Bombay High Court
Truly Pest Solution Pvt Ltd (Being A ... vs Principal Chief Mechanical ... on 11 November, 2024
2024:BHC-OS:18356
Diksha Rane 24. ARBP 43-23-FINAL.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO.43 OF 2023
M/S. TRULY PEST SOLUTION PRIVATE
LIMITED (BEING A MSME) ..PETITIONER
VS.
PRINCIPAL CHIEF MECHANICAL ENGINEERING
(P.C.M.E.) CENTRAL RAILWAY. ..RESPONDENT
------------
Adv. Shekhar Jagtap a/w. Adv. Ishan Paradkar i/b. J. Shekhar &
Associates for petitioner.
Adv. Savita Ganoo a/w. Adv. D. P. Singh for respondent-UOI
------------
CORAM : Rajesh S. Patil, J.
RESERVED ON : 11th September 2024.
PRONOUNCED ON : 11th November 2024.
JUDGMENT :
1. The present petition is filed under Section 34 of the Arbitration
and Conciliation Act, 1996 (for short 'the Arbitration Act'), by the
original claimant seeking to quash and set aside the arbitral award
dated 4th February 2022, passed by the sole arbitrator.
FACTS
2. On 5th May 2016, a tender was published by the Divisional
Railway Manager (Mechanical), Central Railway, Mumbai (for short
'Railways') towards the work of Pest and Rodent Control, in railway
Diksha Rane 24. ARBP 43-23-FINAL.doc
passenger coaches maintained at CSTM, WB, MZN, DRT and LDT,
Coaching Depots and Rodent Control in Coaching Depots yard and
premises. The petitioner participated in the tender process and on 7 th
June 2016, was declared as the successful bidder. Accordingly, the
contract work of the said tender was awarded to the petitioner, for an
amount of Rs.1,96,32,255/-. The contract period was for three years
i.e. from 30th November 2016 to 29th November 2019.
3. Meanwhile, Government issued Notification on 19 th January
2017, by which the rates of minimum wages payable to labourers
were increased. Additionally, the railways issued a Joint Procedure
Order (for short 'JPO') dated 20 th December 2017, wherein all the
contractors were permitted to foreclose their contracts on the
condition that the contractors would continue the ongoing work till
the finalisation of a new contract, and the minimum wages would be
paid to the labourer till the foreclosure of the contract and no dues
financial or otherwise shall be staked by the contractor.
4. The petitioner vide their letter dated February 2018 and a
further letter dated January 2019 communicated their intention to
withdraw from the contracted work as per the terms of the JPO. The
railways accordingly on 8th January 2019 issued a new contract for
Diksha Rane 24. ARBP 43-23-FINAL.doc
the balance work and foreclosed the contract with the petitioner.
5. The petitioner claimed an additional manpower expense of
Rs.20,91,522/- along with interest from the railways. As the said
amount was disputed, the petitioner, on 7 th December 2020, issued a
legal notice to the railways and invoked Arbitration Clause, thereby
calling upon them to pay the differential wages of Rs.20,91,522/-
along with interest.
6. Subsequently on 18th December 2020 the petitioner signed and
stamped the "Waiver off agreement", under Section 12(5) of
Arbitration Act. The Railways accordingly proceeded further and on
28th April 2021 appointed Shri D. K. Tripathi, Deputy Mechanical
Engineer (D), Central Railway, Mumbai, CSMT, to act as a 'Sole
Arbitrator".
7. The petitioner/claimant, on 8th June 2021, filed their
Statement of Claim along with all the relevant annexures with the
sole Arbitrator. The Railways being the respondents filed their reply
to the statement of claim before the sole Arbitrator.
8. On 1st October 2021, the Railways issued Work Completion
Certificate, to the petitioner in respect of the contracted work,
mentioning therein that the work completed on 10 th January 2019,
Diksha Rane 24. ARBP 43-23-FINAL.doc
amounting to Rs.1,29,74,966/-.
9. The proceedings before the Arbitral Tribunal, consisting of Sole
Arbitrator went ahead and after hearing both the sides the Sole
Arbitrator, on 4th February 2022 passed an Award, thereby dismissing
the claim of the petitioner.
