Calcutta High Court

Century Metals Recyling Limited & ... vs M/S Urgo Capital Limited & Ors on 21 September, 2021

                IN THE HIGH COURT AT CALCUTTA
                  ORIGINAL CIVIL JURISDICTION
                          (Original Side)

                                                 Pronounced on:      21/09/2021

                                                              AP 351 of 2021
                                                 (Through Video Conferencing)

CENTURY METALS RECYLING LIMITED & ANR.
                                                                ... .Appellant(s)

                               Through : Mr. Deepanjan Dutta, Mr. Yashvardhan
                                         Deora and Mr. Amit Tyagi,
                                         Advocates (VC)

                                       v/s

M/s URGO CAPITAL LIMITED & ORS.
                                                               ....Respondent(s)

                               Through : Mr. Swatarup Banerjee, Mr. Avishek
                                         Guha and Ms. Ratnadipa Sarkar,
                                         Advocates (VC)

Coram : HON'BLE MR. JUSTICE RAJESH BINDAL,
                    CHIEF JUSTICE (ACTING)
                                 ORDER

1. The present application has been filed by one of the parties to

the agreement challenging appointment of arbitrator by the respondent No. 1

and further with the prayer for appointment of an arbitrator to resolve the

dispute between the parties.

2. The dispute arises out of a letter of sanction for Supply Chain

Finance Facility extended by the respondent No. 1 to the applicant. The

agreement was executed by the parties on May 25, 2019. It contains

provision for arbitration, in clause 24 thereof. The parties to the agreement

namely, the applicant is located in Haryana whereas the respondent No. 1 is

in Maharashtra. The aforesaid agreement was renewed on August 13, 2020.

2 AP 351 of 2021

3. It was argued by the learned Counsel for the applicant that it

was surprised to receive a communication from Centre for Alternate Dispute

Resolution Excellence (CADRE) dated July 17, 2021 intimating that the

respondent No. 3 has been appointed as the arbitrator for resolution of

dispute between the applicant No. 1 and the respondent No. 1. Time was

granted till August 21, 2021 to file response to the statement of claim and

documents in support thereof. Relying on a judgment of Hon'ble Supreme

Court in Perkins Eastman Architects DPC and Ors. Vs. HSCC (India)

Ltd., AIR 2020 SC 59 it was argued that a party to the agreement having

interest in the dispute or the outcome thereof is ineligible to appoint an

arbitrator. As in the case in hand, the arbitrator has been appointed by the

party to the agreements, the same has to be declared coram non judice and a

fresh arbitrator deserves to be appointed.

4. On the other hand, learned Counsel for the respondent No. 1

submitted that the present application is barred on account of misjoinder of

parties. The arbitrator cannot be impleaded as party to the proceedings.

However, still respondent No. 3 has been impeded. He has referred to an

order dated April 30, 2007 passed in Ircon Inter. Natnl. Ltd. V. Vinay

Heavy Equipments reported as 2007 SCC OnLine SC 4 and in Zonal

General Manager, Ircon International Limited vs. Vinay Heavy

Equipments (2015) 13 SCC 680. He further submitted that the common

application filed under sections 11(6), 12(5) and 14 of the Arbitration and

Conciliation Act, 1996 (hereinafter referred to as 'the Act') is not

maintainable. Section 12 provides for grounds of challenge before an

arbitrator. None of the conditions as laid down in Section 14 exist in the

present case. He further referred to Section 11 of the Act which provides that 3 AP 351 of 2021

in case more than one institution is appointed to deal with the dispute by

way of arbitration, the first one approached shall have the jurisdiction. He

further referred to a letter dated September 18, 2020 circulated by the

Government of India, Ministry of Law and Justice mentioning the list of

institutions offering alternate dispute resolution mechanism. The name of

CADRE is mentioned therein.

5. While distinguishing the judgment of Hon'ble the Supreme

Court in Perkins Eastman Architects DPC and Ors.'s case (supra), it was

submitted that in the case in hand the respondent No. 1 has not appointed the

arbitrator rather it has merely referred the case to an institution. He further

referred to the judgment in Central Organisation for Railway

Electrification vs. ECI-SPIC-SMO-MCML (JV) A Joint Venture

Company reported as (2020) 14 SCC 712, stating that it is permissible for

the party to the agreement to nominate arbitrator as per procedure laid down

in the agreement even though he himself may be ineligible to act as an

arbitrator.

