M/S Mfar Constructions Pvt. Ltd. vs Director General(Married ...
2012 Latest Caselaw 6849 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+                 ARB.P. 123/2012

M/S MFAR CONSTRUCTIONS PVT. LTD.            ..... Petitioner
                 Through: Ms. Indu Malhotra, Sr. Adv.
                          with Ms. Mahalakshmi Pavani,
                          Mr. G. Balaji, Mr. Vanshdeep
                          Dalmia and Mr. Kush
                          Chaturvedi, Advocates.

                  versus

DIRECTOR GENERAL
(Married Accommodation Project)                  ..... Respondent
                      Through:        Mr. Anuj Agarwal with
                                      Mr. Gaurav Khanna,
                                      Advocates.

%                          Date of Decision : November 30, 2012

CORAM:
HON'BLE MS. JUSTICE REVA KHETRAPAL

                           JUDGMENT

: REVA KHETRAPAL, J.

1. The abovementioned petition has been filed by the petitioner

under Section 11 of the Arbitration and Conciliation Act, 1996

praying for the appointment of a sole Arbitrator to adjudicate on the

arbitrable disputes, which have arisen between the petitioner and the

respondent.

2. The aforesaid disputes, which have arisen between the

petitioner and the respondent relate to a Work Order bearing No.

0012/GPR/BHUB/Contractors/Pkg-14/03 dated 27.07.2010 for the

construction of 897 dwelling units at Bhubaneswar and Gopalpur for

the Married Accommodation Project (hereinafter referred to as

"MAP").

3. The contract entered into between the petitioner and the

respondent was for the total value of Rs. 91,63,37,224.50 only

(Rupees Ninety one crores sixty three lacs thirty seven thousand two

hundred twenty four and fifty paisa only). The overall period of

completion was fixed for a period of 25 months, as the petitioner was

required to commence the work on 02.08.2010 and complete it by

01.09.2012.

4. Clause 60 of the General Conditions of Contract stipulated that

in case of disputes arising between the parties, the parties shall refer

the matter to arbitration. The relevant extract of the aforesaid Clause

60 is reproduced hereinbelow:-

"60. Arbitration

All disputes, between the parties to the contract (other than those for which the decision of the DG MAP or

any other person is by the contract expressed to be final and binding) shall, after written notice by either party to the contract to the other of them, be referred to the sole arbitration of serving officer having degree in Engineering or equivalent or having passed Final/Direct Final Examination of Sub Division II of Institution of Surveyors (India) recognized by the Govt of India to be appointed by the Engineer-in- Chief, Army Headquarters, New Delhi or in his absence, the officer officiating as Engineer-in-Chief or Director General of Works if specifically delegated in writing by Engineering-in-Chief, Army Headquarters, New Delhi whose decision shall be final, conclusive and binding. The Arbitration shall be governed by the Arbitration and Conciliation Act, 1996.

Unless both parties agree in writing, such reference shall not take place until after the completion or alleged completion of the Works or termination or determination of the Contract under Condition Nos. 49 and 50 hereof.

Provided that in the event of abandonment of the works or cancellation of the Contract under Conditions Nos. 46, 47 or 48 hereof, such reference shall not take place until alternative arrangements have been finalized by the Government to get the Works completed by or through any other Contractor or Contractors or Agency or Agencies.

Provided always that commencement or continuance of any Arbitration proceedings hereunder or otherwise shall not in any manner militate against the Government's right of recovery from the Contractor as provided in Condition 57 hereof............". (emphasis supplied)

5. Disputes having arisen between the parties, the petitioner

invoked the aforesaid Arbitration Clause through various letters dated

26.04.2011, 12.05.2011 and 13.06.2011 written by the petitioner. The

petitioner was finally constrained to determine the Contract with the

respondent by a letter dated 21.09.2011 without completion of the

project, stating therein that the petitioner had suffered huge losses in

view of the failure of the projects solely due to the negligent act of the

respondent in not handing over all the sites for construction and once

again requesting the respondent for appointment of an Arbitrator. The

respondent replied to the aforesaid letter on 27.10.2011, refusing to

appoint an Arbitrator by stating:-

"9. It is an agreed condition that arbitration cannot be invoked unless the work is physically completed without mutual consent of both the parties. Since no ambiguity existed in the disputes raised by you no decision is pending from the Accepting Officer, our concurrence remained a tacit refusal."

6. In view of the aforesaid refusal of the respondent to initiate

arbitration proceedings, the petitioner was left with no option except

to file the present petition on 15.03.2012 for appointment of an

arbitrator.

7. The respondent filed its affidavit opposing the prayer made in

the petition, paragraph 4 whereof states as follows:-

"4. That by way of this Short Affidavit, the Respondent submits that the Arbitrator in the present matter, may be ordered to be appointed, in terms of theArbitration Clause i.e. Clause 60 of the General Conditions of the Contract, by the Engineer-in-Chief, Army Headquarters, New Delhi or in his absence, the officer officiating as Engineer-in-Chief or Director General of Works if specifically delegated in writing by Engineering-in-Chief, Army Headquarters, New Delhi."

