Delhi High Court
Steelman Telecom Limited vs Power Grid Corporation Of India ... on 14 August, 2023
$~J-2
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment pronounced on: 14.08.2023
+ ARB.P. 1064/2022
STEELMAN TELECOM LIMITED ..... Petitioner
Through: Mr. Aniruddha Bhattacharya and Mr.
Aditya S. Pandey, Advs.
Versus
POWER GRID CORPORATION
OF INDIA LIMITED ......Respondent
Through: Mr. Sudhir Nandrajog, Sr. Adv. along
with Mr. Azmat H. Amanullah
andMr. Hardik Choudhary, Advs.
CORAM:
HON'BLE MR. JUSTICE SACHIN DATTA
JUDGMENT
SACHIN DATTA, J.
1. The present petition under Section 11 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as "A&C Act") seeks
appointment of a sole arbitrator to adjudicate the dispute between the
parties.
2. The disputes between the parties have arisen with respect to the work
executed by the petitioner in furtherance of tender bearing No. ERTCC/
C&MIl7-18/I-75/T-139/AMC_LMC/Pkg-C dated 23.02.2018 floated by the
respondent and awarded to the petitioner for the "AMC of Bhubaneshwar
and Cuttack Intracity and Talcher-Bhubaneswar Intercity OFC Network and
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
LMC in various cities of Odisha for a period of three years".
3. Initially, a purchase order dated 12.10.2018 was issued by the
respondent upon the petitioner. Clause 14 of the aforesaid purchase order
incorporates the arbitration agreement, which is in the following terms:-
―14.0 ARBITRATION
All disputes or differences in respect of which the decision, if any, of
the Project Manager and/or the Head of the Implementing Authority
has not become final or binding as aforesaid shall be settled by
arbitration in the manner provided herein below:
The arbitration shall be conducted by a sole arbitrator in case the
amount of claim is less than Rs. 25 crore and by three member
arbitral tribunal in case the amount of claim is greater than Rs. 25
Crore.
Sole Arbitration
The sole Arbitrator shall be chosen from a panel of empanelled
Arbitrators maintained by POWERGRID. The same shall comprise of
retired Judges and retired Senior executives of PSUs other than
POWERGRID. Further, the choice of sole Arbitrator shall be
governed by the amount of claim in the following manner:
Sl. Claim Amount Work Experience/Qualifications
No.
1. <Rs. 10 Crore Sole Arbitrator-Retired Senior
Executives of PSUs other than
POWERGRID/Retired Distt
Judges/High Court Judges.
2. Rs. 10 Crore - Rs. Sole Arbitrator - Retired High
25 Crore Court/Supreme Court Judges
(a) In case of invocation of arbitration by POWERGRID,
POWERGRID shall, within 30 days, send a list of names of 3
arbitrators from its list/database of Arbitrators and the contractor
shall within the period of further 30 days select anyone person to act
as ―Sole Arbitrator‖, which will be confirmed by POWERGRID and
matter will be referred to such appointed Arbitrator for further
arbitration proceedings.
(b) In case of invocation of arbitration by the Contractor, the
Contractor shall request POWERGRID for its database of
Arbitrators/chose from the list of Arbitrators available on
POWERGRID's website, and the contractor shall, within 30 days,
select anyone Arbitrator from the above to act as ―Sole Arbitrator‖,
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
which will be confirmed by POWERGRID within 30 days and matter
will be referred to such appointed Arbitrator for further arbitration
proceedings.
If the parties fail to appoint sole arbitrator within sixty (60) days after
receipt of a notice from the other party invoking Arbitration, the
appointment of sole arbitrator shall be done by Courts as per the
provisions of Indian Arbitration and Conciliation Act, 1996 or any
statutory modification thereof.
Three member arbitral tribunal
The arbitration shall be conducted by three arbitrators, who are
retired High Court/Supreme Court Judges, one each to be nominated
by the Contractor and the Employer and the third to be appointed by
both the arbitrators in accordance with the Indian Arbitration &
Conciliation Act. If either of the parties fails to appoint its arbitrator
within sixty (60) days after receipt of a notice from the other party
invoking the Arbitration clause, the arbitrator appointed by the party
invoking the arbitration clause shall become the sole arbitrator to
conduct the arbitration. In case of failure of the two arbitrators
appointed by the parties to reach upon a consensus regarding
appointment of presiding Arbitrator within a period of 30 days from
the appointment of the arbitrator appointed subsequently, the
presiding arbitrator shall be appointed by Courts as per the
provisions of Arbitration and Conciliation Act.
The cost of arbitral proceedings inter-alia including the Arbitrators'
fee, logistics and any other charges shall be equally shared by both
parties.