6. In response, learned Counsel for the applicant submitted that

he is not averse to the Institutional Arbitration, however, the forum cannot

be chosen by the respondent No. 1 who is party to the agreement and has

interest therein. The judgment in Central Organisation for Railway

Electrification's case (supra) will not come to the rescue of the respondent

No. 1 for the reason that in the aforesaid case Arbitral Tribunal was to be

appointed in which both the parties had the advantage of nominating an

arbitrator of their choice. As a result thereof advantage of one party

appointing an arbitrator may get counter balanced by equal power to the 4 AP 351 of 2021

other party. It is not so provided in the agreement signed between the parties

herein.

7. In Perkins Eastman Architects DPC and Ors.'s case

(supra), Hon'ble the Supreme Court opined that where only one party has

the right to appoint sole arbitrator, it's choice will always have an element of

exclusivity in determining or charting the course of dispute resolution. The

person who is interested in the outcome or decision of the dispute must not

have the power to appoint a sole arbitrator.

8. Section 11 of the Act may not come to the rescue of the

respondent No. 1 for the reason that it only refers to the precedence of the

institution which may take up the case for arbitration in case there is

reference to more than one. The case in hand does not fall in that category.

9. Heard learned Counsel for the parties and perused the

paperbook.

10. It is not disputed that an agreement was executed between the

parties on May 25, 2019. Relevant clauses of the agreement with reference

to the arbitration are extracted below:

              "13.    GOVERNING               LAW,   JURISDICTION         AND
              ARBITRATION
                       13.1       This Agreement shall be construed in

accordance with the laws of India and subject to the arbitration clause below, shall be subject to the exclusive jurisdiction of the competent courts in Kolkata.

13.2 In the event of any dispute or difference between the parties under this Agreement, including in relation to the construction or interpretation of the Agreement, the parties shall first endeavour to settle 5 AP 351 of 2021

such dispute or difference by amicable negotiations within 30 days of a written notice issued by one party to the other party. If the negotiations do not result in a resolution of the dispute or difference, either party shall be entitled to submit such dispute or difference to arbitration. If the negotiations do not result in a resolution of the dispute or difference, either party shall be entitled to submit such dispute or difference to arbitration. The Lender shall appoint an arbitrator at its sole discretion or in accordance with the Arbitration and Conciliation act, 1996 ("Arbitration Act"). Arbitration shall be conducted in accordance with the Arbitration Act. The seat of arbitration shall be Kolkata and the arbitration proceeding shall be conducted in English. The decision of the arbitrator shall be final and binding on the parties."

11. Clause 24 of the Agreement dated August 13, 2020 entered

into between the parties is extracted below:

"24. GOVERNING LAW AND ARBITRATION

(a) Any and all disputes, claims differences arising out of or in connection with any Facility Agreement or the performance of any Facility Agreement shall be settled by arbitration to be referred to a sole arbitrator to be appointed by the Lender and the award thereupon shall be binding upon the Parties. The place of the arbitration shall be in Kolkata and the arbitration shall be held in accordance with the provisions of the Arbitration and Conciliation Act, 1996 and any statutory amendments thereof. The proceeding or Arbitration tribunal shall be conducted in English language. Each Party shall bear cost of representing its case before 6 AP 351 of 2021

the Arbitrator. Costs and charges of Arbitrator shall be shared equally unless otherwise provided for in the award."

12. The primary issue which requires consideration by this Court

in the present application is as to whether the arbitration proceedings as

initiated by the respondent by referring the dispute to CADRE should be

allowed to continue or a fresh arbitrator is to be appointed. The argument

raised by the learned Counsel for the respondent is that the respondent being

a party to the agreement, who has interest in the outcome thereof, cannot

appoint an arbitrator whereas the stand taken by the respondent is that the

respondent herein has not appointed an arbitrator rather it has referred the

dispute to an institution namely, CADRE, who in turn has appointed the

arbitrator from its panel. It is a case in which the parties to the dispute are

located at Faridabad and Bombay whereas the seat of arbitration has been

chosen at Kolkata.

13. The issue has been considered by Hon'ble the Supreme Court

in a recent judgment in Perkins Eastman Architects DPC & Ors.'s case

(supra). It has been opined therein that where one party has right to appoint

the sole arbitrator, its choice will always have an element of exclusivity in

determining or charting the course for dispute resolution. The person who

has an interest in the outcome or decision of the dispute must not have the

power to appoint a sole arbitrator. The position with regard to appointment

of an arbitrator as a member of the Arbitral Tribunal is different. The

relevant paragraph thereof is extracted below:

"16. But, in our view that has to be the logical deduction from TRF Limited MANU/SC/0755/2017 : (2017) 8 SCC 377. Paragraph 50 of the decision shows that this Court 7 AP 351 of 2021

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 recognized by the decision of this Court in TRF Limited MANU/SC/0755/2017 : (2017) 8 SCC 377."

