Delhi High Court
M/S Mos Utility Private Limited vs Indian Railways Catering And ... on 10 October, 2022
$~7
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Decided on: 10th October, 2022
+ O.M.P. (T) (COMM.) 81/2020
M/S MOS UTILITY PRIVATE LIMITED
Through its Director Mr. Chirag Shah,
Having Office at: Office No.805, 8th Floor,
Quantum Tower, Off. S.V. Road,
Ram Baug, Malad W,
Mumbai - 400064. .....Petitioner
Through: Mr. Asif Ahmed & Ms. Madhu
Sudan, Advocates.
versus
INDIAN RAILWAYS CATERING AND TOURISM CORPORATION
LTD (IRCTC)
A Government of India Undertaking,
Through its Authorised Signatory,
Having its Registered Office at:
Office No.B 148, 11th Floor,
Statesman House, Barakhamba Road,
New Delhi-110001. .... Respondent
Through: None.
CORAM:
HON'BLE MS. JUSTICE NEENA BANSAL KRISHNA
NEENA BANSAL KRISHNA, J. (ORAL)
1. The present petition under Sections 14 and 15 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as "A&C Act, 1996") has
been filed on behalf of the petitioner seeking termination of the mandate of
Shri Vinod Ashthana (former Director, IRCTC), Sole Arbitrator in the
pending Arbitration proceedings and also for appointment of a former Judge
of this Court as the substitute Arbitrator.
Signature Not Verified
Digitally Signed
By:SAHIL SHARMA
Signing Date:14.10.2022
15:37:33
2. Facts in brief are that the petitioner-Company has been doing business
with the respondent-IRCTC since 2012 as a Principal Service Provider of
IRCTC (hereinafter referred to as "PSC") for its e-ticketing business which
typically had two Agreements, namely; (i) Agreement (Internet Cafe
Services) - ICS Agreement; and (ii) Agreement (Web Services Business to
Business) - B2B Agreement.
3. It is submitted that under these two Agreements, the
petitioner-Company provides e-ticketing services to IRCTC through
appointment of sub-agents known as Retail Service Providers (hereinafter
referred to as "RSPs").
4. It is asserted that the petitioner-Company also engaged in business
with banks and NBFCs, wherein under contractual arrangement, the
petitioner-Company provided e-commerce, such as mobile banking,
air-ticketing, payment utility services through sub-agents known as money
transfer agents. The money transfer agents appointed under these two
Agreements with banks are completely separate and distinct from the RSPs
appointed under IRCTC Agreements.
5. It is asserted that the B2B Agreement with IRCTC was renewed for a
period of one year w.e.f. 29th December, 2018 to 28th December, 2019, and
the ICS Agreement was also renewed for a period of one year w.e.f. 29 th
April, 2019 to 28th April, 2020.
6. It is submitted that on 20th November, 2019, the IRCTC vide its
E-mail dated 20th November, 2019 sought the petitioner-Company's consent
for renewal of B2B Agreement which was expiring on 28 th December, 2019.
However, in November, 2019, the petitioner-Company received a Notice
from RPF (sic.), Basti (Uttar Pradesh) in CC No. 330/2019 in relation to
Signature Not Verified
Digitally Signed
By:SAHIL SHARMA
Signing Date:14.10.2022
15:37:33
investigation of a scam wherein a certain illegal software known as ANMS
was being used for illegally booking e-tickets on IRCTS platform. The
investigations were carried out by the Investigating Officers from RPF. The
petitioner-Company duly cooperated with the investigation team. However,
on 12th March, 2020, the RPF in excess of its jurisdiction issued a letter to
IRCTC and recommended IRCTC to cancel/blacklist the
petitioner-Company's Agreements, namely, ICS and B2B with IRCTC
pending investigation of the discovered scam.
7. It is submitted that the IRCTC vide its E-mail dated 13th March, 2020
suspended the PSP status of the petitioner-Company under the ICS and B2B
Agreements.
8. Aggrieved by this arbitrary suspension of PSP status, the
petitioner-Company vide Notice dated 21st April, 2020 invoked the
arbitration under both the Agreements, namely, ICS and B2B and requested
the respondent to immediately revoke the suspension of Agreements.
9. It is submitted that since IRCTC failed to respond to the Notice
Invoking Arbitration, the petitioner-Company approached the Court and
filed the petition bearing No. O.M. P. (I) (COMM.) 107/2020 under Section
9 of A&C Act, 1996 seeking stay of the suspension of the
petitioner-Company's PSP status.