In case of Sole Arbitration, the fees to be paid to the sole Arbitrator
shall be as per the terms of empanelment in POWERGRID whereas in
case of the three member tribunal, the Arbitrator's fees shall be as
agreed upon by the Arbitrators in line with the Arbitration &
Conciliation Act. However, the expenses incurred by each party in
connection with the preparation, presentation, etc. of its proceedings
shall be borne by each party itself.
The language of the arbitration proceedings and that of the documents
and communication between the parties shall be English. The
arbitration shall be conducted in accordance with the provisions of
the Indian Arbitration and Conciliation Act, 1996 or any statutory
modification thereof. The venue of arbitration shall be New Delhi.
The decision of the sole arbitrator/the majority of the arbitrators, as
the case may be, shall be final and binding upon the parties. In the
event of any of the sole arbitrator/any of the aforesaid arbitrators
dying, neglecting, resigning or being unable to act for any reason, it
will be lawful for the parties to nominate another sole
arbitrator/another arbitrator in place of the outgoing arbitrator.
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
During settlement of disputes and arbitration proceedings, both
parties shall be obliged to carry out their respective obligations.‖
4. Subsequently, a duly stamped contract agreement dated 05.11.2018
was executed between the parties which inter alia provides as under:-
"1.1 Contract Documents (Reference GCC Clause 2.2)
The following documents shall constitute the Contract between
the Employer and the Contractor, and each shall be read and
construed as an integral part of the Contract:
VOLUME-A
1. This Contract Agreement and the Appendices thereto.
2. LOI Ref No: ERTCC/C&M/17-18/I-75/T-139/AMC_LMC/Pkg-
C/LOI- 487 dated 04.10.2018
3. Purchase Order Ref. no.: 5100017748 dtd 12.10.2018
VOLUME-B
3. "Bidding Documents" comprising of the following:
(a) Volume -I of Bidding Documents comprising of
Conditions of Contract.
(b) Volume II of Bidding Documents comprising of
Technical Specifications.
VOLUME-C
4. Bid Submitted by the Contractor.
(Only relevant extracts are attached herewith for easy reference.
Should the circumstances warrant, the original Bid along with the
enclosures thereof, shall be referred to).‖
5. Thus, the purchase order dated 12.10.2018 which contains the
arbitration agreement is expressly made an integral part of the contract
between the parties. Disputes having arisen between the parties, a demand
notice dated 16.06.2022 was issued by the petitioner whereby the petitioner,
inter alia, alleged as under:-
"2. It is apparent that in such circumstances, that inter-alia the
PGCIL has breached its obligations under the aforesaid Tender, LoI,
Contract, the Other Contracts with PGCIL and applicable statutory
law as:
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
a) PGCIL has failed to release the payments due and payable to my
Client under the Tender, LoI and Contract as a sum of Rs. 39,98,202
/-(Rupees Thirty-Nine Lakhs Ninety-Eight Thousand Two Hundred
and Two Only) [inclusive of GST] which is due and payable to my
Client for Work done between October, 2018-July, 2019 and the same
has not been paid till date;
b) PGCIL has wrongfully terminated the Tender, LoI and Contracts as
the delay caused in execution of the Work was due to the wrongful act
on part of PGCIL in failing to release the payments due and payable
to my Client under Tender, LoI and Contract for in accordance with
the payment terms as existing between the parties and for reasons
which squarely fall under the ambit of the force-majeure clause
covering incident such as the cyclone Fani;
c) Without prejudice to b), PGCIL has wrongfully invoked both Bank
Guarantees and arbitrarily and illegally appropriated a collective
sum of Rs. 25,50,287 /- (Rupees Twenty-Five Lakhs Fifty Thousand
Two and Eight Only) by such encashment despite being entitled a
maximum of Rs. 11,25,143.3 (Rupees Eleven Lakhs Twenty-Five
Thousand One Hundred and Forty Three and Three Paise Only) as
liquidated damages for the alleged breach by my Client of the
aforesaid Tender, LoI and Contract. Without prejudice to the specific
case of my Client that the termination was wrongful even if in the
event the same was legal the maximum amount deductible was Rs.