10. Being dissatisfied with the dismissal of their claim by
impugned Award dated 4th February 2022 the petitioner/claimant
have challenged the same by way of present Arbitration Petition, filed
under Section 34 of the Arbitration Act.
SUBMISSIONS
11. Mr. Shekhar Jagtap appeared on behalf of the
petitioner/claimant and made his submissions.
(i) He submitted that the sole Arbitrator was appointed by the
Railways, therefore, under the provisions of Section 12 (5) read with
Schedule VII of the Arbitration Act, the award passed by the Sole
Arbitrator who was himself de jure ineligible to be an Arbitrator,
hence, the Award is void ab initio.
(ii) The Waiver mentioned in the proviso of Section 12(5) of the
Arbitration Act is required to be exercised in true letter and spirit and
not in a mechanical manner or under implied coercion, whereby the
Diksha Rane 24. ARBP 43-23-FINAL.doc
party waiving the right of raising objection is left with no choice but
to accept the Waiver, since the other party is at dominating position.
(iii) He relied upon the judgment of the Supreme Court passed in
Bharat Broadband Network Limited Versus United Telecom Limited1.
(iv) He submitted that the Waiver as mentioned under Section
12(5) of the Arbitration Act, was sought by the Railways, as per their
demand. The Railways had by their letter dated 22 nd February 2021
enclosed a standard proforma of the Waiver agreement which was
made mandatory to be signed by both the parties. Therefore, the
petitioner had no other option but to sign the Waiver Agreement
under Section 12(5) of the Arbitration Act and thereafter, to proceed
with the arbitration. On this issue, he relied upon the judgment of the
Supreme Court passed in Ellora Papermills Limited vs. State of
Madhya Pradesh2.
(v) He submitted that as per the agreement, there was an
Arbitration Clause, therefore, the petitioner was prohibited from
approaching the Civil Court for their grievances.
(vi) He submitted that the condition for foreclosure of the contract
laid down in the JPO dated 20th December 2017 by the Railway
1 (2019) 5 SCC 755
2 (2022) 3 SCC 1
Diksha Rane 24. ARBP 43-23-FINAL.doc
Authorities are illegal and bad in law.
(vii) He submitted that the No Claim Certificate sought by the
respondents/Railways from the petitioner was under implied
coercion. To adhere to the procedure of reimbursement of the claim,
the petitioner had no other option but to sign the No Claim
Certificate. So also, the petitioner was incapable to express its protest
for want of any Forum, for this domination by the Railways.
(viii) The Railways deliberately neglected the representations made
by the petitioner, requesting to invoke the price variation clause in
the Contract Agreement and reimburse the increased amount payable
in the form of wages to the workers.
(ix) The increase of 45% in the minimum wages of the workers in
term of the Notification dated 19 th January 2017, was during the
period of the contract, which resulted into the petitioner paying a
sum of Rs.523/- to each worker per day, instead of Rs.374/- per day.
(x) The Railways deliberately delayed the procedure of foreclosure
of the contract, despite various communications made by the
petitioner.
(xi) He submitted that in a similar kind of a situation this Court has
dealt with the issue in the proceedings of A 2 Z Infra Services Limited
Diksha Rane 24. ARBP 43-23-FINAL.doc
vs. Union of India3. The said ratio is applicable to the present
proceedings.
(xii) He submitted that the sole Arbitrator has passed impugned
award which is against the public policy, hence, it is liable to be
quashed and set aside. He also relied upon the judgment of the
Supreme Court in the proceedings of Associate Builders Vs. Delhi
Development Authority4.
(xiii) He submitted that the impugned award requires to be quashed
and set aside, and the claim to be allowed.
12. Mrs. Savita Ganoo appeared for the respondent-Railways and
made her submissions.
(i) She submitted that a bare reading of Section 34 of the
Arbitration Act makes it clear that the grounds for raising a challenge
to the Arbitral Award are restricted to those in Section 34(2). The
petitioner in the present case except for making a feeble attempt to
raise an objection to the appointment of the Arbitrator has not made
out any case to set aside the award on any of the grounds under
Section 34(2) of the said Act.
(ii) The grounds raised by the petitioner are not grounds which can
4 (2015) 3 SCC 49
Diksha Rane 24. ARBP 43-23-FINAL.doc
be urged under Section 34(2) of the Arbitration Act, in view of the
settled position in law that the Arbitrator is the final arbiter of facts.