10. It is submitted that during the pendency of O.M. P. (I) (COMM.)
107/2020 under Section 9 of A&C Act, 1996, the IRCTC issued a
Show-cause Notice dated 07th May, 2020 calling upon the petitioner as to
why (i) Termination of the B2B Agreement' and (ii) a fine of Rs.
25,00,000/- each under both the Agreements were not imposed.
11. It is asserted that this Court vide Order dated 18th May, 2020 disposed
Signature Not Verified
Digitally Signed
By:SAHIL SHARMA
Signing Date:14.10.2022
15:37:33
of the petition bearing No. O.M. P. (I) (COMM.) 107/2020 under Section 9
of A&C Act, 1996 directing the IRCTC to defreeze the bank accounts of the
petitioner-Company in order to enable processing of refund to customers
who had cancelled their tickets.
12. It is submitted that on 02nd June, 2020, the respondent appointed its
former Director, namely, Shri Vinod Ashthana as the Sole Arbitrator.
13. It is further submitted that the petitioner vide Letter dated 12th June,
2020 submitted its Statement of Claim before the Sole Arbitrator and also
moved an application under Section 17 of A&C Act, 1996 seeking
revocation/stay of the PSP status. The said petition under Section 17 of
A&C Act, 1996 was dismissed vide Order dated 14th August, 2020 by the
Sole Arbitrator by observing that the same was premature.
14. It is asserted that the petitioner-Company sought the stay of the
Arbitration proceedings by the Sole Arbitrator vide its E-mail dated 17th
September, 2020.
15. It is also asserted that the appointment of the Arbitrator by the
respondent is directly hit by Section 12(5) read with Seventh Schedule of
A&C Act, 1996 which makes a former as well as a current employee of a
party to an Arbitration Agreement de jure ineligible to be appointed as an
Arbitrator.
16. It is submitted that the Managing Director of a contracting party i.e.,
the respondent does not have any power to unilaterally appoint or nominate a
Sole Arbitrator in view of the judgement of the Hon'ble Supreme Court
passed in Perkins Eastman Architects DPC Vs. HSCC India Ltd. 2019 SCC
OnLine 1517, which has also been followed in Proddatur Cable TV DIGI
Services vs. SITI Cable Network Limited 2020 SCC OnLine Del 350.
Signature Not Verified
Digitally Signed
By:SAHIL SHARMA
Signing Date:14.10.2022
15:37:33
17. A prayer has, therefore, been made that mandate of the Sole
Arbitrator, Shri Vinod Asthana be terminated and a substitute Arbitrator be
appointed in the pending proceedings between the parties.
18. The respondent in its Reply has submitted that the appointment of
the Sole Arbitrator is in consonance with the procedure laid down in the
Agreement executed between the parties.
19. It is submitted that Clause 8.4 of B2B Agreement and Clause 9.4 of
ICS Agreement lay down "Arbitration and Jurisdiction" which specifically
provide that the method to be adopted in case of conflict between the parties.
Hence, the Arbitrator has been appointed in accordance with law and the
petition is liable to be dismissed.
20. Submissions heard.
21. In view of the judgement of the Hon'ble Supreme Court in Bharat
Broadband Network Limited Vs. United Telecoms Limited 2019 SCC
OnLine SC 547, wherein it has been held that where the Arbitrator has been
appointed by the party itself unilaterally, the mandate may be terminated and
a substitute Arbitrator may be appointed.
22. The Supreme Court in the case of TRF Ltd. vs. Energo Engineering
Projects Ltd. (2017) 8 SCC 377 held that the test for determination of
competence of an Arbitrator proposed to be appointed was: "whether he
would have an interest in the outcome of the dispute". The element of
eligibility was relatable to the interest that he had in the decision. The
decision of the Apex Court in Perkins Eastman Architects DPC & Anr. Vs.
HSCC (India) Ltd. (supra) recognises the importance of ensuring that the
Arbitrator having an interest in the outcome of the matter is not appointed so
as to obviate any doubt as to the impartiality and independence of Arbitral
Signature Not Verified
Digitally Signed
By:SAHIL SHARMA
Signing Date:14.10.2022
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Tribunal.
23. In Proddatur Cable TV DIGI Services vs. Siti Cable Network Ltd.
(supra), the Co-ordinate Bench of this court observed that one has to see the
rationale and reasoning behind the judgment in the case of Perkins Eastman
Architects DPC & Anr. Vs. HSCC (India) Ltd. (supra) which is to ensure that
the Arbitrator sought to be appointed has no interest in the outcome of the
case.
24. Generally, the mode of appointment of the Arbitrator may be
delineated as under:
"I. Unilateral Appointment of the Arbitrator:
(i) Unilateral appointment of Sole Arbitrator by one party;
or
(ii) Where the Managing Director is to be appointed as an
Arbitrator or is empowered to appoint/ nominate the
Arbitrator."
