Calcutta High Court
G Rajendra Prasad vs Bharat Heavy Electricals Limited on 14 May, 2025
Author: Shampa Sarkar
Bench: Shampa Sarkar
OCD-3
AP/782/2022
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL DIVISON
G RAJENDRA PRASAD
VS
BHARAT HEAVY ELECTRICALS LIMITED
BEFORE:
The Hon'ble JUSTICE SHAMPA SARKAR
Date : 14th May, 2025.
Appearance:
Mr. Chayan Gupta, Adv.
Mr. Kausik De, Adv.
Mr. Roshan Pathak, Adv.
Mr. Uday Sharma, Adv.
. . .for the petitioner.
Mr. Aniruddha Bhattacharya, Adv.
Mr. Arnab Roy, Adv.
. . .for the respondent.
The Court:
1. Affidavit in reply is taken on record.
2. This is an application for appointment of a learned Arbitrator to
arbitrate upon the disputes between the parties. The disputes arise out
of a work order dated May 31, 2013. Clause 42 provides for arbitration
and reconciliation. Clause 42.1 provides that in the event of any
dispute or difference arising out of the execution of the contract or the
respective rights and liabilities of the parties arising out of the said
contract/work order, the same would be referred to arbitration. The
clause further provides that the sole Arbitrator shall be appointed by
the respondent.
2
3. It is submitted by Mr. Gupta that the petitioner invoked arbitration by a
notice dated August 3, 2022. The respondent issued a notice on August
29, 2022 indicating its desire to settle the matter amicably. The
petitioner was asked to attend a discussion on September 2, 2022 via
video conferences. It is submitted by Mr. Gupta that although the
petitioner appeared at the conference, the respondent failed and
neglected to dispose of the matter. The delay in reaching the settlement
was indicative of the fact that in the facts of the particular case, the
matter could not be amicably settled. Hence, the petitioner submits
that the disputes must be referred to arbitration upon recording failure
of the reconciliation process which was initiated by the respondent, but
did not reach to its logical conclusion.
4. Mr. Bhattacharjee, submits that the matter is still pending
consideration and the application is premature. Mr. Bhattacharjee
further submits that the claims of the petitioner are inadmissible and
not as per the terms and conditions of the work order.
5. Having heard the learned advocates for the respective parties, this Court
is of the view that the application before this Court for reference of the
dispute to arbitration is not premature. The petitioner was called for a
settlement by the respondent. The petitioner admittedly attended the
meeting, but since then the respondent has not given its decision.
Irrespective of the fact that sittings were held, the matter could not be
concluded amicably. Thus, this Court holds that referring the matter
for further amicable settlement would be an exercise in futility.
3
Reference is made to the decision of Visa International Limited vs.
Continental Resources (USA) Limited reported in (2009) 2 SCC 55
and Demerara Distilleries Private Limited and Anr. vs. Demerara
Distillers Limited reported in (2015) 13 SCC 610.
6. The law prohibits unilateral appointment of an arbitrator by interested
parties. Reference is made to the decisions Perkins Eastman
Architects DPC and Another vs. HSCC (India) Ltd. reported in 2019
SCC OnLine SC 1517, and Central Organisation for Railway
Electrification vs. ECI SPIC SMO MCML (JV) A joint Venture
Company reported in 2024 SCC OnLine SC 3219.
7. Further, this Court finds that the mechanism provided under Clause
42.1 for appointment of an Arbitrator by the respondent is no-longer
permissible in law. Such mechanism has failed, although the existence
of the arbitration clause is not in dispute. Unilateral appointment is
contrary to Article 14 of the Constitution of India, as it is antithetic to
party autonomy.
8. The Hon'ble Apex Court in Central Organization for Railway
Electrification (supra), held thus:-
"73. The 2015 amendment has introduced concrete standards of
impartiality and independence of arbitrators. One of the facets of
impartiality is procedural impartiality. Procedural impartiality implies
that the rules constitutive of the decision-making process must favour
neither party to the dispute or favour or inhibit both parties equally.
Further, a procedurally impartial adjudication entails equal
4
participation of parties in all aspects of adjudication for the process to
approach legitimacy. Participation in the adjudicatory process is
meaningless for a party against whom the arbitrator is already
prejudiced. Equal participation of parties in the process of
appointment of arbitrators ensures that both sides have an equal say
in the establishment of a genuinely independent and impartial arbitral
process.
74. Under Sections 12(1) and 12(5), the Arbitration Act recognises
certain mandatory standards of independent and impartial tribunals.
The parties have to challenge the independence or impartiality of the
arbitrator or arbitrators in terms of Section 12(3) before the same
arbitral tribunal under Section 13. If the tribunal rejects the
challenge, it has to continue with the arbitral proceedings and make
an award. Such an award can always be challenged under Section 34.
However, considerable time and expenses are incurred by the parties
by the time the award is set aside by the courts. Equal participation of
parties at the stage of the appointment of arbitrators can thus obviate
later challenges to arbitrators.
75. Independence and impartiality of arbitral proceedings and equality
of parties are concomitant principles. The independence and
impartiality of arbitral proceedings can be effectively enforced only if
the parties can participate equally at all stages of an arbitral process.