It is submitted that the Arbitrator has passed a well-reasoned Award
and the objections to the impugned award are beyond the grounds
which can be urged under Section 34 of the said Act and hence
cannot be considered as valid objections.
(iii) Arbitration and Conciliation (Amendment) Act, 2015, Section 8
thereof introduced a new regime i.e. sub-section (5) to Section 12 of
the said Act.
(iv) She submitted that ordinarily under Section 12(5) of the
Arbitration Act, an Arbitrator who has a relationship with a party as
contemplated under VII Schedule of the said Act, is ineligible to act
as arbitrator. However, this ineligibility is not permanent and admits
of one crucial exception - as provided under the proviso to Section
12(5) of the said Act. Under the said proviso, a party can waive the
applicability of the sub-section by an express agreement in writing,
subsequent to disputes having arisen. In other words, in cases where
waiver would operate, objection/grounds on the basis of VII Schedule
and Section 12(5), cannot be sustained.
(v) The letter dated 18th December 2020 addressed to Senior
Diksha Rane 24. ARBP 43-23-FINAL.doc
Divisional Mechanical Engineer (Coaching), Divisional Railway
Manager (Mechanical) forwarded an Agreement signed by the
petitioner and the respondent expressly waiving the applicability of
Section 12(5) of the said Act.
(vi) The documents of waiver are in writing and the same are
executed post the dispute having arisen.
(vii) As regards the case of (a) Bharat Broadband Network Ltd. vs.
United Telecoms Ltd.5 and (b) JMC Projects (India) Ltd. vs. Indure
Private Limited6 relied by petitioner in support of its contention that
the learned Arbitrator's appointment does not suffer from any de jure
inability. The said judgments categorically state that if as per the
proviso subsequent to the disputes having arisen between the parties
there is an express agreement in writing whereby the parties have
agreed to waive the applicability of Section 12(5) of the said Act the
ineligibility would cease to exist.
(viii) The Petitioner by invoking Arbitration Clause sought for
an Arbitrator to be appointed in accordance with Clause No. 64 (3)
(a) (i) of the General Conditions of Contract, hence, the Petitioner
always knew that the Arbitral Tribunal shall consist of a Sole
5 (2019) 5 SCC 755
6 2020 Scc OnLine Del 1950
Diksha Rane 24. ARBP 43-23-FINAL.doc
Arbitrator who shall be a Gazetted Officer of Railway not below JA
Grade, nominated by the General Manager. Therefore, the Petitioner
was fully conscious of what appointment was being sought by them.
(ix) The waiver by the Petitioner being in response to the
letter dated 14th December 2020 addressed by the Respondent
therefore reflects (i) awareness on the part of the Petitioner to the
applicability of the said provision as well as the resultant invalidation
of the learned Arbitrator to arbitrate on the disputes between them
and (ii) the conscious intention to waive the applicability of the said
provision in the cases of disputes between them. Being conscious of
the proviso to Section 12(5), the Petitioner has executed the
aforesaid documents. In view thereof, it is respectfully submitted that
the contention of the Petitioner is without merit and deserves to be
rejected.
(x) The proviso of Section 12(5) squarely applies to the present
case. The judgment referred by petitioner in the case of Ellora Paper
Mills Limited vs. State of Madhya Pradesh 7 does not apply to the facts
of the present case. In the case of Ellora Paper Mills Limited vs. State
of Madhya Pradesh there was no waiver between the parties at all,
and therefore the said decision is distinguishable on facts. Hence, the
7 (2022) 3 SCC 1
Diksha Rane 24. ARBP 43-23-FINAL.doc
principle enunciated therein would not be applicable to the facts of
the present case.
(xi) If the petitioner was ever aggrieved by the Arbitration clause
and not agreeable to waiving its objections under Section 12(5),
Petitioner could have taken recourse to filing an application under
Section 11 of the said Act for appointment of an arbitrator.
Respondent submits that this has not been done by the Petitioner,
which only shows that the Petitioner had never doubted the
independence and impartiality of the Learned Arbitrator.
(xii) The Petitioner during the arbitration proceedings also never
filed any form of application raising any objections with regard to the
independence and impartiality of the learned Arbitrator. Such
applications of bias would have to be filed with the Arbitrator, as per
provisions of the said Act.
