliation Act, 1996 and the embargo placed under sub-section (5) of Section 12, and it cannot be resolved by an arbitrator who is either interested presently or in past or having any remote interest in the dispute and as such the claim of the respondent - Railways that it is entitled to appoint an official as indicated in the agreement or a retired official who has since been disassociated with the Railways for the past three years being permissible under entry no. 31 of Fifth Schedule is erroneous. He would submit that contention of Railways that they are empowered to appoint its retired official is without any basis and as such he has sought for allowing the petition by appointing an independent and sole arbitrator for adjudicating the disputes. 4. Per contra Ms. Archana Amin, learned counsel appearing for the respondents by reiterating the contentions raised in the reply affidavit filed by the third respondent, would contend that General Manager can appoint any official to act as an Arbitrator as per the agreement; the amended GCC empowers the Railways to appoints its officials by virtue of which the contractor is empowered to waive off the embargo clause and the form having been forwarded to the petitioner, had not been returned and thereby it empowers the Railways to appoint an arbitrator from its panel of arbitrators namely any retired employees as they eligible to be appointed by virtue of item no. 31 of V Schedule of the Arbitration Act empowers the Railways to appoint them. She would place reliance on the judgment of the Apex Court in the case of Central Organisation for Railway Electrification versus ECI-SPIC-SMO-MCML (JV) A Joint Venture reported in (2020) 14 SCC 712 and specifically relies upon paragraphs 10, 15, 16, 21 to 26, 32, 34, 36 to 39. 5. In reply Mr. She would place reliance on the judgment of the Apex Court in the case of Central Organisation for Railway Electrification versus ECI-SPIC-SMO-MCML (JV) A Joint Venture reported in (2020) 14 SCC 712 and specifically relies upon paragraphs 10, 15, 16, 21 to 26, 32, 34, 36 to 39. 5. In reply Mr. Sukhwani would draw attention of the Court to the order of the Hon’ble Apex Court dated 11.01.2021 passed in Petition(s) for Special Leave to Appeal (C) No(s). 12670/2020, whereunder Hon’ble Apex Court in the matter of Central Organisation for Railway Electrification Versus ECI-SPIC-SMO-MCML (JV) A Joint Venture (supra), has referred similar issue to the Larger Bench and by drawing attention of the Court to yet another judgment of the Apex Court in the matter of Jaipur Zila Dugadh Utpadak Sahkari Sangh Limited and Others Versus Ajay Sales and Suppliers reported in AIR 2021 SC 4869 , he seeks for allowing of the petition. 6. Having heard learned advocates appearing for the parties and on perusal of the records, this Court is of the considered view that only question that arises for consideration is : Whether the prayers sought for in the present petition deserve to be granted or not ? OR Whether the sole arbitrator requires to be appointed notwithstanding the GCC conditions stipulated under the subject agreement whereunder the Railways have sought for appointing an arbitrator of its choice namely from the panel of arbitrators who are its former employees ? 7. For discussion and recording a finding on the aforesaid points, it would be necessary to extract the arbitration clause which has been invoked in the instant case which is in strict-o-sense is not in dispute between the parties and it reads : - “38.0 THE SETTLEMENT OF DISPUTES 38.1 The disputes will be settled under the Arbitration and Reconciliation Act, 1996. 38.2 The successful tenderer/s shall put up his/their claim as per clause 43 of the General Conditions of Contract during the progress of work and not after completion of the work. All such claims and disputes shall be settled promptly during the progress of the works. The final authority for giving the decision on claims and disputes put up by the tenderer/s, contractor/s shall be the Chief Administrative Officer, Western Railway, Mumbai only. All such claims and disputes shall be settled promptly during the progress of the works. The final authority for giving the decision on claims and disputes put up by the tenderer/s, contractor/s shall be the Chief Administrative Officer, Western Railway, Mumbai only. 38.3 The provision of the Clause 63 and 34 of General Conditions of Contract corrected up to Advance Correction slip No. 4, circulated vide CAO(C) CCG’s No: WNC.623/5 part-9 Dated 4/5/2005 will be applicable only for settlement of claims or disputes between the parties for value less than or equal to 20% of the value of the contract, and when claims or disputes are of the value more than 20% of the value of the contract, provision of Clause 63 and 64 and other relevant clauses of General Conditions of Contract will not be remedy for settlement of such disputes. 38.4 The contractor/s shall not be entitled to ask for reference to arbitration, before the completion of the work assigned to him/them under this contract. The contractor/s shall seek reference to arbitration to settle the disputes only once within the ambit of condition 38.3 above. 