8. Arguments were addressed by Ms. Indu Malhotra, learned

senior counsel on behalf of the petitioner and Mr. Anuj Agarwal,

learned counsel on behalf of the respondent. It was submitted by Ms.

Indu Malhotra that the right of the respondent to appoint the arbitrator

stands forfeited on the petitioner filing the present petition for

appointment of an arbitrator before this Court. Specific reliance was

placed by her on the judgment of the Hon‟ble Supreme Court in Datar

Switchgears Ltd. vs. Tata Finance Ltd. and Another (2000) 8 SCC

151, wherein it is held as under:-

"19. So far as cases falling under Section 11 (6) are concerned - such as the one before us - no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11 (4) and Section 11 (5) of the Act. In our view, therefore, so far

as Section 11 (6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the Court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11 (6) is forfeited." (emphasis supplied)

9. Ms. Malhotra also placed reliance upon a three-Judge Bench

decision of the Supreme Court in Punj Lloyd Ltd.Vs. Petronet MHB

Ltd. (2006) 2 SCC 638 in which the judgment in Datar Switchgears

Ltd. (supra) has been reaffirmed. Reference was also made by her to

the judgment of the Hon‟ble Supreme Court in Denel (Proprietary)

Limited Vs. Ministry of Defence (2012) 2 SCC 759. In the said case,

applying the dicta laid down in Datar Switchgears Ltd.'s case

(supra), it has been held by the Hon‟ble Supreme Court that the

respondents had lost the right to appoint an arbitrator as the

respondents had failed to appoint an arbitrator before the petitioner

moved the Court for such appointment. Hence, the appointment of

arbitrator by the respondents subsequent to the filing of the petition

was held to be unsustainable and was set aside, and an independent

arbitrator was appointed as sole arbitrator to decide all the disputes

between the parties.

10. It is submitted by Ms. Malhotra that the respondent‟s contention

that only a serving officer can be appointed by the Engineer-in-Chief,

Army Headquarters, New Delhi as an arbitrator in the present case is

wholly devoid of any merit, and deserves to be rejected for the

following reasons:-

(a) Firstly, the respondent‟s right to appoint its own Officer as an

Arbitrator stands forfeited for the reason indicated hereinabove.

(b) Secondly, any serving Officer of Indian Army appointed as an

arbitrator is bound to be subordinate in rank to the Director General,

MAP who himself is a senior serving Officer in the Indian Army. The

petitioner has genuine and serious apprehensions about the

impartiality and independence of a serving Officer being appointed as

an Arbitrator. In the case of Denel (Proprietary) Limited vs. Bharat

Electronics Ltd. and Anr. (2010) 6 SCC 394, the Hon‟ble Supreme

Court while appointing an independent Arbitrator other than the

Managing Director of the respondent Company, opined as under:-

"21. However, considering the peculiar conditions in the present case, whereby the arbitrator sought to be appointed under the arbitration clause, is the Managing Director of the Company against whom the dispute is raised (the Respondents). In addition to that, the said Managing Director of Bharat Electronics Ltd. which is a "Government Company", is also bound by the direction/instruction issued by his superior authorities. It is also the case of the respondent in the reply to the notice issued by the respondent, though it is liable to pay the amount due under the purchase orders, it is not in a position to settle the dues only because of the directions issued by the Ministry of Defence, Government of India. It only shows that the Managing Director may not be in a position to independently decide the dispute between the parties."

11. Per contra, learned counsel for the respondent in the course of

his submissions sought to place reliance on the proviso to Clause 60 of

the Contract which is reproduced hereunder for the facility of ready

reference:-

"Provided that in the event of abandonment of the works or cancellation of the Contract under Condition Nos. 46, 47 or 48 hereof, such reference shall not take place until alternative arrangements have been finalized by the Government to get the Works completed by or through any other Contractor or Contractors or Agency or Agencies."

12. It was submitted that as per the aforesaid proviso to Clause 60

of the General Conditions of Contract, in the event of abandonment of

the works or cancellation of the contracts under Condition Nos. 46, 47

or 48 thereof, the reference as stipulated in Clause 60 of the General

Conditions of Contract is not liable to take place until alternative

arrangements are finalized by the Government to get the works

completed by or through any other contractor or contractors or agency

or agencies. It was thus submitted that the present petition is

misconceived as no occasion has arisen so far for reference of disputes

to arbitration, in that, although the respondent has already issued „Risk

and Cost‟ tender to get the balance work executed at the risk and cost

of the respondent, yet the exact amount of such loss can only be

ascertained after finally awarding the said tender, which process is still

to be completed.