11,25,143.3 (Rupees Eleven Lakhs Twenty-Five Thousand One
Hundred and Forty-Three and Three Paise Only) as liquidated
damages and thus, PGCIL unjustly enriched itself and wrongfully
withheld an amount of Rs. 14,25,143.7 /- (Rupees Fourteen Lakhs
Twenty-Five Thousand One Hundred and Forty-Three Rupees and
Seven Paise Only) by wrongful invocation of the aforesaid Bank
Guarantees.
d) PGCIL has wrongfully withheld the amount of Rs. 25,20,984/-
(Rupees Twenty-Five Lakhs Twenty Thousand Nine Hundred Eighty-
Four Only Only) which has no connection with the Tender, LoI and
Contract and is being arbitrarily withheld by PGCIL being the
outstanding due and payable to my Client under the Other Contracts
with PGCIL. Such action has no legal basis whatsoever as there was
no privity of contract allowing such withholding the laws of India
specifically prohibiting adjustment of dues under one contract against
another.
e) PGCIL has caused a direct loss of Rs 5,09,36,837.65 /- (Rupees
Five Crore Nine Lakhs Thirty-Six Thousand Eight Hundred Thirty-
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
Seven and Paisa Sixty-Five Only) viz. the bid amount made by my
Client in the New Tender as my Client would have been an income on
being declared successful bidder in the New Tender.‖
6. Vide the aforesaid communication dated 16.06.2022, the petitioner
further demanded as under:-
―10. Under the circumstance, my Client having exhausted amicable
attempts at settlement of disputes, is left with no other alternative than
to demand inter-alia, the following from PGCIL:
a) Without prejudice to the remaining prayers hereinbelow immediate
return of the sum of Rs. 14,25,143.7/- (Rupees Fourteen Lakhs
Twenty-Five Thousand One Hundred and Forty-Three Rupees and
Seven Paise Only) which PGCIL has appropriated by wrongful
invocation of the aforesaid Bank Guarantees; and
b) Immediate release of the payments due and payable to my Client
under the Tender, LoI and Contract being a sum of Rs. 39,98,202/-
(Rupees Thirty-Nine Lakhs Ninety-Eight Thousand Two Hundred and
Two Only) for the Work done and executed under the aforesaid
Tender, LoI and Contract; and
c) Immediate release of the amount of Rs. 25,20,984/- (Rupees
Twenty-Five Lakhs Twenty Thousand Nine Hundred Eighty-Four
Only) which has no connection with the Tender, LoI and Contract and
is being arbitrarily withheld by PGCIL being the outstanding due and
payable to my Client under the Other Contracts with PGCIL; and
d) Immediate payment of the amount of Rs. 1,76,60,279/- (Rupees One
Crore Seventy-Six Lakhs Sixty Thousand Two Hundred and Seventy-
Nine Only) [without GST] being the remaining billable amount for my
Client under the aforesaid Tender, LoI and Contract which could not
be earned due to the wrongful termination of the aforesaid Tender,
LoI and Contract; and
e) Payment of the amount of Rs 5,09,36,837.65/- (Rupees Five Crore
Nine Lakhs Thirty-Six Thousand Eight Hundred Thirty-Seven and
Paisa Sixty-Five Only) being a direct loss income my Client would
income on being awarded the remaining Work in the New Tender.‖
7. The aforesaid demand notice dated 16.06.2022 was replied to by the
respondent vide communication dated 29.07.2022 whereby the respondent
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
refuted the allegations/demand made by the petitioner. Consequently a
notice invoking arbitration dated 01.08.2022 was issued by the petitioner
wherein it was inter alia stated as under:-
"4. Till date my Client has received no communications from PGCIL
demonstrating intentions of amicably resolving the dispute. I on behalf
of my Client am thus compelled to invoke arbitration as per Clause 14
of the PO and hereby put you on notice of the aforesaid. It is stated
that in the present case, Clause 14 of the PO has been admittedly
made applicable and governing the present contract and Clause 14 of
the PO specifically provides for the confirmation and appointment of
the sole arbitrator to be made by PGCIL. Thus, PGCIL would be
unilaterally deciding the appointment of the sole arbitrator in terms of
Clause 14 and such unilateral appointment and such appointment
procedure has been declared as ex-facie illegal by the Hon'ble
Supreme Court as followed by the various High Courts. Without
prejudice, it is further clarified that as under the aforesaid clause as
the final unilateral decision for appointment of a sale arbitrator will
be confirmed and made by PGCIL after my Client nominates an
arbitrator from a panel of arbitrators suggested by PGCIL, such
procedure is also ex-facie illegal in terms of the decisions of the
Hon'ble Supreme Court as followed by the various High Courts in
India including inter-alia the Hon'ble Calcutta High Court and the
Hon'ble Delhi High Court.