(xiii) Infact the Petitioner in paragraph 9 of the Statement of
Claim expressly states that the learned Arbitrator had jurisdiction to
adjudicate the disputes between the parties.
(xiv) The impugned Award is a reasoned Award passed after
considering the oral and documentary evidence and arguments
advanced by both sides. The Ld. Arbitrator has considered each of the
Diksha Rane 24. ARBP 43-23-FINAL.doc
claims raised the Petitioner and given detailed reasons for rejecting
the same.
(xv) Prior to the Petitioner being awarded the Contract, on 1 st
September 2016, a draft proposal was published through Gazette
Notification SO 2836 (E) by Ministry of Labour and Employment
wherein notice of two months was given for proposed revision in
minimum wages for various scheduled employment. The said
proposal would also apply to labourers under the subject contract.
Subsequently, vide Gazette notification dated 19 th January 2017, the
minimum wage was increased to Rs.523/- which was applicable for
the period from 19th January 2017.
(xvi) Since the draft proposal for minimum wage revision by
the Ministry of Labour and Employment was notified even before
award of contract to the Petitioner, the Petitioner was fully aware of
the expected rise in the minimum wages. Thus the Petitioner cannot
be heard to say that the increase in the minimum wages rendered the
contract financially unfeasible.
(xvii) In the case of A2Z Infraservices Limited vs. Union of
India (Writ Petition No.1996 of 2017), the contract was in existence
between the parties. In the present proceedings, the petitioner had
Diksha Rane 24. ARBP 43-23-FINAL.doc
asked for foreclosure of the agreement in January 2018 itself.
Therefore, the principle held in the judgment would be inapplicable
to the facts of the present case.
(xviii) The Railways issued a JPO dated 20th December 2017 to
deal with foreclosure of contracts wherein request for foreclosure of
contract were received from the contractor owing to inability
expressed by the contractor to pay the increased minimum wages to
labour. As per the said JPO, the contractor was required to issue an
unambiguous undertaking.
(xix) The undertaking was a pre-requisite for processing
foreclosure of the contract awarded to the petitioner. The petitioner
vide its letter dated 24th January 2018 had expressed its intent to
foreclose the contract claiming inability to continue the work on
account of increased wages. Despite, a clear communication to
submit an undertaking as per the JPO, petitioner failed to give an
undertaking by its letter dated 24 th January 2018 as well as its letter
dated 5th February 2018.
(xx) Respondent vide their letters dated 9.02.2018 and
21.02.2018 had clearly stated that payment of wages, PF, ESIC, etc.
to the labour were not clearly substantiated with documentary
Diksha Rane 24. ARBP 43-23-FINAL.doc
evidence by the Petitioner. Further, the authorized personnel of the
Petitioner had also refused to sign the measurement of work done in
order to further process the bills. Being the Principal Employer,
payment of wages and remittance of PF, ESIC, etc. needs to be
ensured. Further, the Petitioner was not providing an undertaking as
stipulated in the JPO.
(xxi) The Petitioner had issued an unambiguous undertaking
duly accepting all of the conditions only on 16.05.2018. The subject
contract was processed for foreclosure thereafter. The Petitioner
themselves had prolonged their communication of acceptance of the
conditions of the JPO as is evident from the fact that the submission
of the unambiguous undertaking was submitted only on 16.05.2018
whereas the JPO for foreclosure was offered in December, 2017.
(xxii) By accepting the terms of the JPO, the Petitioner had
themselves exercised the option of continuing with the contract till
finalization of new contract. Before passing of the monthly bills,
Petitioner was required to submit due compliances and the bills of the
Petitioner got delayed due to non-submission of compliances. The
Petitioner in the said letter dated 16 May, 2018 admits that it would
have no claims against the Respondent financial or otherwise on the
Diksha Rane 24. ARBP 43-23-FINAL.doc
foreclosure of the Contract. Despite having issued a no claim
certificate, the Petitioner has invoked the Arbitration Clause and filed
the present petition.
(xxiii) The contentions of the Respondent as stated hereinabove
have been accepted by the learned Arbitrator with cogent reasons
and therefore, the same cannot be interfered with, since the same
would amount to deal with findings on facts.
(xxiv) She submitted that the present Petition be dismissed with
costs.