38.5 The contractor/s shall not be entitled to make any claim whatsoever against the Railway under or by virtue of or arising out of this contract, nor shall the Railway entertain or consider any such alaim, if made by the contractor/s after he/they would have signed a ‘No Claim Certificate’ in favour of the Railway, in such form as shall be required by the Railway/s after the works are finally measured up. The Contractor/s shall be debarred from disputing the correctness of the items covered by “No Claim Certificate” or demanding a reference to arbitration, in respect thereof. After clear no claim as given by contractor the dispute if any will not be arbitratable. 38.6 These special conditions shall prevail over existing clause 63 & 64 of the General Conditions of Contract, other than provision relating to ‘Expected Matters’. For settlement of disputes between the Government Deptt. and another or between the Government Department and Public Section undertaking the following special conditions shall be applicable : “In the event of any dispute or difference between the parties hereto, such dispute or condition shall be resolved amicably by mutual consultation through the good officers of empowered agencies of the Government. For settlement of disputes between the Government Deptt. and another or between the Government Department and Public Section undertaking the following special conditions shall be applicable : “In the event of any dispute or difference between the parties hereto, such dispute or condition shall be resolved amicably by mutual consultation through the good officers of empowered agencies of the Government. If such resolution is not possible, then the unresolved dispute or difference shall be referred to arbitration of an arbitrator to be nominated by Secretary, Department of Legal Affairs (Law Secretary) in terms of office Memorandum No.55/3/1/75/CF dt. 19.12.75 issued by the Cabinet Secretariat (Department of Cabinet Affairs) as modified from time to time. The Arbitration Act, 1996 or the arbitrator clause contained in the General Conditions of Contract shall not be applicable to the arbitration under this clause. The award of the Arbitrator shall be binding upon parties in the dispute, provided however, any party aggrieved by such award ay make further reference for setting aside or revision of the award to Law Secretary whose decision shall bind the parties finally and conclusively.” 8. A plain reading of the above clause would indicate that it is agreed between the parties that disputes arising under the contract would be settled under the Arbitration and Conciliation Act, 1996. Sub-section (5) of Section 12 which was inserted by Act 3 of 2016 w.e.f. 23.10.2015, 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.” 9. A plain reading of the above clause would indicate that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject matter of the disputes, falls under any of the categories specified in Seventh Schedule shall be ineligible to be appointed as an arbitrator or to act as an Arbitrator. However, the proviso thereto would indicate that parties may subsequent to the disputes having arisen between them can waive the applicability of this sub-section by an express agreement reduced into writing. However, the proviso thereto would indicate that parties may subsequent to the disputes having arisen between them can waive the applicability of this sub-section by an express agreement reduced into writing. This would clearly indicate that notwithstanding any arbitration agreement between the parties to refer the dispute for being arbitrated by a specified arbitrator namely by the official of either of the parties can be waived only where there is an express agreement between the parties, as otherwise the statutory embargo would surface, or in other words, it would place an embargo for continuation of the arbitration proceedings commenced by such arbitrator who is otherwise not entitled to proceed in view of the statutory bar, inasmuch as subsection (5) of Section 12 commences with the words or expression of a non-obstante clause viz., “notwithstanding”. 10. The Seventh Schedule to the Act would clearly indicate that as to what amounts to relationship between the parties or the counsel. The different classes of persons enumerated in item no. 1 to 14 are to be construed or considered as amounting to relationship with the parties or counsel or with the arbitrator. Clause 1 of the Seventh Schedule would indicate that if the arbitrator is an employee, consultant, adviser or has any either present or past business relationship with the parties, it would act as an embargo. In other words, if there is any privity of contract between the arbitrator and/or either of the parties, it would act as an embargo for such arbitrator to arbitrate the dispute. Such privity of contract can be either in presenti or past. To put it differently, the embargo placed under sub-section (5) of Section 12 would continue to operate where the arbitrator is an employee, consultant, adviser or has any other past or present business relationship with the parties and this relationship would act as an obstacle or hindrance for such person to act as an arbitrator or continue as an Arbitrator. 