5. I, thus state that the appointment procedure prescribed under
Clause 14 of the PO is invalid and is in contravention of provisions
of the Arbitration and Conciliation Act, 1996 i.e. Section 12(5) read
with Schedule VII of the Act. In light of this, I, on behalf of my
Client, would like to propose the Hon'ble Justice Debi Prosad Dey
(Retired) as the Hon'ble Sole Arbitrator for the adjudication of the
pending disputes between the parties inter-se. I request PGCIL to
kindly let me know if it approves such choice in writing within 30
(thirty) days of receipt of this letter, failing which, my Client shall take
necessary steps in accordance with law. The details of the Hon'ble
Justice Debi Prosad Dey (Retired) are as below:
The Hon'ble Justice Debi Prosad Dey (Retired)
A/2, 2nd Floor, Block II,
Theme Residency, Opposite Police Lines,
263, G.T. Road, Kajipara, Shibpur,
P.O and P.S: Shibpur
Howrah, West Bengal - 711102
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
Email: [email protected]"
8. The aforesaid communication was responded to by the respondent
vide communication dated 24.08.2022 wherein it was inter alia stated as
under:-
―6. With respect to the ostensible invocation of arbitration vide your
notice under clause 14 of the PO, and without prejudice to my Client's
objections to the very maintainability of the claims sought to be raised
by your Client, I would request you to kindly note as follows:
i. Both parties are ad-idem that the contractual documents
contain a binding arbitration clause that mandates the reference
of all disputes between the parties to arbitration under the
provisions of the Act. Both parties have executed the contractual
documents, pertaining to a purely commercial contract, with
eyes wide open.
ii. Clause 14 of the PO, that mirrors the provisions of clause
39 of the General Conditions of Contract ("GCC"), as
amended by the Special Conditions of Contract ("SCC"),
specifically mandates claims arising out of the contractual
documents, with an ostensible value of less than Rs. 25 crores,
to be referred to adjudication before a sole arbitrator.
iii. The arbitration clause further mandates the sole arbitrator
to be a retired Judge of a High Court, a retired Judge of a
District Court or a retired Senior Executive of a public sector
undertaking other than my Client in cases where the claim
amount is less than Rs. 10 crores, and a retired Judge of the
Hon'ble Supreme Court of India or a High Court in cases where
the claim amount is between Rs. 10 crores and Rs. 25 crores.
The arbitration clause clearly specifies and delineates the
process for appointment of such sole arbitrator.
iv. The process prescribed for appointment of a sole arbitrator
under the contractual documents specifically envisage your
Client selecting an individual to act as Arbitrator from the
panel/database of Arbitrators maintained by my Client who
would thereafter be formally confirmed by my Client having
regard to the availability of Arbitrator to take up the
Arbitration. It may also be mentioned that an Arbitrator is
required to give a disclosure in terms of the Sixth Schedule of
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
the Act when he is approached regarding possible appointment
as an Arbitrator.
v. You would be aware that the panel/database of Arbitrators
maintained by my Client includes retired High Court judges,
retired District Court judges as well as retired senior executives
of various public sector undertakings (PSUs) other than my
Client and is therefore broad-based.
vi. In this regard, you are no doubt aware of the various
decisions of the Hon'ble Supreme Court of India that, inter alia,
have validated the appointment of arbitrators through processes
similar to the one envisaged under the present contractual
documents since the rights of one party with respect to
appointment of an arbitrator are counter-balanced by the rights
of the other party to participate in such appointment.‖
9. In the above background, the present petition under Section 11(6) of
the A&C Act has been filed by the petitioner seeking constitution of an
arbitral tribunal in terms of the arbitration agreement between the parties.
SUBMISSIONS ON BEHALF OF THE PARTIES:
10. Learned counsel for the petitioner has contended as follows:-
i. The procedure prescribed in the arbitration agreement between the
parties is non-est and void as the same provides for unilateral
appointment by the respondent.
ii. The procedure prescribed in the arbitration agreement does not
achieve any "counterbalancing" as contemplated in the judgment of
TRF Limited Vs. Energo Engineering Projects Limited1 and in
Central Organisation for Railway Electrification Vs. M/s. ECI-
SPIC-SMO-MCML (JV), A Joint Venture Company2 inasmuch as
the right conferred on the petitioner to nominate an arbitrator from the
(2017) 8 SCC 377
(2020) 14 SCC 712
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
panel maintained by the respondent is subject to a confirmation by the
respondent.
iii. By merely providing a panel of arbitrators the respondent has sought
to defeat the purport of Section 12(5) r/w the Schedule VII of the
Arbitration and Conciliation Act, 1996.
iv. The judgment of the Supreme Court in the case of Central
Organisation (supra), is distinguishable inasmuch as the relevant
arbitration agreement in Central Organisation (supra) was differently
worded and did not confer any "power of confirmation to the
respondents as regards petitioner's nominee arbitrators".
v. It is further contended, in arguendo, that the judgment in Central
Organisation (supra) is contrary to and in apparent conflict with the
decision of the Supreme Court in the TRF Limited (supra) and Bharat
Broadband Network Limited Vs. United Telecoms Limited3.
vi. It is further contended that the correctness of the judgment in Central
Organisation (supra) has been questioned by a three Judge Bench of
the Supreme Court in the case of Union of India Vs. M/s Tantia
Constructions4.
vii. It is further contended that consequently, various High Courts
including Delhi High Court, Gujarat High Court, Punjab and Haryana
High Court and Karnataka High Court have not followed the
judgment of Supreme Court in the case of Central Organisation
(supra).
