Ellora Paper Mills Limited vs The State Of Madhya Pradesh
2021 Latest Caselaw 4770 MP

                                                                           AC-100/2019
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 THE HIGH COURT OF JUDICATURE FOR MADHYA PRADESH
                    AT JABALPUR
                     (Single Bench)

                                A.C. No.100/2019
Ellora Paper Mills Limited                                ........ Petitioner
                                          Vs.
State of Madhya Pradesh                                   ..........Respondent
____________________________________________________________
Presence:

Shri Sandeep Bajaj Advocate and Shri Siddharth Shrivastava, Advocate for
the petitioner.

Shri Pushpendra Yadav, Additional Advocate General for the
respondent/State.
_____________________________________________________________
Whether approved for reporting : Yes
_____________________________________________________________
Law laid down:
    Application preferred u/s 14 read with Section 11 and 15 of the Arbitration and
     Conciliation Act, 1996 seeking termination of the mandate of originally
     constituted Arbitral Tribunal and appointment of a new Arbitrator.

    The question requires answer is whether sub-section (5) of Section 12 of the Act
     of 1996 would apply to arbitration proceeding which had already commenced
     prior to introduction of the amendment by Act 3 of 2016 with effect from
     23.10.2015. In other words, whether sub-section (5) of Section 12 read with
     Seventh Schedule appended to the Act of 1996 can be relied by a party which
     had already appeared before the Arbitral Tribunal, as in this case, the petitioner,
     who had already appeared before Arbitral Tribunal and participated in the
     proceedings, can now seek termination of the mandate of the Arbitral Tribunal?

    Mere fact that the arbitrator is an employee is not ipso facto a ground to raise any
     presumption of bias or partiality so long as there is no justifiable apprehension
     about arbitrator's independence or impartiality. The fact that the named arbitrator
     happens to be an employee of one of the parties to the arbitration agreement has
     not by itself, before the Amendment Act came into force, rendered such
     appointment invalid and unenforceable. (Relied: Aravali Power Company Pvt.
     Ltd. Vs. Era Infra Engineering Ltd. (2017) 15 SCC 32 and Indian Oil
     Corporation Ltd. & others Vs. Raja Transport Pvt. Ltd. (2009) 8 SCC 520)

    Upon conjoint reading of Section 21 of the Principal Act and Section 26 of the
     Amendment Act, where the request to refer the dispute to arbitration has been
     sent and received by the other side before the 2015 Amendment Act came into
     force and in other words where the arbitration commenced prior to 23.10.2015,
     the provision of the 2015 Amendment Act shall not apply to such of the arbitral
     proceedings which have commenced in terms of the provisions of Section 21 of
     the Principal Act unless the parties otherwise agree. The Court should first
                                                                           AC-100/2019
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      appoint the arbitrators in the manner provided for in the arbitration agreement but
      where the independence and impartiality of the arbitrator(s) appointed/nominated
      in terms of the arbitration agreement is in doubt, or where the Arbitral Tribunal
      appointed in the manner provided in the arbitration agreement has not functioned
      and it becomes necessary to make fresh appointment, the Chief Justice or his
      designate, in the given circumstances, after assigning cogent reasons in
      appropriate cases, may resort to an alternative arrangement to give effect to the
      appointment of independent arbitrator under Section 11(6) of the Act of 1996.
      (Relied: Union of India Vs. Parmar Construction Company (2019) 15 SCC 682)

    It was permissible to appoint a person by designation. The arbitration agreements
     involving government contracts providing that an employee of department or a
     higher official unconnected with the work or contract will be arbitrator are
     neither void nor unreasonable. Once appointment of arbitrator is made at the
     instance of Government, arbitration agreement could not have been invoked for
     second time. (Relied: S.P.Singla Constructions Pvt. Ltd. Vs. State of Himachal
     Pradesh and another (2019) 2 SCC 488

    The petitioner has not been able to produce any material to show any bias or
     partiality on the part of any of members of the Arbitral Tribunal and therefore
     failed to substantiate that one or more of them have not acted impartially or
     independently.

    In the present case, when on invocation of arbitration clause by the petitioner, the
     Arbitral Tribunal consisting of the officers named by designation had already
     been appointed and has been acted upon, it cannot be said that there ever
     remained any vacuum in the Arbitral Tribunal because mere change of
     incumbents by reason of transfer or retirement would not make any difference as
     they were made members of the Arbitral Tribunal by designation and not by
     name. Therefore, there does not arise any necessity to appoint another Arbitral
     Tribunal.