13. On a specific query put by this Court to the counsel for the

respondent with reference to Condition Nos.46, 47 and 48 of the

General Conditions of Contract, which relate to the cancellation of

contract for insolvency of the contractor, sub-letting of the contractor,

contractor‟s default and contractor‟s death, learned counsel for the

respondent was unable to demonstrate that any of the aforesaid

conditions existed to enable the Accepting Officer to cancel the

contract. On the other hand, the learned counsel for the petitioner

pointedly stated that the contract had been cancelled not by the

respondent but by the petitioner/contractor on account of non-

availability of sites. As a matter of fact, it is the case of the petitioner

that the handing over of the sites was supposed to be completed by

27.07.2010, but on the said date only one site was handed over to the

petitioner, and the respondent has not handed over the sites at

Bhubaneshwar to the petitioner even till date.

14. Learned counsel for the petitioner in rejoinder contended that

the respondent was guilty of suppression of material facts in so far as

the fact that the respondent was not in possession of the sites was not

disclosed to the petitioner at the time of entering into the contract.

Since it was a time bound contract to be completed within 25 months

from the date of commencement, that is, 02.08.2010, if the respondent

had indicated that the sites were not in their possession on the date of

inviting the tenders, the petitioner would not have entered into the

contract at all. A perusal of the tender documents reveals that various

clauses represented that the Sites Were Ready For Handing Over.

15. Be that as it may, it clearly emerges from the affidavit of the

respondent and in fact it was candidly stated by the counsel for the

respondent at the time of hearing that an Arbitrator may be appointed

by this Court in terms of Clause 60 of the General Conditions of the

Contract. The only bone of contention, however, was that while the

petitioner wanted an independent and impartial arbitrator to be

appointed, the respondent insisted upon the appointment of an

arbitrator by the Engineer-in-Chief, Army Headquarters, New Delhi or

in his absence, the officer officiating as Engineer-in-Chief or Director

General of Works if specifically delegated in writing by the Engineer-

in-Chief, Army Headquarters, New Delhi and that too a serving officer

having a degree of Engineering or equivalent or having passed

Final/Direct Final Examination of Sub-Division II of Institution of

Surveyors (India) recognized by the Government of India.

16. While this Court is conscious of the fact that while exercising

jurisdiction under Section 11 of the Arbitration and Conciliation Act,

1996, the Court has to give „due regard‟ to any qualifications, which

the Arbitrator is required to possess under the contract between the

parties and of the fact that the aforesaid requirement is explicitly laid

down in Section 11(8) read with Sections 12(3)(b) & 34(2)(a)(v) of

the Arbitration and Conciliation Act, 1996, at the same time the law is

well settled that it is not incumbent upon the Court to appoint the

arbitrator(s) named in the agreement [See Northern Railway

Administration, Ministry of Railway, New Delhi Vs. Patel

Engineering Co. Ltd., (2008) 10 SCC 240 wherein it is held that in

exercise of its jurisdiction under Section 11 of the Arbitration and

Conciliation Act, 1996, which the Court has to give „due regard‟ to

any qualifications which the Arbitrator is required to possess under the

contract between the parties as mandated by the two cumulative

conditions contained in Section 11(8)(a) and 11(8)(b), appointment of

the arbitrator or arbitrators named in the agreement is not a must].

The provisions of Section 11(8)(a) and (b) which are opposite read as

follows:-

"The Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to -

(a) any qualifications required of the arbitrator by the agreement of the parties; and

(b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator."

17. A perusal of Clause 60 (supra) in the present case specifies that

the only qualifications, which an arbitrator is required to possess under

the present agreement between the parties are:-

(a) a degree of Engineering or equivalent; or

(b) having passed Final/Direct Final Examination of Sub-Division II of Institution of Surveyors (India) Recognized by the Govt. of India.

18. In view of the aforesaid legal and factual position, and having

regard to the serious apprehension of the petitioner as to the non-

impartiality of a serving officer being appointed as an arbitrator, the

insistence of the respondent for the appointment of a serving officer

by the Engineer-in-Chief or Director General of Works, Army

Headquarters and that too after the forfeiture of respondent‟s rights to

appoint its own officers, in the opinion of this Court, is wholly

misconceived. Accordingly, this Court appoints Mr. Amrit Lal

Aggarwal, retired Chief Engineer, MCD, resident of Block No.C-4-A,

Flat No.1-A, Janak Puri, New Delhi-58 (Mob.9811100361) as an

arbitrator to arbitrate upon the disputes between the parties. The

arbitration shall take place under the aegis of Delhi High Court

Arbitration Centre. The fees of the Arbitrator shall be in terms of the

Delhi High Court Arbitration Centre (Arbitrator‟s Fees) Rules.

19. The petition stands disposed of in the above terms. List before

the Delhi High Court Arbitration Centre on 10.12.2012.

REVA KHETRAPAL JUDGE November 30, 2012 sk