11. Per contra, learned counsel for the respondent has contended as
(2019) 5 SCC 755
SLP (C) No. 12670/2020
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
follows:-
i. That the present case is directly covered by the ratio of the judgment
of the Supreme Court in Voestalpine Schienen GMBH Vs. Delhi
Metro Rail Corporation Limited5, inasmuch as a broad based panel
has been made by the respondent out of which the petitioner has been
given the right to chose any person as a sole arbitrator.
ii. It is submitted that "confirmation" by the respondent of the
petitioner's choice out of the panel of the respondent in the concerned
Arbitration Agreement is not in the nature of aveto and does not limit
the right of the petitioner to nominate any person out of the panel
maintained by the respondent. It is further contended that there is no
conflict in the ratio between the judgment rendered by the Supreme
Court in Central Organisation (supra) and Perkins Eastman
Architects DPC and Another Vs. HSCC (India) Ltd.6. In this regard,
reliance has been placed on a judgment of this Court in Osho G.S.
and Company Vs. Wapcos Limited7.
iii. It is further submitted that respondent's panel is broad based
comprising of 31 persons and the choice afforded to the petitioner is
much wider than the choice afforded in terms of the arbitration clause
in Central Organisation (supra).
ANALYSIS AND CONCLUSION:-
12. There can be no quarrel with the proposition that by virtue of the
Section 12(5) of Arbitration and Conciliation Act, 1996, any person who
falls under any of the category specified in the VII Schedule of the
(2017) 4 SCC 665
2019 SCC OnLine SC 1517
2022 SCC OnLine Del 4598
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
A&C Act shall be ineligible to be appointed as an arbitrator.
13. Further, it has been held in TRF Limited (supra) that a person who is
ineligible to be appointed as an arbitrator cannot nominate another person to
act as an arbitrator.
14. In Bharat Broadband (supra), it was held following TRF Limited
(supra) that once a person become ineligible to be appointed as arbitrator by
operation of law, he cannot nominate another person to act as an arbitrator.
Thus, appointment of an arbitrator made by a person who is ineligible to
make such an appointment goes to the root of the matter.
15. Again, in Perkins (supra), it was held 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. 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 the 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
Limited, 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.‖
16. In Proddatur Cable TV Digi Services Vs. Siti Cable Network
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
Limited8, it was held that unilateral appointment of the arbitrator by one of
the parties to the contract does not meet the test of impartiality and
independence under Section 12 (5) of the A&C Act:-
―23. Thus, following the ratio of the judgment in the case of Perkins
(supra), it is clear that a unilateral appointment by an authority which
is interested in the outcome or decision of the dispute is impermissible
in law. The Arbitration Clause in the present case empowers the
company to appoint a Sole Arbitrator. It can hardly be disputed that the
‗Company' acting through its Board of Directors will have an interest
in the outcome of the dispute. In the opinion of this Court, the clause is
directly hit by the law laid down in the case of Perkins (supra) and the
petition deserves to be allowed.‖
17. It is notable, however, that in TRF Limited (supra), the Supreme
Court expressly clarified as under:-
―50.............At the cost of repetition, we may state that when there are
two parties, one may nominate an arbitrator and the other may
appoint another. That is altogether a different situation. If there is a
clause requiring the parties to nominate their respective arbitrator,
their authority to nominate cannot be questioned. What really in that
circumstances can be called in question is the procedural compliance
and the eligibility of their arbitrator depending upon the norms
provided under the Act and the Schedules appended thereto...........‖
18. Also in Perkins (supra), the Supreme Court observed as under:-
―21. ...........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............‖
19. Taking note of the aforesaid observations in TRFLimited (supra) and
Perkins (supra), in the context of an arbitration clause which contemplated
(2020) SCC OnLine Del 350
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
appointment of an arbitral tribunal out of the panel maintained by one of the
contracting parties, the Supreme Court in Central Organisation (supra) inter
alia held as under:-
―37........Thus, the right of the General Manager in formation of the
Arbitral Tribunal is counterbalanced by the respondent's power to
choose any two from out of the four names and the General Manager
shall appoint at least one out of them as the Contractor's nominee.