Reference made to
      Union of India Vs. Pradeep Vinod Construction Company (2020) 2 SCC 464
      Union of India Vs. Parmar Construction Company (2019) 15 SCC 682
      Rajasthan Small Industries Corporation Ltd. Vs. Ganesh Containers Movers
      Syndicate (2019) 3 SCC 282
      Central Organization for Railway Electrification Vs ECI-SPIC-SMO-MCML
      (JV) 2019 SCC Online SC 1635
      S.P.Singla Constructions Pvt. Ltd. Vs. State of Himachal Pradesh and another
      (2019) 2 SCC 488
      BCCI vs. Kochi Cricket Private Ltd. (2018) 6 SCC 287
      Aravali Power Company Pvt. Ltd. Vs. Era Infra Engineering Ltd. (2017) 15 SCC
      32 Indian Oil Corporation Ltd. & others Vs. Raja Transport Pvt. Ltd. (2009) 8
      SCC 520,
      ACE Pipeline Contracts (P) Ltd. Vs. Bharat Petroleum Corpn Ltd. (2007) 5 SCC
      304
      Union of India and another Vs. M.P. Gupta (2004) 10 SCC 504
_____________________________________________________________

Significant paragraphs : 9 to 19
_________________________________________________________
Heard on: 23.07.2021
_________________________________________________________
                                                                   AC-100/2019
                                    ---3---


                               ORDER

(Passed on this 27th day of August, 2021)

This application under Section 14 read with Sections 11 and 15 of the

Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act

of 1996" for short) has been filed by the petitioner-Ellora Paper Mills

Limited, seeking termination of the mandate of originally constituted

Arbitral Tribunal and appointment of a new Arbitrator.

2. Facts of the case, as averred in the application, are that the petitioner

Company is engaged in manufacturing of printing and writing paper of

various grades. Its plant is located in Maharashtra State. The respondent

issued a tender for supply of the cream wove paper and duplicating paper

for the year 1993-94. The petitioner participated in the said tender process

and was awarded contract for supply of 1510MT of Cream Wove and 238

MT of Duplicating Paper aggregating 1748 MT vide supply order dated

22.9.1993. According to the terms of the payment, 90% of the amount was

to be paid by the respondent immediately after receipt of paper and balance

10% after receipt of the test report. According to the petitioner, it supplied

420 MT of cream wove and 238 MT of duplicating paper to the respondent

but the respondent not only did not make the payment of 90% of the

amount, as per the terms of the contract, but also rejected some

consignment without any justification, causing huge loss to the petitioner.

The respondent vide letter dated 15.11.1993 informed the petitioner that the

paper supplied by them does not conform to the specification and therefore

cannot be utilized. The petitioner made several representations to the AC-100/2019

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respondent in the year 1993 seeking details and asserting that the paper

meets the requirements which failed to invoke any response, much less

positive response. The petitioner then filed a civil suit in the year 1994 for

permanent injunction against the respondent in the Civil Court at Bhopal

seeking to restrain them from awarding the supply order to the third party.

The respondent, however, in the meantime, awarded the said contract to the

third party for remaining supply and therefore, the said suit became

infructuous. The petitioner therefore filed another suit seeking recovery of

an amount of Rs.95,32,103/- bearing Civil Suit No.2-B/98 before the Civil

Court, Bhopal. During the pendency of the said suit, the respondent

preferred an application under Section 8 of the Act of 1996 seeking stay of

the proceedings on the ground that there exists an arbitration clause in the

agreement between the parties. The Civil Court however rejected the said

application vide order dated 27.2.1999. The respondent then filed Revision

Petition No.1117/1999 before this Court which was allowed vide order

dated 03.05.2000. This Court referred the parties to the arbitration by

Stationery Purchase Committee comprising of the officers of the

respondent. Against the said order of this Court, the petitioner filed Special

Leave Petition bearing SLP (C) No.13914/2000 before the Supreme Court,

which however was dismissed as withdrawn vide order dated 28.9.2000.