ANALYSIS AND FINDINGS
13. The contract period in the present proceedings was from 30 th
November 2016 to 29th November 2019. Out of the contract value,
admittedly a sum of Rs.1,12,00,000/- has been paid by the
respondent (railways) to the petitioner/the claimant. Therefore, the
claim is only with regard to the additional manpower expense of
Rs.20,91,553/-. The claim of the petitioner/applicant was rejected by
Award, passed by the Arbitral Tribunal.
14. The challenge of the petitioner to the Award is on various
grounds. It is the case of the petitioner that they had no choice but to
agree to the name suggested of the Sole Arbitrator by the
Diksha Rane 24. ARBP 43-23-FINAL.doc
Railways/respondent as per the Clauses of the Agreement which
specifically mentioned that the sole Arbitrator would be an employee
of the respondent (Railways). Hence, the claimant could not even go
to the Civil Court to file their dispute as there was an arbitration
clause.
15. The petitioner further submitted that Schedule VII specifically
stated that it was in fact the duty of the Sole Arbitrator to disclose his
linkage with the respondent (railways). The petitioner further
submitted that since the contract between the parties post the
amendment to the Arbitration and Conciliation (Amendment) Act,
2015, the learned Arbitrator should have disclosed his link with the
respondent (railways). He submitted that due to such clause in the
contract, the claimant could not have raised the issue before the
Arbitrator himself and the issue being that of law, the same can be
raised even under Section 34 of the Arbitration Act before this Court.
16. It is the case of the petitioner/claimant that the Arbitral
Tribunal consisting of Sole Arbitrator who was an employee of the
respondent (railways), hence, he could not have being adjudicating
the issue between the claimant and the respondent. It is the case of
the claimant that after the amendment to the Arbitration Act, in the
Diksha Rane 24. ARBP 43-23-FINAL.doc
year 2015, there were major changes made in Section 12 of the said
Act. Section 12 of the Arbitration Act mentions about the grounds for
challenge. One of such ground of challenge is sub-clause (5) which
mentions that any person whose relationship with the parties or the
subject matter of the dispute which falls under the VII Schedule shall
not be eligible to be appointed as an Arbitrator. The VII Schedule
refers to about 19 sub-clauses under which, if the Arbitrator has
relationship with the parties or the counsel, he would be ineligible to
be appointed as an Arbitrator. The first of such clause mentions about
an Arbitrator being an employee, consultant or advisor in past or
present with one of the parties, then he would be ineligible to be
appointed as an Arbitrator.
17. In the present proceedings, the petitioner/claimant invoked the
arbitration clause by its letter dated 7th December 2020. Paragraph 16
of the said letter reads as under:-
"16. I, under my client instructions, do hereby call upon you to pay
the minimum differential wages of Rs. 20,91,522/- (Rupees Twenty
Lakhs Ninety One Thousand Five Hundred & Twenty Two Only) along
with an with accrued interest, within a period of 7 days from the
receipt of this notice, failing which, this Notice be treated as Notice
under clause No.64 of the General Condition of Contract Invoking the
Arbitration clause and requests your office to appoint Arbitrator as
per clause No.64 (3) (a) (i) to put at rest the controversy/disputes
amongst the parties and agree both the parties in the General
Conditions of the Contract."
(Emphasis supplied)
Diksha Rane 24. ARBP 43-23-FINAL.doc
Hence, at the time of invocation itself the claimant themselves
have referred to Clause 64 of the contract. It will be necessary to look
into Clause 64 (3) (a)(i) which reads as under:-
"64.(3)(a)(i) In cases where the total value of all claims in question
added together does not exceed Rs.25,00,000/- (Rupees twenty five
lakh only), the Arbitral Tribunal shall consist of a Sole Arbitrator who
shall be a Gazetted Officer of Railway not below JA Grade, nominated
by the General Manager. The sole arbitrator shall be appointed within
60 days from the day when a written and valid demand for arbitration
is received by GM."
[Emphasis supplied]
Therefore, the claimants have themselves invoked Arbitration
Clause, wherein it is specifically mentioned that the Sole Arbitrator,
would be employee of Railways. Being aware of this fact they have
chose to go ahead with the Arbitration. The claimant had invoked the
Arbitration clause by their letter dated 7 th December 2020. The said
letter was addressed by the claimant through their advocates hence,
the claimant cannot now take a defence that they were not aware
about the legal implications while they issued the letter of invocation
of arbitration.