38. ............Thus, the power of the General Manager to nominate the
arbitrator is counter balanced by the power of the respondent to select
any of the two nominees from out of the four names suggested from
the panel of the retired officers. In view of the modified clauses 64(3)
(a) (ii) and 64 (3) (b) of GCC, it cannot therefore be said that the
General Manager has become ineligible to act as (sic nominate) the
arbitrator. We do not find any merit in the contrary contention of the
respondent. The decision in TRF Ltd. is not applicable to the present
case..............‖
20. The validity of an appointment procedure which contemplates
appointment of arbitrator/s from a panel of persons maintained by one of the
contracting parties, was upheld in Central Organisation (supra) subject to
actual counterbalancing being achieved between the right of a party to draw
up a panel vis-a-vis the power of choice conferred on the other contracting
party to choose from that panel. This is, however, subject to the further
requirement as laid down in Voestalpine (supra) that the panel of arbitrators
drawn up for this purpose must be broad based. The test for determining
whether the panel is fully broad based or not is also to be found in
Voestalpine (supra) wherein it was observed as under:-
―28. Before we part with, we deem it necessary to make certain
comments on the procedure contained in the arbitration agreement for
constituting the Arbitral Tribunal. Even when there are a number of
persons empanelled, discretion is with DMRC to pick five persons
therefrom and forward their names to the other side which is to select
one of these five persons as its nominee (though in this case, it is now
done away with). Not only this, DMRC is also to nominate its arbitrator
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
from the said list. Above all, the two arbitrators have also limited
choice of picking upon the third arbitrator from the very same list i.e.
from remaining three persons. This procedure has two adverse
consequences. In the first place, the choice given to the opposite party
is limited as it has to choose one out of the five names that are
forwarded by the other side. There is no free choice to nominate a
person out of the entire panel prepared by DMRC. Secondly, with the
discretion given to DMRC to choose five persons, a room for suspicion
is created in the mind of the other side that DMRC may have picked up
its own favourites. Such a situation has to be countenanced. We are,
therefore, of the opinion that sub-clauses (b) & (c) of Clause 9.2 of
SCC need to be deleted and instead choice should be given to the
parties to nominate any person from the entire panel of arbitrators.
Likewise, the two arbitrators nominated by the parties should be given
full freedom to choose the third arbitrator from the whole panel.
29. Some comments are also needed on Clause 9.2(a) of GCC/SCC, as
per which DMRC prepares the panel of "serving or retired engineers of
government departments or public sector undertakings". It is not
understood as to why the panel has to be limited to the aforesaid
category of persons. Keeping in view the spirit of the amended
provision and in order to instil confidence in the mind of the other
party, it is imperative that panel should be broadbased. Apart from
serving or retired engineers of government departments and public
sector undertakings, engineers of prominence and high repute from
private sector should also be included. Likewise panel should comprise
of persons with legal background like Judges and lawyers of repute as
it is not necessary that all disputes that arise, would be of technical
nature. There can be disputes involving purely or substantially legal
issues, that too, complicated in nature. Likewise, some disputes may
have the dimension of accountancy, etc. Therefore, it would also be
appropriate to include persons from this field as well.
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
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
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.‖
21. The necessity of a truly broadbased panel has also been emphasized in
the judgments of this Court in BVSR-KVR (Joint Ventures) Vs. Rail Vikas
Nigam Ltd.9, M/s Singh Associates Vs. Union of India10, Gangotri
Enterprises Ltd. Vs. General Manager Northern Railways11 and L&T
Hydrocarbon Engineering Limited Vs. Indian Oil Corporation Limited12.
22. In Margo Networks (P) Ltd. Vs. Railtel Corpn. of India Ltd13, it has
been held that in the light of the specific issues dwelt upon in Central
Organisation (supra), the same does not derogate from the principles laid
down in Perkins (supra). As noticed hereinabove, in Central Organisation
(supra) the Supreme Court upheld the validity of an appointment procedure
which involves appointment of arbitrator/s out of a panel prepared by one of
the contracting parties. However, as held in Margo (supra), the Supreme
Court in Central Organisation (supra) did not specifically go into the issue
as to whether the particular panel in that case was truly broad based, in
consonance with Voestalpine (supra); and/ or the circumstances in which a
panel based appointment procedure can be said to achieve genuine
"counterbalancing" as contemplated in Perkins (supra). In Margo (supra) it
has been held as under:-
―26. CORE does not in any manner overrule Voestalpine (supra) or
narrow down the scope thereof, although it does not deal specifically
with the issue as to whether the panel afforded by the Railways in that
case was in conformance with the principles laid down
2020 SCC OnLine Del 456
2022 SCC OnLine Del 3419
2022 SCC OnLine Del 3556
2022 SCC OnLine 3587
2023 SCC OnLine Del 3906
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
in Voestalpine (supra).
