M/S Akash Engineers & Builders ... vs U.P. Awas/Vikas Parishad Thru. ...
2021 Latest Caselaw 11296 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH
 
 

A.F.R. 
 
Court No. - 4
 

 
Case :- ARBITRATION APPLICATION No. - 38 of 2021
 

 
Applicant :- M/S Akash Engineers & Builders Thru. Sanjeev Kumar Rana
 
Opposite Party :- U.P. Awas/Vikas Parishad Thru. Housing Commissioner & Ors.
 
Counsel for Applicant :- Pritish Kumar,Shantanu Gupta
 
Counsel for Opposite Party :- Ratnesh Chandra
 

 
Hon'ble Rajan Roy,J.

Heard.

This is an application under section 11 of the Arbitration and Conciliation Act 1996 (hereinafter referred as 'Act 1996') for appointment of an Arbitrator.

Learned counsel for the applicant has invited attention of the court to the Arbitration Clause contained in Clause 32-C of the Agreement, a copy of which is annexed as Annexure-2 to the application.

The fact of the matter is that prior to filing of this application the Housing Commissioner has appointed a retired District Judge as Arbitrator to resolve the dispute.

Contention of the applicant's counsel in this regard is that the Housing Commissioner being ineligible to himself act as Arbitrator in the matter is also ineligible to appoint any Arbitrator in view of the law laid down by Hon'ble the Supreme Court in the case of Perkins Eastman Architects DPC v. HSCC (India) Ltd., AIR 2020 SC 59. In this regard he contends that the arbitration clause in this case is similar to the arbitration clause in the said case and based on this he relies upon paras 15 and 16 of the said judgment. He also relies upon a Three Judge Bench decision of the Supreme Court in case of TRF Ltd. V. Energo Engineering Projects Ltd., AIR 2017 SC 3889, which has also been considered in case of Perkins Eastman Architects DPC (supra). He also relies on paras 1, 53, 56 and 57 of the said report in support of his contention.

On the other hand, Sri Ratnesh Chandra, learned counsel for the opposite party says that the provisions contained in section 11(2), 11(6), 12, 13 and 14 of the Act 1996 have not been taken into consideration by Hon'ble the Supreme Court in the said decisions, therefore, in his opinion, as per the Arbitration Clause, the Housing Commissioner was well within his jurisdiction to appoint an impartial Administrator in the form of a retired District Judge and the same cannot be faulted. He in this regard refers to paras 17, 18 and 19 of his objections.

This court has perused the paragraphs 17 to 19 of the objections filed by the opposite party as also the decisions relied upon by the petitioner's counsel. Arbitration clause [Clause 32(c)] in the case at hand reads as under:

"Except where otherwise provided in the contract every dispute, difference or question which may at any time arise between the parties hereto or any Person claiming under them, touching or arising out or in respect of this deed or the subject matter thereof shall be referred to the sold arbitration of the person appointed by the Housing Commissioner of the Parishad. It will be no objection to any such appointment that the arbitrator so appointed is a servent of the parishad, that he had to deal with the matters to which the contract relates and that in the course of his duties as a servent of the parishad he had expressed views on all or any of the matters in dispute or difference in the event of the arbitrator to whom the matter is originally referred being transferred or vacting his officer or being unable to act for any reason he said Housing Commissioner shall appoint another person to act as arbitrator. Such person shall be entitled to proceed with the reference for the stage it was lefe be his predecessor. It is also a term of this contract that no person other than a person appointed as aforesaid should act as arbitrator and if for any reason that is not possible the matter is not to be referred to the arbitration at all. In all cases where the amount of the claim in dispute is Rs. 50,000/- (Rupees fifty thousand) and above the arbitrator shall give reasons for the award.

It is a term of the contract that the parties invoking the arbitration shall specify the dispute or disputes to be referred to arbitration together with the amount or amounts claimed in respect of each such dispute.

Subject as aforesaid, the provisions of the Arbitration Act 1940, or any statutory modification or re-enactment thereof and the rules made thereunder and for the time. being inforce shall apply to the arbitration proceedings.

The arbitrator may from time to time with the consent of the parties enlarge the time for making and publishing the award."