In my opinion, even at that stage, if the claimant desired to
appoint Sole Arbitrator by mutual consent, the claimant could have
filed an application u/s. 11 of the Arbitration Act, whereby they could
have sought for appointment of the Sole Arbitrator to decide the
Diksha Rane 24. ARBP 43-23-FINAL.doc
dispute between the parties. Admittedly, the claimants have not taken
any such steps.
18. Further, the respondent (railways) by their letter dated 14 th
December 2020 replied to the letter of the claimant of invocation of
Arbitration clause. The said letter of the respondent (railways) dated
18th December 2020 mentioned that if there is an invocation of the
Arbitration clause, the claimant should first waive the condition of
applicability of sub-section (5) of Section 12. Adhering to this letter
of the respondent (railways), the claimant by their letter dated 18 th
December 2020 agreed to waive away the provisions as mentioned in
sub-section (5) of Section 12. So also, they attached a waiver letter
duly signed by them. It will be necessary to note the provisions of
Section 12(5) of the Arbitration Act which reads as under:-
12. Grounds for challenge:
1[(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 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
Diksha Rane 24. ARBP 43-23-FINAL.doc
specified in the Sixth Schedule.]
(2) An arbitrator, from the time of his appointment and throughout the
arbitral proceedings, shall, without delay, disclose to the parties in writing
any circumstances referred to in sub-section (1) unless they have already
been informed of them by him.
(3) An arbitrator may be challenged only if-
(a) circumstances exist that give rise to justifiable doubts as to his
independence or impartiality, or
(b) he does not possess the qualifications agreed to by the parties.
(4) A party may challenge an arbitrator appointed by him, or in whose
appointment he has participated, only for reasons of which he becomes
aware after the appointment has been made.
(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.]
(Emphasis supplied)
Sub-section (5) was inserted to Section 12 of Arbitration Act with
effect from 23rd October 2015. To canvas this point the learned
counsel appearing for railways also relied upon the judgment passed
in JMC Projects (supra) delivered by Single Judge of Delhi High
Court. In the said judgment, in paragraph Nos. 37 and 38, it is held
that parties must expressly agree in writing to waiver of Section
12(5) of the Arbitration Act.
18.1 In Bharat Broad Band (supra), the Supreme Court held that if
as per the Section 12(5) proviso, parties in writing agree to waive the
provisions of Section 12(5) would not be applicable.
18.2 Similarly, in the judgment of Ellora Papermills Limited (supra),
Diksha Rane 24. ARBP 43-23-FINAL.doc
there was no waiver between the parties, and hence the ratio laid
down in said judgment would not be applicable.
18.3 Though Section 12 (5) specifically mentions that the Arbitrator
should disclose his relationship with the parties, however, proviso to
Section 12(5) mentions about waiver in writing. In the present
proceedings, the claimant by express agreement in writing had
waived the applicability of sub-section 5 of Section 12. Therefore,
according to me, the claimant at the stage of section 34 is bared from
taking up a ground under Section 12(5) for challenging the award.
19. After invocation of the arbitration clause on 7th December
2020, it was not binding on the claimant to grant a waiver as
contemplated under the proviso to Section 12(5) of the Arbitration
Act. The claimant has specifically by letter dated 18 th December 2020,
signed waiver form and on their signature they had sent it across to
the respondent (railways). The waiver letter also had a covering
letter of the claimant wherein the claimant repeated its desire to
waive as per the provisions of the proviso to Section 12(5) of the
Arbitration Act.
19.1. Supreme Court in the case of M/s.Voestalpine Schienen GMBH
Vs. Delhi Metro Rail Corporation Ltd. - reported in (2017) 4 SCC 665
Diksha Rane 24. ARBP 43-23-FINAL.doc
has considered Section 12(5) and the VII Schedule to the Arbitration
Act, and has held that under Section 12(5) of the Act,
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.
It is held that in such an eventuality, when the arbitration clause finds
foul with the amended provisions i.e. Section 12(5), the appointment
of an arbitrator would be beyond pale of arbitration agreement,
empowering the Court to appoint such arbitrator(s), as may be
permissible. Other party cannot insist for appointment of an
arbitrator in terms of the arbitration agreement. In such situation,
that would be the effect of non-obstante clause contained in Section
12(5) of the Arbitration Act.
