Delhi High Court

Srico Projects Pvt. Ltd. vs Central Railside Warehouse Co. ... on 28 January, 2022

*      IN THE HIGH COURT OF DELHI AT NEW DELHI
%                                      Reserved on: January 20, 2022
                                   Pronounced on: January 28, 2022
+      ARB.P. 1216/2021
       SRICO PROJECTS PVT. LTD.                  ..... Petitioner
                     Through: Mr. Shoeb Alam, Ms.Fauzia
                                Shakil & Mr. Ujjwal Singh,
                                Advocates

                          Versus

       CENTRAL RAILSIDE WAREHOUSE CO. LTD. .... Respondent
                    Through: Mr. K. K. Tyagi & Mr.Iftekhar
                             Ahmad, Advocates

       CORAM:
       HON'BLE MR. JUSTICE SURESH KUMAR KAIT

                          JUDGMENT

1. The present Petition is preferred by the petitioner under Section 11

(5) r/w Section (6) of the Arbitration and Conciliation Act, 1996 seeking

appointment of sole Arbitrator in terms of Clause- 25 of Clauses of

Contract of the Agreement dated 16.11.2017 executed with respondent.

2. Petitioner-M/s SRICO Projects Pvt. Ltd. is a company registered

under the Companies Act, 1956 and with MSME and respondent- Central

Railside Warehouse Co. Ltd., an Enterprise of the Government of India,

is also a company registered under the Companies Act, 1956.

3. According to petitioner, it has participated in the tender process

issued by the respondent on 05.05.2017 for construction of 20400 MTC

Warehouse along with ancillaries, internal roads, and electrical

installation with temperature control facility at Fatuha, Bihar, at an

estimated cost of Rs.12,91,46,503.19/- and was awarded the said work at

an estimate cost of Rs.22,08,40,520.45/- and for this purpose, an

Agreement was executed at New Delhi on 16.11.2017. In terms of the

contract, petitioner was required to furnish a security deposit of 5% of

the tendered value in terms of Clause 15(i) and performance

security/guarantee of 5% of the tendered value i.e. Rs.1,10,42,000/-. The

work was to commence within 10 days of allocation of work order and

was to be completed within 15 months thereof i.e. by 11.02.2019.

However, the date of completion of work was extended various times

and thereby, completion of project was extended to or before 30-06-

2020. Petitioner claims to have satisfactorily completed the project

before 30.06.2020 and after completing the necessary Defects Liability

Period of one year as per the agreement, the project site was handed over

to the respondent on 30.06.2021.

4. According to petitioner, respondent vide letter dated 15.04.2021

informed the petitioner that from the payable amount of the submitted

13thRA Bill dated 06.07.2021, a deduction of Rs.1,32,50,431.23/-

(Rs.1,56,35,308/- with 18% GST) would be done on account of alleged

delay in the completion of project. In reply to the aforesaid letter,

petitioner by its reply dated 01.06.2021 denied respondents attribution of

delay, liability and default on the petitioner and also requested for an

amicable resolution of the disputes.

5. During the course of hearing, learned counsel for petitioner

submitted that delay in completion of the project occurred due to various

and frequent breaches of project, warranties, conditions, timelines, delay

in removal of obstruction on sites, multiple modifications at the end of

respondent and in fact, petitioner had suffered huge losses due to

repeated and prolonged delays.

6. Further, petitioner vide its letter dated 22.10.2021 called upon the

Manging Director of the respondent-company for release of the amount

deducted from the RA bill of petitioner, which was not replied to.

Thereafter, vide notice dated 12.11.2021 petitioner invoked arbitration

and proposed name of Mr.Justice (Retd.) Dharnidhar Jha to act as sole

arbitrator. However, the Managing Director of respondent by

communication dated 22.11.2021 appointed Sh. Ratnesh Kumar Bariar as

the Sole Arbitrator to adjudicate the disputes between the parties.

7. Learned counsel for petitioner submitted that appointment of

Ratnesh Kumar Bariar as the Sole Arbitrator by the respondent after

petitioner has appointed Mr.Justice (Retd.) Dharnidhar Jha to act as sole

arbitrator, is arbitrary, illegal and non est in law. To submit that

respondent is barred by law from vesting the appointing authority in the

hands of a person who has an interest in the outcome of the dispute,

reliance was placed upon Hon'ble Supreme Court's decision in Perkins

Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd. 2019 SCC

Online SC 1517 and TRF LimitedVs. Energo Engineering Projects

Limited(2017) 8 SCC 377 and also that in view of these decisions, the

Managing Director has become ineligible to unilaterally appoint the

Arbitrator.