The above quoted clause contains an Arbitration Clause. As per the said clause, the Housing Commissioner of the U.P. Awas Evam Vikas Parishad is to appoint the sole Arbitrator for resolving the disputes mentioned therein.

The Arbitration Clause which was the subject matter of consideration by Hon'ble the Supreme Court in the case of Perkins Eastman Architects DPC (supra) reads as under :

" 24. DISPUTE RESOLUTION

24.1 Except as otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, design, drawings and instructions herein before mentioned and as to the quality of services rendered for the works or as to any other question, claim, night, matter or thing whatsoever in any way arsing out of or relating to the contract, design, drawings, specifications estimates instructions, orders or these conditions or otherwise concerning the works or the execution or failure to execute the same whether arising during the progress of the work or after the cancellation, termination, completion or abandonment thereof thereof shat be dealt with as mentioned hereinafter:

(i) If the Design Consultant considers any work demanded of him to be outside the requirements of the contract or disputes on any drawings, record or decision given in writing by HSCC on any matter in connection with arsing out of the contract or carrying out of the work, to be unacceptable, he shal promptly within 15 days request CGM, HSCC in writing for written instruction or decision. There upon, the CGM, HSCC shall give his written instructions or decision within a period of one month from the receipt of the Design Consultant's letter. If the CGM HSCC fails to give his instructions or decision in writing within the aforesaid period or if the Design Consultant(s) is dissatisfied with the instructions or decision of the CGM HSCC, the Design Consultants) may, within 15 days of the receipt of decision, appeal to the Director (Engg.) HSCC who shall offer an opportunity to the Design Consultant to be heard, if the latter so desires, and to offer evidence in support of his appeal The Director (Engg.1. HSCC shat give his decision within 30 days receipt of Design Consultant's appeal the Design Consultant is dissatisfied with the decision, the Design Consultant shall within a period of 30 days from receipt of this decision, give notice to the CMD, HSCC for appointment of arbitrator failing which the said decision shall be final binding and conclusive and not referable to adjudication by the arbitrator.

(ii) Except where the decision has become final, binding and conclusive in terms of sub-Para (i) above disputes or difference shall be referred for adjudication through arbitration by a sole arbitrator appointed by the CMD HSCC within 30 days form the receipt of request from the Design Consultant. If the arbitrator so appointed is unable or unwilling to act or resigns his appointment or vacates

his office due to any reason, whatsoever another sole arbitrator shall be appointed in the manner aforesaid. Such person shall be entitled to proceed with the reference from the reference from the stage at which it was left by his predecessor. R is a term of this contract that the party invoking arbitration shal give a list of disputes with amounts claimed in respect of each such dispute along with the notice for appointment of arbitrator and giving reference to the rejection by the CMD, HSCC of the appeal it is also a term of this contract that no person other than a person appointed by such CMD, HSCC as aforesaid should act as arbitrator. It is also a term of the contract that if the Design Consultant does not make any demand for appointment of arbitrator in respect of any claims in writing as aforesaid within 120 days of receiving the intimation from HSCC that the final bill is ready for payment, the claim of the Design Consultant shall be deemed to have been waived and absolutely barred and HSCC shall be discharged and released of all liabilities under the contract and in respect of these claims. The arbitration shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) or any statutory modifications or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this clause."

In the said clause also the C.M.D.H.S.C.C. was required to appoint a sole Arbitrator.

Based on a consideration of the said clause the Supreme Court opined as under :

"It was thus held that as the Managing Director became ineligible by operation of law to act as an arbitrator and that once the identity of the Managing Director as the sole arbitrator was lost, the power to nominate someone else as an arbitrator was also obliterated. The relevant Clause in sat case had nominated the Managing Director himself to be the sole arbitrator and also empowered said Managing Director to nominate another person to act as an arbitrator. The Managing Director thus had two capacities under said Clause, the first as an arbitrator and the second as an appointing authority. In the present case we are concerned with only one capacity of the Chairman and Managing Director and that is as an appointing authority.

We thus have two categories of cases. The first, similar to the one dealt with in RTF Limited4 (AIR 2017 SC 3889) 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 as empowered or authorized to appoint any other person of his choice or discretion as an arbitrator 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. 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.