The respondent constituted the Arbitral Tribunal, styled as Stationery

Purchase Committee comprising their officers. The petitioner filed its

objection to the constitution of the Arbitral Committee on 12.9.2000. The

petitioner also challenged its jurisdiction by filing an application under

Section 13 of the Act of 1996. The learned Arbitral Tribunal however vide AC-100/2019

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order dated 2.2.2001 rejected the said application of the petitioner.

Aggrieved thereby the petitioner filed a writ petition bearing W.P.

No.1824/2001 before this Court which however was dismissed vide order

dated 24.1.2017 with liberty to the petitioner to raise objections before the

appropriate forum. In the meanwhile, the National Company Law Tribunal

admitted and initiated the proceedings against the petitioner under the

Insolvency and Bankruptcy Code. The Corporate Insolvency Resolution

Process was commenced which ultimately culminated on its approval on

26.6.2018.

3. Shri Sandeep Bajaj and Shri Siddharth Shrivastava, learned counsel

for the petitioner submitted that the respondent constituted the Arbitral

Tribunal of Stationery Purchase Committee, which comprises only of the

officers of the respondent viz :- Additional Secretary, Department of

Revenue as President and (i) Deputy Secretary, Department of Revenue, (ii)

Deputy Secretary, General Administration Department, (iii) Deputy

Secretary, Department of Finance, (iv) Deputy Secretary/Under Secretary,

General Administration Department and (v) Senior Deputy Controller of

Head Office, Printing as Members. Learned counsel submitted that since the

respondent/department itself is a party to the dispute, its officers, by virtue

of Section 12(5) of the Act of 1996, are ineligible to perform as Arbitrator

or members of the Arbitral Tribunal. Learned counsel for the petitioner in

support of his argument has relied on the judgment of Supreme Court in

TRF Ltd. vs Energo Engineering Projects Limited reported in (2017) 8

SCC 377 wherein it was held that the person who has become ineligible to

be appointed as the Arbitrator in terms of Section 12(5) of the Act of 1996, AC-100/2019

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can neither continue as arbitrator nor can appoint anyone else as arbitrator.

4. It is contended that this Court in the case of M/s HCL Technologies

Limited Vs. Madhya Pradesh Computerization of Police Society

(MPCOPS) (Arbitration Case No.38/2020) decided on 26.2.2021, relying

on the aforesaid judgment of the Supreme Court in the case of TRF Ltd.

(supra) and another judgment of the Supreme Court in the case of Perkins

Eastman Architects DPC and another Vs. HSCC (India) Ltd. reported

in (2019) SCC Online SC 1517 held that since MPCOPS is itself in dispute

with the applicant therefore in view of the mandate of Section 12(5) read

with the stipulations contained in Fifth and Seventh Schedules of the Act of

1996, it cannot now appoint the arbitrator. Learned counsel for the

petitioner argued that all the erstwhile members of the Stationery Purchase

Committee, who initiated the arbitration proceedings, have ceased to hold

their respective positions as the constitution of the Arbitral Tribunal pertains

to the year 2001. Now therefore a new Arbitral Tribunal in any case will

have to be constituted and an independent and impartial Arbitrator should

be appointed in terms of Section 11 of the Act to resolve the disputes

between the parties. It is submitted that according to Section 11 of the Act

of 1996, only a person can be appointed as an Arbitrator, which cannot be a

specified post like Deputy Secretary of Stationery Purchase Committee.

When an Arbitrator is approached in connection with his possible

appointment, he is mandatorily required to disclose his relationship with the

parties or his interest in the subject matter of the dispute in terms of Section

12 of the Act of 1996, a bare perusal of which makes it clear that

ineligibility of an Arbitrator is to be seen from the date when an Arbitrator AC-100/2019

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is approached by the party for his possible appointment. Therefore, no

member of Stationery Purchase Committee can now be appointed as

Arbitrator. Learned counsel in support of his argument has placed reliance

on the judgment of Delhi High Court in the case of Omaxe Infrastructure

and Construction Ltd. Vs. Union of India and another reported in 2018

SCC Online Del 8914. It is argued that the dispute in the present matter

between the parties pertains to the year 1993 when the claim of the

petitioner was for Rs.95,32,103/- (Rs.Ninety Five Lakh Thirty Two

Thousand One Hundred and Three only) and now because of lapse of time

the total amount of claim including the interest thereon would far exceed

Rupees One Crore. The petitioner is contesting the dispute for last 28 years

and therefore, the mandate of Arbitral Tribunal is liable to be terminated

and an impartial arbitrator is required to be appointed in terms of Section 11

of the Act of 1996 to adjudicate the disputes between the parties.