xxx xxx xxx
35. Thus, in an appointment procedure involving appointment from a
panel made by one of the contracting parties, it is mandatory for the
panel to be sufficiently broad based, in conformity with the principle
laid down in Voestalpine (supra), failing which, it would be incumbent
on the Court, while exercising jurisdiction under Section 11, to
constitute an independent and impartial Arbitral Tribunal as mandated
in TRF (supra) and Perkins (supra). The judgment of the Supreme
Court in CORE does not alter the position in this regard.
xxx xxx xxx
37. This brings us to the next issue that arises in the context of the
arbitration clause in the present case, viz. whether ―counter balancing‖
is achieved in a situation where one of the parties has a right to choose
an arbitrator from a panel whereas 2/3rd of the members of the arbitral
tribunal are appointed by the other party.
38. In TRF Limited (supra), it was observed by the Supreme Court as
under:--
―50...........At the cost of repetition, we may state that when
there are two parties, one may nominate an arbitrator and the
other may appoint another. That is altogether a different
situation. If there is a clause requiring the parties to nominate
their respective arbitrator, their authority to nominate cannot
be questioned. What really in that circumstances can be called
in question is the procedural compliance and the eligibility of
their arbitrator depending upon the norms provided under the
Act and the Schedules appended thereto. .............‖
39. Also in Perkins (supra), the Supreme Court observed as under:--
―21............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...
40. In the light of the aforesaid observations in TRF (supra)
and Perkins (supra), it was observed by the Supreme Court in CORE as
under:
―37.........Thus, the right of the General Manager in formation
of the Arbitral Tribunal is counterbalanced by the respondent's
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
power to choose any two from out of the four names and the
General Manager shall appoint at least one out of them as the
Contractor's nominee.
38. ..........Thus, the power of the General Manager to nominate
the arbitrator is counter balanced by the power of the
respondent to select any of the two nominees from out of the
four names suggested from the panel of the retired officers. In
view of the modified clauses 64(3)(a)(ii) and 64(3)(b) of GCC, it
cannot therefore be said that the General Manager has become
ineligible to act as (sic nominate) the arbitrator. We do not find
any merit in the contrary contention of the respondent. The
decision in TRF Ltd. is not applicable to the present case.‖
41. The fulcrum of CORE is that the right of one of the parties to
prescribe a panel of persons from which the parties would appoint their
nominee arbitrators is counter balanced by the power of other
contracting party to choose therefrom. However, whether counter
balancing can be achieved in a situation where one of the contracting
parties has a right to appoint the remaining 2/3rd of the members of the
arbitral tribunal, was not specifically considered in CORE. The said
issue came to be considered by a coordinate bench of this Court
in CMM Infraprojects Ltd. v. IRCON International Ltd wherein it
was, inter-alia, held as under:--
―21. The other anomaly which merits consideration is that the
Managing Director of the Respondent, who has a direct interest in
the outcome of the case, is directly appointing 2/3rd of the members
of the Arbitral Tribunal. And also plays a role in the appointment
of the 3rd arbitrator i.e., the contractor's nominee. This is against
the spirit of the judgment in Perkins Eastman (supra). This
argument was perhaps not raised in CORE (supra).
22. In cases where the arbitration clause provides a genuine
counterbalancing of power of appointment between the two parties
i.e., when one party appoints its nominee and the other party does
the same and the two nominees together decide the presiding
arbitrator the Court would not find any imbalance impinging upon
the concept of party autonomy. This was the sentiment expressed by
the Supreme Court in TRF Limited v. Energo Engineering Projects
Limited, particularly para 50 which reads as under:--
―50....................We are singularly concerned with the
issue, whether the Managing Director, after becoming
ineligible by operation of law, is he still eligible to nominate
an arbitrator. At the cost of repetition, we may state that
when there are two parties, one may nominate an arbitrator
and the other may appoint another. That is altogether a
different situation. If there is a clause requiring the parties to
nominate their respective arbitrator, their authority to
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
nominate cannot be questioned. What really in that
circumstance can be called in question is the procedural
compliance and the eligibility of their arbitrator depending
upon the norms provided under the Act and the Schedules
appended thereto.‖
The said view was also endorsed in Perkins Eastman (supra) [para
21] to the following effect:
―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.‖
The clause in the present case does not provide for any effective
counter balancing. The process starts with selection of a panel by
the Respondent and this restricts the element of choice that the
contractor may exercise in choosing its nominee. Nonetheless, it
allows the Respondent to ultimately choose the contractor's
nominee from the two names suggested by the contractor.