(Emphasis supplied)

14. In the case in hand, the arbitration clause does not provide for

appointment of an Arbitral Tribunal. In fact the lender, namely, the

respondent has been given right to appoint sole arbitrator at its discretion. In

view of the law laid down by Hon'ble the Supreme Court in Perkins

Eastman Architects DPC & Ors.'s case (supra), in my opinion, the 8 AP 351 of 2021

respondent did not have any right even to refer the dispute to CADRE for

appointment of an arbitrator for the reason that the respondent is a party

interested in the outcome of the dispute. It will not matter if the dispute is

referred to a sole arbitrator or an institution as it is charting the course for

dispute resolution. It is not a case in which Arbitral Tribunal was to be

appointed. The judgment in Central Organisation for Railway

Electrification's case (supra), as relied upon by learned Counsel for the

respondent deals with an issue where an Arbitral Tribunal was to be

appointed. There Hon'ble the Supreme Court opined that both the parties

having advantage of nominating an arbitrator each, their rights are counter-

balanced.

15. As far as the argument raised by learned Counsel for the

respondent regarding misjoinder of parties is concerned, the respondent no.

3, who was appointed as an arbitrator by the CADRE has been impleaded as

the respondent in the petition. Reference has been made by the respondent to

an order passed by Hon'ble the Supreme Court in Ircon Inter. Natnl. Ltd.'s

case (supra), where the name of the arbitrator was directed to be deleted on

the request of the parties to the dispute. In my opinion, the present

application does not deserve to be dismissed on that score. Rather the name

of the respondent no. 3 can be ordered to be deleted from the memo of the

Parties. Ordered accordingly.

16. The argument raised by learned Counsel for the respondent

that in view of Section 11(11) of the Act, any institution which has been

approached first is competent to appoint the arbitrator, is to be noticed and

rejected. At the time of hearing, none of the Counsel pointed out that the

aforesaid provision in the Act has not been enforced, though amendment 9 AP 351 of 2021

was carried out in the Act vide Arbitration and Conciliation (Amendment)

Act, 2019 (for short, 'the 2019 Amendment Act'). The matter was listed in

the cause-list on September 16 and 17, 2021 in the category of "TO BE

MENTIONED" to enable the Counsel for the respondent to clarify the

aforesaid fact. He insisted that vide notification dated August 30, 2019,

amendment in Section 11 of the 2019 Amendment Act has been notified.

The argument is misconceived. The 2019 Amendment Act having 16

sections, was notified on August 09, 2019. Section 1(2) of aforesaid

Amendment Act provides that it shall come into force on such date as the

Central Government may by notification in the gazette appoint and different

dates may be appointed for enforcement of different provisions of the Act.

The same reads as under.

"(1) This Act may be called Arbitration and Conciliation (Amendment) Act, 2019.

(2) Save as otherwise provided in this Act, it shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision."

17. Subsequent thereto, notification was issued on August 30,

2019 by Ministry of Law and Justice, in exercise of powers conferred under

Section 1(2) of the Amendment Act. The Central Government appointed

August 30, 2019 as the date on which the specified provisions of the 2019

Amendment Act were to come into force. These are Sections 1, 4-9, 11-13

and 15 thereof. The notification reads as under:

10 AP 351 of 2021

"S.O. 3154(E). - In the exercise of the powers conferred by sub-section (2) of the Section 1 of the Arbitration and Conciliation (Amendment) Act, 2019 (33 of 2019), the Central Government hereby appoints the 30th August, 2019 as the date on which the provisions of the following sections of the said Act shall come into force:-

                       (1)      section 1;
                       (2)      section 4 to section 9 [both inclusive];
                       (3)      section 11 to section 13 [both inclusive];
                       (4)      section 15."

18. The amendment of Section 11 of the Act is contained in

Section 3 of the 2019 Amendment Act. Under Section 3 has not yet been

enforced. The argument raised by learned Counsel for the respondent that

Section 11 is mentioned in the notification is totally misconceived as this

Section 11 mentioned at serial no. 3 in the notification dated August 30,

2019 refers to Sections as contained in the 2019 Amendment Act.

19. For the reasons mentioned above, in my opinion, the

appointment of CADRE as the institution for resolution of dispute at the sole

discretion of the respondent, who is a party to the agreement and interested

in its result, cannot be legally sustained. Hence, set aside. Hon'ble Justice

G.S. Singhvi, retired Judge of Hon'ble the Supreme Court, resident of K-27

(Ground Floor), Hauz Khas Enclave Aurobindo Marg, New Delhi - 110016