19.2. In my view, the ratio laid down by Supreme Court in
M/s.Voestalpine Schienen GMBH (supra) will not be applicable to the
present proceedings. According to me, under Section 12, when a
person is approached in connection with his possible appointment as
an arbitrator, he is bound to disclose in writing any circumstances,
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
Diksha Rane 24. ARBP 43-23-FINAL.doc
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 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.
Various grounds are set out in the Fifth Schedule as a guide in
determining whether circumstances exist which give rise to justifiable
doubts as to the independence or impartiality of an arbitrator. The
disclosure shall be made by such person in the form specified in the
Sixth Schedule. An appointment of arbitrator may be challenged by
the parties only if any circumstances referred to Section 12 (3)
subject to Sub-section (4) of Section 13 which provides for an
agreement between the parties for such procedure for challenge. If
such challenge is unsuccessful, the party have an option to take this
ground while preferring an application for setting aside an arbitral
award in accordance with Section 34 of Arbitration Act.
20. Subsequently, when the arbitration proceedings commenced,
the claimant had an option to file an application before the Arbitral
Tribunal u/s. 16 read with Section 13 (2) of the Arbitration Act.
However, the claimant has not taken up any such steps as
contemplated u/s. 16 of the said Act. Section 16 of the Arbitration
Diksha Rane 24. ARBP 43-23-FINAL.doc
Act, envisages the jurisdiction of the Arbitral Tribunal wherein if a
party has to take an objection about the jurisdiction of the Arbitral
Tribunal, the same can be made before the Arbitral Tribunal, and the
Arbitral Tribunal can decide the same. If the said application is
allowed, the Arbitral Tribunal proceedings come to an end. However,
if such an application is not allowed, the same can be taken as a
ground along with the other grounds while challenging to the
Arbitral award, if it is against the said party. In the present
proceeding, no such steps were taken up by the claimant, as
contemplated under Section 13(2).
20.1. Supreme Court in case of HRD Corporation (Marcus Oil and
Chemical Division) Vs. Gail (India) Limited (Formerly Gas Authority
of India Ltd.), 2017 SCC OnLine SC 1024 has held that if the
arbitrator fails to file disclosure in terms of section 12(1) read with
Fifth Schedule of the Arbitration and Conciliation Act, 1996, the
remedy of the party in that event would be to apply under section
14(2) of the Arbitration and Conciliation Act, 1996 to the court to
decide about the termination of the mandate of the arbitral tribunal
on that ground.
20.2. Under section 16, the arbitral tribunal is empowered to rule on
Diksha Rane 24. ARBP 43-23-FINAL.doc
its own jurisdiction including ruling on any objection with respect to
the existence or validity of arbitration agreement. Such plea shall be
raised not later than the submission of the statement of defence. If
such plea is rejected by the arbitral tribunal, it has to proceed with
the arbitral proceedings and declare an award. If plea of jurisdiction
is accepted by the arbitral tribunal, the respondent may file an appeal
under section 37. If plea of jurisdiction is not accepted, the
respondent may challenge such ruling along with award under
section 34.
21. For the first time in the present proceedings which is filed u/s.
34, the claimants have raised an issue about sub-section (5) of
Section 12. According to me, as discussed in earlier paragraphs, the
claimants at least had three occasions before challenging the Award
u/s. 34, to raise the issue of Arbitrator not been qualified/eligible to
conduct the proceedings. The petitioner/claimant chose not to take
any such steps. Again, I would like to mention here that the claimants
themselves had invoked Arbitration Clause, knowing fully well that as
per Clause 64 (3)(a)(i) the Sole Arbitrator would be a railway
employee. Only after the award is passed, in the present proceedings
such an issue has been raised by the claimant. According to me, the
same is a complete afterthought, hence is rejected.