25. In Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd.
(supra), the arbitration clause provided for appointment of the Managing
Director as the Sole Arbitrator. A reference was made to Pratapchand
Nopaji vs. Kotrike Venkata Setty & Sons (1975) 2 SCC 208 wherein the
three Judge Bench of the Supreme Court applied the maxim "qui facit per
allium facit per se", which is reproduced as under:
"9. ... The principle which would apply, if the objects are
struck by Section 23 of the Contract Ac,t is embodied in the
maxim: "qui facit per allium facit per se" (what one does
through another is done by oneself). To put it in another form,
that which cannot be done directly may not be done indirectly
by engaging another outside the prohibited area to do the
illegal act within the prohibited area....."
26. In Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd.
Signature Not Verified
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By:SAHIL SHARMA
Signing Date:14.10.2022
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(supra) this principle was endorsed and it was observed that if the
nomination of an arbitrator by an ineligible arbitrator is allowed, it would
tantamount to carrying on the proceedings of the arbitration by the
Managing Director himself. The ineligibility strikes at the root of his power
to arbitrate or get it arbitrated upon by a nominee. The procedure of
appointment of a Managing Director of a Company as the Sole Arbitrator or
any arbitrator so appointed by the MD of the Company was held to be hit by
vice of bias and impartiality. The Managing Director or an Arbitrator so
nominated by him may be objective or individual of respectability, but the
irresistible conclusion is that once the Arbitrator having become illegible by
operation of law, he cannot nominate another person as an Arbitrator. It is
inconceivable in law that any person who is statutorily ineligible can
nominate a person. Such MD or a nominee of the MD becomes ineligible on
account of the prescriptions contained in Section 12(5) of the Act. Once, an
infrastructure collapses, the superstructure is bound to collapse. To put it
differently, once the identity of the Managing Director as the Sole Arbitrator
is lost, the power to nominate someone else as an Arbitrator is obliterated.
(iii) Where the Company unilaterally is empowered to appoint
the Sole Arbitrator.
27. Where a Company is empowered to nominate an Arbitrator suffers
from the same disability as the Managing Director or his nominee. This was
specifically considered by the Co-ordinate Bench in the case of Proddatur
Cable TV (supra), wherein applying a test of a person being interested in the
outcome of the arbitration, it was observed that a Company functions
through its Board of Directors who according to Section 166 of the
Company's Act, 2013 are under a duty to act in good faith to promote the
Signature Not Verified
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By:SAHIL SHARMA
Signing Date:14.10.2022
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objects of the Company and act in the best interest of the Company, its
employees and shareholders. A Director shall not involve in a situation in
which he may have a direct or indirect interest that conflicts or possibly may
conflict with the interest of the Company. It is thus, shown that the
Directors of the Company as part of the Board of Directors, would be
interested in the outcome of the arbitration proceedings. The Company,
therefore, acting through its Board of Directors would suffer the ineligibility
under Section 12(5) read with Schedule 7 of the Act.
28. It may thus be concluded that the appointment of a Sole Arbitrator by
one party or the company or appointment of the Managing Director or its
nominee as the Arbitrator does not meet the test of impartiality and
independence and is hit by the bar of Section 12(5) of the Act and are
inherently incapable of being appointed as the Arbitrator as has been held in
the various judgments.
29. Thus, in view of aforesaid discussion and also considering, Mr. Justice
S.P. Garg, Judge (Retd.) Delhi High Court, Mobile No. 9910384627, is
hereby appointed (substituted) as the Sole Arbitrator to adjudicate the
disputes between the parties and shall continue the arbitration proceedings.
30. The parties are at liberty to raise their respective objections before the
Arbitrator.
31. This is subject to the Arbitrator making necessary disclosure as under
Section 12(1) of A&C Act, 1996 and not being ineligible under Section
12(5) of the A&C Act, 1996.
32. The fees of the learned Arbitrator would be fixed in accordance with
the Fourth Schedule to A&C Act, 1996 or as agreed between the parties and
the Arbitrator.
Signature Not Verified
Digitally Signed
By:SAHIL SHARMA
Signing Date:14.10.2022
15:37:33
33. Learned counsels for the parties are directed to contact the learned
Arbitrator within one week of being communicated a copy of this Order to
them by the Registry.
34. The petition is accordingly allowed in the above terms.
(NEENA BANSAL KRISHNA)
JUDGE
OCTOBER 10, 2022
S.Sharma
Signature Not Verified
Digitally Signed
By:SAHIL SHARMA
Signing Date:14.10.2022
15:37:33