16. But, in our view that has to be the logical deduction from TRF Limited. Paragraph 50 of the decision shows that this Court was concerned with the issue, "whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an Arbitrator" The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution

by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter balanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) and recognised by the decision of this Court in TRF Ltd."

From a reading of the said judgment it is evident that various earlier decisions as also the provisions of the Act 1996 have been considered.

In the aforesaid decision Supreme Court has also considered the earlier decision in TRF Ltd. (supra). In para-1 of the T.R.F. Ltd. (supra) the Supreme Court has spelt out the question which fell for its consideration. It reads as under:

"In this batch of appeals, by special leave, the seminal issues that emanate for consideration are; whether the High Court, while dealing with the applications under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for brevity, the Act"), is justified to repel the submissions of the appellants that 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, he would not be eligible to nominate a person as an arbitrator, and second, a plea that pertains to statutory disqualification of the nominated arbitrator can be raised before the court in application preferred under Section 11(6) of the Act, for such an application is not incompetent. For the sake of clarity, convenience and apposite appreciation, we shall state the facts from Civil Appeal No. 5306 of 2017."

In para 6 the submissions have been noticed one of which was that the relevant clause in the Agreement relating to appointment of Arbitrator has become void in view of section 12(5) of the Amendment Act, for the Managing Director having statutorily become ineligible, cannot act as an Arbitrator and that acts as a disqualification and in such a situation to sustain the stand, that is, the nominees have been validely appointed as Arbitrators would bring in an anomalous situation which is not countenanced in law. Once the owner/employer has been declared disqualified in law, a nominee by the owner to Arbitrate upon is legally unacceptable.

As the Arbitration Clause which was the subject matter of the said proceedings before the supreme court provided for the Managing Director or his nominee to be the sole Arbitrator in the event of a dispute, the Supreme Court of India held in paras 53, 54, 55, 56 and 57 as under:

"53. First, we shall deal with Clause (d). There is no quarrel that by virtue of Section 12(5) of the Act, if any person who falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as the arbitrator. There is no doubt and cannot be, for the language employed in the Seventh Schedule, the Managing Director of the Corporation has become ineligible by operation of law. It is the stand of the learned senior counsel for the appellant that once the Managing Director becomes ineligible he also becomes ineligible to nominate. Refuting the said stand, it is canvassed by the learned senior counsel for the respondent that the ineligibility cannot extend to a nominee if he is not from the Corporation and more so when there is apposite and requisite disclosure. We think it appropriate to make it clear that in the case at hand we are neither concerned with the disclosure nor objectivity nor impartiality nor any such other circumstance. We are singularly concerned with the issue, whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator. At the cost of repetition, we may state that when there are two parties, one may nominate an arbitrator and the other may appoint another. That is altogether a different situation. If there is a clause requiring the parties to nominate their respective arbitrator, their authority to nominate cannot be questioned. What really in that circumstance can be called in question is the procedural compliance and the eligibility of their arbitrator depending upon the norms provided under the Act and the Schedules appended thereto. But, here is a case where the Managing Director is the "named sole arbitrator" and he has also been conferred with the power to nominate one who can be the arbitrator in his place. Thus, there is subtle distinction. In this regard, our attention has been drawn to a two-judge Bench decision in State of Orissa and others v. Commissioner of Land Records and Settlement, Cuttack and others. In the said case, the question arose can the Board of Revenue revise the order passed by its delegate. Dwelling upon the said proposition, the Court held:

"25. We have to note that the Commissioner when he exercises power of the Board delegated to him under Section 33 of the Settlement Act, 1958, the order passed by him is to be treated as an order of the Board of Revenue and not as that of the Commissioner in his capacity as Commissioner. This position is clear from two rulings of this Court to which we shall presently refer. The first of the said rulings is the one decided by the Constitution Bench of this Court in Roop Chand v. State of Punjab (AR 1963 SC 1503), In that case, it was held by the majority that where the State Government had, under Section 41(1) of the East Punjab Holdings (Consolidation and Prevention of Fragmentation) Act, 1948, delegated its appellate powers vested in it under Section 21(4) to an officer, an order passed by such an officer was an order passed by the State Government itself and not an order passed by any officer under this Act" within Section 42 and was not revisable by the State Government. It was pointed out that for the purpose of exercise of powers of revision by the State under Section 42 of that Act, the order sought to be revised must be an order passed by an officer in his own right and not as a delegate of the State. The State Government was, therefore, not entitled under Section 42 to call for the records of the case which was disposed of by an officer acting as its delegate."