However, the clause also entitles the Respondent to choose the
balance two arbitrators from the panel or even outside. This
undeniably indicates that the scales are tipped in favour of the
Respondent when it comes to the appointment process. In effect,
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
2/3rd strength of the Arbitral Tribunal is nominated by the
Respondent. This leads to the inexorable conclusion that the clause
in its current state may not be workable. Thus, the reliance of the
Respondent upon the judgment in CORE (supra) is misplaced.‖
xxx xxx xxx
43. The above observations also squarely apply in connection with the
arbitration agreement that falls for consideration in the present case.
Thus, the appointment procedure contained in Clause 3.37 of the RFP
fails to pass muster for this reason as well. The ―counter balancing‖ as
contemplated in Perkins (supra) cannot be said to have been achieved
in a situation where one of the parties has a right to choose an
arbitrator from a panel and where the remaining (2 out of 3)
arbitrators are appointed by the other party.‖
23. In the present case, the panel of the arbitrators prepared by the
respondent comprises of former Supreme Court Judges, Former Judges of
various High Courts and District Courts, Engineers, Financial Experts, Civil
Servants. The same can be said to be broadbased and meets with the
requirement laid down by the Supreme Court in Voestalpine (supra).
24. The only remaining question is whether the appointment procedure in
question achieves counterbalancing as contemplated in Perkins (supra). Per
se, there is no difficulty with an appointment procedure under which one of
the parties draws up a "broadbased" panel and the other contracting party
has the right to choose any person from that broadbased panel to act as a
Sole Arbitrator. However, the equilibrium is disturbed where the party
drawing up the panel is given a further right to accord its "confirmation" as
to the choice exercised by the other contracting party.
25. It was sought to be contended on behalf of the respondent that the
confirmation envisaged under the appointment procedure is a mere formality
and therefore should not be construed as disturbing the balance/equilibrium
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
in the appointment procedure. I am unable to accept this contention. Had
this been so, there was no reason to incorporate the provision for
"confirmation" in the appointment procedure. It may be noted that in
Voestalpine (supra), the Supreme Court frowned upon a panel based
appointment procedure which "created room for suspicion". Further, in
Margo (supra) and CMM Infraprojects Ltd. Vs. IRCON International
Ltd14, Pankaj Mittal Vs. Union of India15 and Pankaj Mittal Vs. Union of
India16, this Court has disapproved of appointment procedure/s giving
greater say to one of the contracting parties. In CMM (supra), the Court
specifically disapproved of an appointment procedure under which "the
scales are tipped in favour of the respondent‖. In the present case, the
tipping of scales in favour of the respondent is subtle, but clearly
discernible.
26. In the circumstances, it is incumbent on this Court to appoint an
independent Sole Arbitrator to adjudicate the disputes between the parties.
27. Accordingly, Mr. Justice (Retd.) Najmi Waziri, Former Judge of
Delhi High Court, (Mob. No. - 9810097311) is appointed as the Sole
Arbitrator to adjudicate the disputes between the parties.
28. The respondent shall be entitled to raise preliminary objections as
regards arbitrability/maintainability of the claims which shall be decided by
the arbitrator, in accordance with law.
29. The learned Sole Arbitrator may proceed with the arbitration
proceedings subject to furnishing to the parties requisite disclosures as
required under Section 12 of the A&C Act; and in the event there is any
2021:DHC:2578
Order dated 16.12.2021 passed by this Court in ARB.P. 607/2021
Order dated 11.07.2023 passed by this Court in ARB.P. 130/2023
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
impediment to the appointment on that count, the parties are given liberty to
file an appropriate application in this court.
30. The learned Sole Arbitrator shall be entitled to fee in accordance with
Fourth Schedule to the A&C Act; or as may otherwise be agreed to between
the parties and the learned Sole Arbitrator.
31. Parties shall share the arbitrator's fee and arbitral costs, equally.
32. All rights and contentions of the parties in relation to the
claims/counter-claims are kept open, to be decided by the learned Arbitrator
on their merits, in accordance with law.
33. Needless to say, nothing in this order shall be construed as an
expression of this court on the merits of the case.
34. The present petition stands disposed of accordingly in the aforesaid
terms.
AUGUST 14, 2023 SACHIN DATTA, J.
rp
Signature Not Verified
By:RADHA BISHT
Signing Date:14.08.2023
17:39:02