11. The neutrality of the arbitrator is the hallmark of the arbitration proceedings, or in other words, the hallmark of an arbitration proceedings is that the arbitrator is required to raise above the partisan interest as held by the Hon’ble Apex Court in the case of Voestalpine Schine GMBH Versus Delhi Metro Rail Corporation Ltd. reported in (2017) 4 SCC 665 . The adjudication by an arbitration should be such that neither of the parties would get even an iota of doubt with regard to impartiality of the arbitrator. To rule out any such remote doubt arising in the minds of the parties, sub-section (5) of section 12 has been inserted by the Parliament for seeing such contingencies and it has been prescribed under the Seventh Schedule that such of those relationship which can be construed as raising a remote doubt with regard to the impartiality of the arbitrator should act as embargo for the Arbitrator to continue if already appointed or act as a bar for being appointed as Arbitrator. If such arbitrator were to fall within the four corners of the definition specified in item no. 1 to 14 of the Seventh Schedule necessarily the embargo placed under sub-section (5) of section 12 would surface and in such circumstances, the arbitrator will have to necessarily withdraw so as to give rise for appointment of another arbitrator for adjudicating the disputes. Though Ms. Archana Amin learned counsel appearing for the respondents has made a valiant attempt to rely upon entry 31 of Fifth Schedule to contend that where the arbitrator has not been associated with either of the parties for the past three years in any professional capacity like a former employee, such circumstances would suffice for the Railways to appoint from amongst its panel of arbitrators who are the former employees and who were retired three years prior to the contract, is an attractive argument to be looked into for the purposes of outright rejection. As noticed hereinabove the existence either direct or indirect of any past or present relationship which give rise to a justifiable doubt in the minds of parties as to the independence and impartiality of an arbitrator being the hallmark of the decision making process, if surfaces, it would definitely attract sub-section (5) of section 12 and notwithstanding that such employees having retired three years prior to the commencement of the arbitration proceedings, would not be a ground for the respondent herein to take umbrage or shelter to stave off the attack with regard to impartiality. I say so for the reason that subsection (5) of section 12 being an complete answer and proviso to sub-section (5) would further fortify this view, namely the parties will have to waive the applicability of sub-section (5) by an express agreement which would not only fortify, the stand of the party in reposing confidence in such an Arbitrator to proceed with even in such case where the arbitrator has been appointed being an employee and thereby such party would be reposing confidence, trust for the said arbitrator to proceed with, notwithstanding the relationship of such arbitrator with either of the parties. The Hon’ble Apex Court in the matter of Jaipur Zila Dugadh Utpadak Sahkari Sangh Limited and Others Versus Ajay Sales and Suppliers (supra), in similar circumstances has held : “8. Now the next question which is required to consider is whether the Chairman who is an elected member of the petitioner Sahkari Sangh can be said to be ‘ineligible’ under Sub-section (5) of Section 12 read with Seventh Schedule to the Act or not. It is the case on behalf of the petitioner that in the Seventh Schedule to the Act ‘Chairman’ is not mentioned and only Manager, Director or part of the Management can be said to be ineligible. The aforesaid has no substance at all. Disqualification/ineligible under Sub-section (5) of Section 12 read with Seventh Schedule to the Act is to be read as a whole and considering the object and purpose for which Sub-section (5) of Section 12 read with Seventh Schedule to the Act came to be inserted. Sub-section (5) of Section 12 read with Seventh Schedule has been inserted bearing in mind the ‘impartiality and independence’ of the arbitrators. It has been inserted with the purpose of ‘neutrality of arbitrators’. Independence and impartiality of the arbitrators are the hallmarks of any arbitration proceedings as observed in the case of Voestalpine Schienen (Supra). Rule against bias is one of the fundamental principles of natural justice which apply to all judicial proceedings and quasi-judicial proceedings and it is for this reason that despite the contractually agreed upon, the persons mentioned in Sub-section (5) of Section 12 read with Seventh Schedule to the Act would render himself ineligible to conduct the arbitration. In paragraphs 20 to 22 in the case of Voestalpine Schienen (Supra) it is observed and held as under : “20. In paragraphs 20 to 22 in the case of Voestalpine Schienen (Supra) it is observed and held as under : “20. Independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which applied to all judicial and quasi judicial proceedings. It is for this reason that notwithstanding the fact that relationship between the parties to the arbitration and the arbitrators themselves are contractual in nature and the source of an arbitrator's appointment is deduced from the agreement entered into between the parties, notwithstanding the same non-independence and non-impartiality of such arbitrator (though contractually agreed upon) would render him ineligible to conduct the arbitration. The genesis behind this rational is that even when an arbitrator is appointed in terms of contract and by the parties to the contract, he is independent of the parties. Functions and duties require him to rise above the partisan interest of the parties and not to act in, or so as to further, the particular interest of either parties. After all, the arbitrator has adjudicatory role to perform and, therefore, he must be independent of parties as well as impartial. The United Kingdom Supreme Court has beautifully highlighted this aspect in Hashwani v. Jivraj (2011) UKSC 40) in the following words: (WLR p. 1889, para-45) “45 .. ...the dominant purpose of appointing an arbitrator or arbitrators is the impartial resolution of the dispute between the parties in accordance with the terms of the agreement and, although the contract between the parties and the arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the parties.” 21. Similarly, Cour de Cassation, France, in a judgment delivered in 1972 in Consorts Ury, underlined that: “an independent mind is indispensable in the exercise of judicial power, whatever the source of that power may be, and it is one of the essential qualities of an arbitrator.” 22. Independence and impartiality are two different concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well accepted, is a more subjective concept as compared to independence. Independence and impartiality are two different concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well accepted, is a more subjective concept as compared to independence. Independence, which is more an objective concept, may, thus, be more straightforwardly ascertained by the parties at the outset of the arbitration proceedings in light of the circumstances disclosed by the arbitrator, while partiality will more likely surface during the arbitration proceedings.” 9. Applying the law laid down by this Court in the aforesaid decisions and considering the object and purpose of insertion of Sub-section (5) of Section 12 read with Seventh Schedule to the Act, the Chairman of the petitioner Sangh can certainly be held to be ‘ineligible’ to continue as an arbitrator. Though in the Seventh Schedule the word ‘Chairman’ is specifically not mentioned but at the same time it would fall in the category of Clause 1; Clause 2; Clause 5; Clause 12 which read as under : “1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party. 2. The arbitrator currently represents or advises one of the parties or an affiliate of one of the parties. 5. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration. 12. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.” 9.1 In that view of the matter, the Chairman who is elected member/Director of the Sangh, can certainly be said to be ‘ineligible’ to become an arbitrator as per Sub-section (5) of Section 12 read with Seventh Schedule to the Act.” 12. In that view of the matter and also in view of the fact that judgment of the Hon’ble Apex Court referred to by Ms. In that view of the matter and also in view of the fact that judgment of the Hon’ble Apex Court referred to by Ms. Archana Amin now pending before the Larger Bench, I am of the considered view that statutory bar contained in subsection (5) of Section 12 would be squarely applicable and respondent cannot take a stand that it has a right to appoint an employee either the present or the past to adjudicate the disputes and the Railways should not hesitate in taking a stand to appoint an impartial arbitrator though it cannot be gainsaid by the contractor like the petitioner to contend that panel of arbitrators of the respondent would not be impartial. As such this Court is of the considered view that petition deserves to be allowed. 13. Hence, the following ORDER (i) Petition is allowed. (ii) Shri S.R. Brahmbhatt, Former Judge, High Court of Gujarat, Residing at : Bungalow No. 9, Neeti Baug, Judges Cooperative Housing Society, Opp. Gujarat High Court, Behind Bar Council of Gujarat, S.G. Highway, Ghatlodia, Ahmedabad – 380061, is appointed to act as sole Arbitrator to resolve the disputes between the parties in accordance with the Arbitration Centre (Domestic and International), High Court of Gujarat Rules, 2021. Both parties would be governed by said Rules. (iii) Registry is directed to communicate this order to the sole arbitrator forthwith by speed post.