54. Be it noted in the said case, reference was made to Behan Kunj Sahkan Awas Samiti v. State of U.P. , which followed the decision in Roop Chand v. State of Punjab , is seemly to note here that said principle has been followed in Chairman, Indore Vikas Pradhikaran (AIR 2007 SC 2458) (supra).

55. Mr. Sundaram, has strongly relied on Firm of Pratapchand Nopaji (AIR 1975 SC 1223, Para 8(supra). In the said case, the three-judge Bench appled the maxim "Qui facit per alium facit per se". We may profitably reproduce the passage:

"9. ... The principle which would apply, if the objects are struck by Section 23 of the Contract Act, is embodied in the maxim "Qui facit per alium facit per se" (What one does through another is done by oneself). To put & in another form that which cannot be done directly may not be done indirectly by engaging another outside the prohibited area to do the legal act within the prohibited area. It is immaterial whether, for the doing of such an illegal act, the agent employed is given the wider powers or authority of the "pucca adatia", or, as the High Court had held, he is clothed with the powers of an ordinary commission agent only."

56. The aforesaid authorities have been commended to us to establish the proposition that if the nomination of an arbitrator by an ineligible arbitrator is allowed, it would tantamount to carrying on the proceeding of arbitration by himself. According to learned counsel for the appellant, ineligibility strikes at the root of his power to arbitrate or get it arbitrated upon by a nominee.

57. 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. 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."

In view of the above decisions it is evident that even as per the arbitration clause which is involved in this case, although the Housing Commissioner was required to appoint the sole Arbitrator, but in view of the law discussed hereinabove and the provisions of the Act 1996 he himself being ineligible to arbitrate in a matter he ipso facto becomes ineligible for appointing an Arbitrator to resolve the dispute for the reasons already detailed in the above mentioned decisions.

Although after the amendment of 2015 in the Act 1996 this Court is only required to see the Arbitration Clause, but considering the contentions raised it was necessary to deal with the same as has been done hereinabove.

At this stage Sri Ratnesh Chandra submitted that he may be granted a certificate under Article 134A read with Article 133 of the Constitution of India. Contention of Sri Chandra is that the bar contained in Clause 3 of Article 133 is not attracted in this case in view of the subsequent insertion of Article 134A. He also submits that the judgment in T.R.F.'s case is not applicable as in the said case the Managing Director was himself empowered to act as sole Arbitrator or to appoint a nominee, whereas it is not so in this case. Sri Pritish Kumar, learned counsel for the applicant disagrees with this proposition and says that in view of Clause 3 of Article 133 of the Constitution of India State Appeal will not lie and the request of the learned counsel for the opposite party is misconceived.

In view of decision of the Supreme Court reported in (1987) 4 SCC 370, State Bank of India & anr. v. S.B.I. Employees' Union & anr., and the decision reported in (2017) 7 SCC 694, Agnigundala Venkata Ranga Rao v. Indukuru Ramachandra Reddy & ors., as this matter is being considered by a Single Judge Bench, therefore, in view of the Article 133(3) of the Constitution, Article 134A is not attracted.

Now in view of the aforesaid the name of Hon'ble Mr. Justice Pankaj Naqvi (Retd.) R/o Bungalow No. 24, Behind Sai Mandir, Drumund Road, Allahabad, is proposed for appointment as Arbitrator.

Parties have agreed for arbitral proceedings for taking place at Lucknow.

Let a copy of the pleadings on record be sent to Hon'ble Mr. Justice Pankaj Naqvi (Retd.) for eliciting his disclosure in terms of Section 11(8) read with Section 12(1) of the Act, 1996 and Schedule VI and VII as amended by Act 2015, appended thereto, as also his consent for appointment as an arbitrator for resolving the dispute.

Needless to say that fees shall be payable to the Arbitrator as per the Fourth Schedule, read with the proviso to section 11(3)(A) of the Act 1996.

Steps to be taken by the applicant to facilitate the aforesaid.

List this case on 06.12.2021 for further proceedings.

Order Date :- 10.11.2021

A.Nigam