Diksha Rane 24. ARBP 43-23-FINAL.doc
22. The learned counsel appearing for the respondent (railways)
has also raised an issue that if the claimant could have desired, they
could have opt for "foreclosure" immediately. Such an option was
given by railways on 20th December 2017, for all the pending
contracts. As per clause B-3 an option of foreclosure was available to
the claimant. However, the claimant desired to go ahead with the
contract and not opt for foreclosure. Subsequently, after a period of
almost one year on petitioner's request after the balance work was
awarded to another contractor, the petitioner's contract was
foreclosed. The claimant did not raise any issue about foreclosure
before the Arbitrator. The claimant referred to the judgment of A2Z
Infraservices Limited (supra) on the issue of foreclosure. In my view,
the facts in A2Z Infraservices Limited (supra) were quite different, as
in the said judgment the contract was in existence between the
parties. However, in the present proceedings the petitioner/claimants
had asked for foreclosure of the Agreement. Therefore, the ratio of
A2Z Infraservices Limited (supra) will not be applicable to the
present proceedings. Hence, according to me, even the issue as
regards foreclosure is to be answered against the claimant.
23.1 In MMTC Limited v/s. Vedanta Limited, reported in (2019) 4
SCC 163, Supreme Court held that the Court does not sit in appeal
Diksha Rane 24. ARBP 43-23-FINAL.doc
over the arbitral award and may interfere on merits on limited
grounds as provided under Section 34(2)(b)(ii) i.e. "if the award is
against the public policy of India". It is only if one of these conditions
set out in Section 34(2)(b)(ii) is met that the Court may interfere
with an arbitral award under the said provision but such interference
does not entail a review on the merits of the dispute and is limited to
situations where the findings of the arbitrator are perverse or
arbitrary or when the conscience of the Court is shocked or when the
illegality is not trivial but goes to the root of the matter. An arbitral
award may not be interfered with if the view taken by the arbitrator
is a possible view based on facts. The Court cannot travel beyond the
restrictions laid down under Section 34. The Court cannot undertake
an independent assessment of the merits of the award and must only
ascertain that the exercise of power by the Court under Section 34
has not exceeded the scope.
23.2 Supreme Court in case of Ssangyong Engineering &
Construction Co. Ltd. v/s. National Highways Authority of India,
reported in 2019 SCC OnLine SC 677 has held that under Section 34
(2A) of the Arbitration Act, a decision which is perverse while no
longer being a ground for challenge under "public policy of India",
would certainly amount to a patent illegality appearing on the face of
Diksha Rane 24. ARBP 43-23-FINAL.doc
the award. A finding based on the documents taken behind the back
of the parties by the arbitrator would also qualify as a decision based
on no evidence inasmuch as such decision is not based on evidence
led by the parties and therefore would also have to be characterised
as perverse. It is held that a finding based on no evidence at all or an
award which ignores vital evidence in arriving at its decision would
be perverse and liable to be set aside on the ground of patent
illegality.
23.3 Similarly, Supreme Court in case of Associate Builders vs. Delhi
Development Authority - (2015) 3 SCC 49, has held that the
interference with an arbitral award is permissible only when the
findings of the arbitrator are arbitrary, capricious or perverse or when
conscience of the Court is shocked or when illegality is not trivial but
goes to the root of the matter. It is held that once it is found that the
arbitrator's approach is neither arbitrary nor capricious, no
interference is called for on facts. The arbitrator is ultimately a
master of the quantity and quality of evidence while drawing the
arbitral award. Patent illegality must go to the root of the matter and
cannot be of trivial nature. Apart from the grounds which are dealt
with in the preceding paragraphs, the petitioner/claimants have not
raised any other grounds on merits to show any kind of perversity in
Diksha Rane 24. ARBP 43-23-FINAL.doc
the impugned Award. In the present proceedings, I find no patent
illegality or perversity in the Award passed by Sole Arbitrator.
23.4 Single Judge of Bombay High Court in the case of Star Track
Fasteners Private Limited Vs. Union of India, 2019 SCC OnLine Bom
1453 has held that the Court has no power to allow any claim which
is rejected by the arbitral tribunal as the Court cannot correct errors
made by the learned arbitrator. Court can either set aside the award
or can upheld the award or in appropriate case, modify the award if
such part is severable.
24. Taking into consideration the facts of the present proceedings
as discussed above and the dicta as laid down in the judgments
referred above, there is no merits in the present Arbitration Petition,
hence the same is rejected. No costs.
(Rajesh S. Patil, J.)
Signed by: Diksha Rane
Designation: PS To Honourable Judge
Date: 12/11/2024 14:01:10