Therefore, the principle of equal treatment of parties applies at all
stages of arbitral proceedings, including the stage of the appointment
of arbitrators.
***
124. The doctrine of bias as evolved in English and Indian law
emphasizes independence and impartiality in the process of
adjudication to inspire the confidence of the public in the adjudicatory
processes. Although Section 12 deals with the quality of independence
and impartiality inherent in the arbitrators, the provision's emphasis
is to ensure an independent and impartial arbitral process.
***
169. In view of the above discussion, we conclude that:
a. The principle of equal treatment of parties applies at all stages
of arbitration proceedings, including the stage of appointment of
arbitrators ;
b. The Arbitration Act does not prohibit PSUs from empanelling
potential arbitrators. However, an arbitration clause cannot mandate
the other party to select its arbitrator from the panel curated by PSUs;
c. A clause that allows one party to unilaterally appoint a sole
arbitrator gives rise to justifiable doubts as to the independence and
impartiality of the arbitrator. Further, such a unilateral clause is
exclusive and hinders equal participation of the other party in the
appointment process of arbitrators;
d. In the appointment of a three-member panel, mandating the
other party to select its arbitrator from a curated panel of potential
arbitrators is against the principle of equal treatment of parties. In
this situation, there is no effective counterbalance because parties do
not participate equally in the process of appointing arbitrators. The
process of appointing arbitrators in CORE (supra) is unequal and
prejudiced in favour of the Railways;
e. Unilateral appointment clauses in public-private contracts are
violative of Article 14 of the Constitution ;
f. The principle of express waiver contained under the proviso to
Section 12(5) also applies to situations where the parties seek to waive
the allegation of bias against an arbitrator appointed unilaterally by
one of the parties. After the disputes have arisen, the parties can
determine whether there is a necessity to waive the nemo judex rule;"
In Perkins Eastman (supra), the Hon'ble Apex Court held thus
:-
..."20. We thus have two categories of cases. The first, similar to the
one dealt with in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd.,
(2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] 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 is
empowered or authorised 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 Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8
SCC 377 : (2017) 4 SCC (Civ) 72] , 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.
21. But, in our view that has to be the logical deduction from TRF
Ltd. [TRF Ltd. v. EnergoEngg. Projects Ltd., (2017) 8 SCC 377 : (2017)
4 SCC (Civ) 72] Para 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 (3 of 2016) and recognised by the decision of
this Court in TRF Ltd. [TRF Ltd. v. EnergoEngg. Projects Ltd., (2017) 8
SCC 377 : (2017) 4 SCC (Civ) 72]
...
24. In Voestalpine [VoestalpineSchienen GmbH v. DMRC, (2017) 4
SCC 665 : (2017) 2 SCC (Civ) 607] , this Court dealt with
independence and impartiality of the arbitrator as under : (SCC pp.
687-88 & 690-91, paras 20 to 22 & 30)
"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 [Hashwani v. Jivraj, (2011) 1 WLR 1872 : 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 [Fouchard, Gaillard, Goldman on International
Commercial Arbitration, 562 [Emmanuel Gaillard & John Savage
(Eds.) 1999] {quoting Cour de cassation [Cass.] [Supreme Court for
judicial matters] Consorts Ury v. S.A. des Galeries Lafayette, Cass.2e
civ., 13-4-1972, JCP, Pt. II, No. 17189 (1972) (France)}.] , 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, 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.
***
30. Time has come to send positive signals to the international
business community, in order to create healthy arbitration
environment and conducive arbitration culture in this country.
Further, as highlighted by the Law Commission also in its report, duty
becomes more onerous in government contracts, where one of the
parties to the dispute is the Government or public sector undertaking
itself and the authority to appoint the arbitrator rests with it. In the
instant case also, though choice is given by DMRC to the opposite
party but it is limited to choose an arbitrator from the panel prepared
by DMRC. It, therefore, becomes imperative to have a much
broadbased panel, so that there is no misapprehension that principle
of impartiality and independence would be discarded at any stage of
the proceedings, specially at the stage of constitution of the Arbitral
Tribunal. We, therefore, direct that DMRC shall prepare a broadbased
panel on the aforesaid lines, within a period of two months from
today..."
9. Under such circumstances, the petitioner has rightly approached this
Court for appointment of a learned Arbitrator. The application is
allowed, keeping all points with regard to arbitrability of the disputes,
validity of the claims and any other objection that the respondent may
have, left open, to be decided by the learned Arbitrator.
10. Under such circumstances, the Court appoints Mr. Ayan Banerjee,
learned Advocate Bar Association, Room No.2, High Court at Calcutta,
as the Arbitrator, to arbitrate upon the dispute between the parties.
This appointment is subject to compliance of Section 12 of the
Arbitration and Conciliation Act, 1996.
11. The learned Arbitrator shall fix his own remuneration as per the
Schedule of the Arbitration and Conciliation Act.
12. AP/782/2022 is, accordingly, disposed of.
(SHAMPA SARKAR, J.)
sp/