5. Shri Pushpendra Yadav, learned Additional Advocate General

submitted that the agreement was entered into between the petitioner and

the Government of Madhya Pradesh in respect of supply of Cream Wove

Paper and Duplicating Paper pursuant to supply order dated 22.9.1993.

Clause 7 of that the agreement clearly provides that if any dispute in respect

of this agreement or any provision thereof arises between the parties, or any

matter in relation thereto, except in respect of matters declared to be

conclusive in the agreement, every such dispute shall be referred to the

Stationery Purchase Committee of the Government, Madhya Pradesh,

Bhopal for arbitration, whose decision shall be final, conclusive and

binding on the parties. Since the dispute between the parties arose and the AC-100/2019

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petitioner filed Civil Suit for permanent injunction in the Civil Court, the

respondent filed an application under Section 34 of the Arbitration Act,

1940 seeking stay of the proceedings on the ground of Arbitration Clause

and the trial Court vide order dated 22.7.1999 rejected the said application.

The respondent then filed revision petition before this Court, which was

allowed vide order dated 3.5.2000 relegating the parties to avail the remedy

of arbitration before the Stationery Purchase Committee. The petitioner

filed SLP (C) No.13914/2000 against the said order before the Supreme

Court. The same was dismissed as withdrawn vide order dated 28.9.2000

reserving the right of the petitioner to challenge the jurisdiction of the

Arbitrator. The petitioner thereafter filed objection under Section 13 of the

Act of 1996 challenging constitution of the Arbitral Committee as well as

its jurisdiction. The Committee, however vide order dated 2.2.2001 rejected

the said objection. Aggrieved by the aforesaid order of the Arbitral

Committee, the petitioner filed WP No.1824/2001 before this Court, which

too was dismissed vide order dated 24.1.2017, while reserving liberty to the

petitioner to raise objection before the appropriate forum at appropriate

stage. The petitioner has now filed the present application under Section 14

read with Section 11 and 15 of the Arbitration & Conciliation Act, 1996

seeking appointment of the Arbitrator.

6. Shri Pushpendra Yadav, learned Additional Advocate General

submitted that Arbitral Tribunal in the present case was constituted

pursuant to the order of this Court dated 3.5.2000 passed in Civil Revision

No.1117/1999. Although thereafter Section 12(5) in the Act of 1996 has

been inserted w.e.f. 23.10.2015, but this sub section does not apply to the AC-100/2019

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cases, where Arbitrator has already been appointed on or before

commencement of Arbitration & Conciliation (Amendment) Ordinance

2015. Since Section 12(5) was inserted w.e.f. 23.10.2015, it will have only

prospective effect and that all the arbitral proceedings which were initiated

prior to Amendment Ordinance 2015, could be continued under the

unamended provision. It is argued that in the present case, the Arbitral

Tribunal was constituted in pursuance of the order passed by this Court

much prior to insertion of Section 12(5) by way of 2015 Amendment Act

w.e.f. 23.10.2015, the same would therefore have no applicability to the

present case. Learned Additional Advocate General in support of his

arguments has relied on the judgments of the Supreme Court in Aravali

Power Co. Power Ltd. Vs. Era Infra Engineering reported in (2017) 15

SCC 32, S. P. Singla Constructions Vs. State of Himanchal Pradesh

reported in (2019) 2 SCC 488, Rajasthan Small Industries Corporation

Vs. Ganesh Containers reported in (2019) 3 SCC 382, Union of India Vs.

Pradeep Vinod Construction Co. reported in (2020) 2 SCC 464 and

Government of India Vs. Vedanta Ltd. reported in (2020) 10 SCC 1.

7. Alternatively, Shri Pushpendra Yadav, learned Additional Advocate

General submitted that this Court has no jurisdiction to exercise the power

under Section 14 of Arbitration & Conciliation Act. As per sub-section 2 of

Section 14, if the controversy pertains to any of the grounds referred to in

Clause (a) of Sub Section (1), a party may, unless otherwise agreed by the

parties, apply to the Court to decide on the termination of the mandate. The

Court has been defined in Section 2(e) to mean in case of an arbitration

other than international commercial arbitration, the Member of Civil Court AC-100/2019

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of original jurisdiction in a district and includes High Court in exercise of

its ordinary original civil jurisdiction having jurisdiction to decide the

question forming subject matter of arbitration if same had been the subject

matter of the suit. In the light of definition of Court, only a Civil Court

including High Court exercising its original civil jurisdiction, has

jurisdiction to entertain the application under Section 14 of the Act of 1996.

