The Single Bench of the Delhi High Court in the case of Ram Kripal Singh Construction Pvt. Ltd vs NTPC consisting of Justice Anup Jairam Bhambhani held that the core arbitration agreement does not perish when the procedure for appointment of arbitrator at the hands of one of the parties becomes legally invalid.
Facts
This petition u/s 11 of the Arbitration & Conciliation Act 1996 (‘A&C Act’) was filed seeking the appointment of an arbitrator to adjudicate upon the disputes that were stated to have arisen with the respondent from a Letter of Award related to the setting-up of a township for the respondent’s Super Thermal Power Project; the issuance of the letter of award having culminated in the parties signing a Contract Agreement (‘contract’).
Contentions Made
Petitioner: It was contended that clause 56 of the General Conditions of Contract (‘GCCs’) governing the letter of award is inoperative and invalid in view of section 12(5) having been inserted in the A&C Act with retrospective effect. So, since admittedly, disputes have arisen between them from the letter of award and the contract, the same are required to be referred for arbitration to an arbitrator to be appointed by this court.
Respondent: It was contended that as per clause 56 of the GCCs, which contains the arbitration agreement between the petitioner and the respondent, it is quite plain that only the GM, NTPC or another person appointed by the CMD of NTPC can act as arbitrator. Since by reason of insertion of section 12(5) and the decisions of the Supreme Court in various cases, the GM or other appointee of the CMD, NTPC is rendered ineligible to be appointed as arbitrator, the arbitration clause becomes inoperative and impossible of performance by the respondent, thereby vitiating the agreement for arbitration itself. It also contended that the claims were ex-facie time barred. Moreover, consent of both parties was required for reference to arbitration.
In rejoinder, Petitioner contended that the Amendment Act-2015 would apply to the present proceedings, since the notice invoking arbitration was issued on 29.09.2020, which was well after the date the amendment came into effect from 23.10.2015.
Observations of the Court
The Bench inferred that the respondent does not dispute the existence of the arbitration agreement between the parties, except to say, that since a certain procedure for appointment of an arbitrator was embedded in the arbitration clause, which procedure has now become illegal and unenforceable, the entire arbitration agreement perishes along therewith.
It relied on T.K. Engineering Consortium Pvt Ltd. vs. Director (Project) Rites Ltd & Anr., ARSS Infrastructure Pvt Ltd. vs. Ircon International Ltd. & Anr. and NIIT Technologies Ltd. vs. Directorate General, Border Security Force and opined that just because the procedure for appointment of an arbitrator has been rendered invalid or unenforceable by reason of the amendment to the A&C Act, by insertion of section 12(5) and by the subsequent decisions of the Supreme Court in TRF Ltd. vs. EnergoEngg Projects Ltd. and Perkins Eastman DPC &Anr. vs. HCC (India) Ltd., that does not mean that the entire arbitration clause is rendered invalid or void.
It further opined that an ‘arbitration agreement’ may narrate and include several other aspects relating to arbitration to detail out the arbitral mechanism and to make the arbitration agreement more comprehensive. Even if embedded in the self-same arbitration clause, these aspects are distinct and separable from the core arbitration agreement itself:
“The procedure for appointment of an arbitrator is clearly distinct and separable from the agreement to refer disputes to arbitration, even if these are contained in the same arbitration clause. If therefore, by reason of amendment, re-statement or reinterpretation of the law, as has happened in the present case…the procedure for appointment of arbitrator at the hands of one of the parties becomes legally invalid, void and unenforceable, that does not mean that the core agreement between the parties to refer their inter-se disputes to arbitration itself perishes.”
Accordingly, it opined that there was a valid and subsisting arbitration agreement between the parties, though the procedure for appointment of the arbitrator at the hands of the CMD, NTPC was no longer valid, and must therefore be severed from the remaining arbitration clause.
Regarding the allegation that the claims were time-barred, it observed that the same would not deter this court from appointing an arbitrator, leaving it to the arbitrator to decide the issue of limitation, as may be raised, as a mixed question of fact and law.
Judgment
The Bench appointed Hon’ble Mr. Justice Aftab Alam, former Judge, Supreme Court of India (Cell phone No.: +91 9868219005) as the learned Sole Arbitrator to adjudicate upon the disputes between the parties. Parties were directed to approach the learned Arbitrator appointed within 10 days.
Case: Ram Kripal Singh Construction Pvt. Ltd vs NTPC
Citation: ARB.P. 582/2020
Bench: Justice Anup Jairam Bhambhani
Decided on: 9th November 2022
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