8. To the contrary, learned counsel appearing on behalf of respondent

strongly opposed the claims raised in the present petition and submitted

that in terms of Clause-25 of the Agreement in question, the Managing

Director of the respondent is empowered to appoint sole arbitrator and

therefore,the proposed appointment of arbitrator by the respondent

cannot be challenged. Learned counsel submitted that the decisions relied

upon by the petitioner do not in any manner disentitles the Managing

Director to appoint the Arbitrator being not disqualified under Section

12(5) r/w Schedule VII of the Agreement. It was further submitted by

learned counsel that in Union of India Vs. Pradeep Vinod Construction

Company (2020) 2 SCC 464 and Central Organization for Railway

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

Company 2020(14) SCC 712,the Hon'ble Supreme Court has held that

the appointment has to be in terms of Agreement only.

9. The submissions advanced by both the sides were heard at length

and the material placed on record as well as decisions cited have been

gone through by this Court.

10. It is not in dispute in respect of work order in question, an

Agreement dated 16.11.2017 was executed between petitioner and

respondent, which contained arbitration clause, which reads as under:-

"25. Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions herein before mentioned and as to the quality of workmanship of materials used on the work or as to any other question, claim, right, matter or thing whatsoever, in any way arising out of or relating to the contract, designs,

drawing, 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 shall be referred to the sole arbitration of the person appointed by the Managing Director, Central Railside Warehouse Company Limited at the time of dispute or if there be no Managing Director, CRWC, the Administrative Head of the said Central Railside Warehouse Company Limited at the time of such appointment.

There will be no objection to any such appointment that the arbitrator so appointed is an employee/retired employee of the Company that he had to deal with the matters to which the contract relates and that in course of his duties as Company employee, he had expressed views on allow any of the matters in the dispute or difference.

If the arbitrator so appointed is unable or unwilling to act or resigns his appointment or vacates his office due to any reason whatsoever or is heavenly abode, another sole arbitrator shall be appointed in the manner aforesaid. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor.

It is also a term of this contract that no person other than a person appointed by the Managing Director or Administrative Head of the CRWC as aforesaid should act as an arbitrator and if for any reason that is not possible, the matter is not to be referred to arbitration at all..."

11. For adjduction of disputes arising out of work order in question,

petitoner invoked arbitration vide notice dated 12.11.2021 and proposed

name of sole Arbitrator to the respondent. The said communication was

not replied and instead, respondent vide its letter dated 22.11.2021,

through its Managing Director appointed its own Arbitrator on the

ground that Clause-25 of the Agreement in question provides that any

dispute between the parties shall be referred to the sole arbitrator

appointed by the Managing Director of respondent.

12. During the hearing, counsel representing both the sides have

resorted to the provisions of Section 12(5) of the Arbitrtion and

Conciliation Act, 1996 in support of their claims. According to

petitioner, by virtue of Section 12(5), the Managing Director of

resondent is ineligible to appoint the Arbitrator, whereas according to

respondent, Section 12(5) only provides disqualifications for

appointment of Arbitrator and not for the appointing authorities.

13. There is no dispute to the ratio of law laid down by the Hon'ble

Supreme Court inUnion of India Vs. Pradeep Vinod Construction

(Supra), wherein it is held that when the agreement specifically provides

for appointment of a named Arbitrator, the appointment should be done

in terms of the Agreement unless there are exceptional reasons.

However, the said decision does not deal with the provisions of Section

12(5) of the Act. Also, decision inCentral Organization for Railway

Electrification (Supra) has been referred to the Larger Bench and is

thus, not applicable to the present case.

14. Pertinently, Section 12(5) read with Schedule VII of the

Arbitraiton and Concilaition Act deals with the impartiality and

independence of arbitrator and prescribes ineligibility of a person to be

appointed as an arbitrator. The Hon'ble Supreme in Perkins Eastman

Architects DPC (Supra) has elobartively discussed the observations

made in TRF Limited (Supra) and observed as under:-

"20. We thus have two categories of cases. The first, similar to the one dealt with in TRF Limited 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 Limited4, 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 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 Limited."

15. Pursuant to the aforesaid observations, the Hon'ble Supreme Court

in Perkins Eastman Architects DPC (Supra) annuled the effect of letter

appointing Arbitrator and while exercising the power under Section 11(6)

of the Act, appointed the Arbitrator in the said case.

16. Applying the dictum of Hon'ble Supreme Court in Perkins

Eastman Architects DPC (Supra)to the case in hand, this Court finds

appointment of sole arbitrator at the hands of respodnent shall not render

the dispute resolution process thorugh arbtiration unbiased and therefore,

Clause-25 of the Agreement vesting the right to appoint Arbitrator by the

respondent cannot be sustained. Consequentially, respondent's

communication dated 22.11.2021 deserves to be quashed.

17. In the light of afore-noted observations, the present petition is