Since the High Court of Madhya Pradesh does not have original civil

jurisdiction to entertain the application, it would have no jurisdiction to

entertain the present application. Therefore, the present application is not

maintainable and deserves to be dismissed.

8. I have given my anxious consideration to the rival submissions and

perused the record.

9. The application filed by the petitioner seeks not only to terminate the

mandate of originally constituted Arbitral Tribunal but also to appoint a new

Arbitrator. The argument of the learned counsel for the petitioner is mainly

founded on amended sub-section (5) inserted in Section 12 of the Act of

1996, which inter alia provides that notwithstanding any prior agreement to

the contrary, any person whose relationship with the parties or counsel or

the subject-matter of the dispute, falls under any of the categories specified

in the Seventh Schedule shall be ineligible to be appointed as an arbitrator.

But the question that requires answer in the present case is whether this sub-

section would apply to arbitration proceeding which had already

commenced prior to introduction of the amendment by Act 3 of 2016 with

effect from 23.10.2015. In other words, whether sub-section (5) of Section

12 read with Seventh Schedule appended to the Act of 1996 can be relied AC-100/2019

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by a party which had already appeared before the Arbitral Tribunal, as in

this case, the petitioner, who had already appeared before Arbitral Tribunal

and participated in the proceedings, can now seek termination of the

mandate of the Arbitral Tribunal? This argument has to be examined against

the backdrop of the facts in the present case already noticed in the

beginning of the judgment. For the sake of repetition, it may be stated again

that the petitioner filed a Civil Suit in the year 1998 seeking recovery of

security amount of Rs.95,32,103/- before the Civil Court. The respondent

preferred an application under Section 8 of the Act of 1996 praying for stay

of the proceedings on the ground that there existed an arbitration clause in

the agreement between the parties. The Civil Court however rejected the

application by order dated 27.2.1999. Then the respondent filed a revision

petition before this Court, which was allowed by this Court on 3.5.2000.

This Court relegated the parties to arbitration by Stationery Purchase

Committee comprising of officers of the respondent. The petitioner

challenged the aforesaid order by filing the Special Leave Petition before

the Supreme Court, which was however dismissed as withdrawn vide order

dated 28.9.2000. It was thereafter that the respondent constituted the

Arbitral Tribunal, styled as Stationery Purchase Committee. The petitioner

objected to the constitution of the Arbitral Tribunal by filing an application

under Section 13 of the Act of 1996 on 12.9.2000. The Arbitral Tribunal

however rejected the said application on 2.2.2001. The petitioner then filed

a writ petition before this Court, which was also dismissed vide order dated

24.1.2017 with liberty to raise objection before the appropriate forum. Sheet

anchor of the petitioner's argument is that in view of the law enunciated by AC-100/2019

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the Supreme Court in TRF Ltd. (supra), all the five officers constituting

the Stationery Purchase Committee, being employees of the respondent,

have rendered themselves ineligible to continue as Arbitrators. Since they

have become ineligible to continue as Arbitrators, they also cannot appoint

another person as Arbitrator. It is contended that the original members of

the Arbitral Tribunal, who initiated the proceedings have since ceased to

hold their respective office, therefore, in any case a new Arbitral Tribunal

will have to be constituted and therefore, an impartial and independent

Arbitrator is required to be appointed in terms of Section 11 of the Act of

1996.

10. The Supreme Court in Aravali Power Company Pvt. Ltd. Vs. Era

Infra Engineering Ltd. (2017) 15 SCC 32 relying on its earlier judgment

in Indian Oil Corporation Ltd. & others Vs. Raja Transport Pvt. Ltd.

(2009) 8 SCC 520, held that mere fact that the arbitrator is an employee is

not ipso facto a ground to raise any presumption of bias or partiality so long

as there is no justifiable apprehension about arbitrator's independence or

impartiality. It was held that appointment of the Chief Executive Officer as

the sole arbitrator in terms of the arbitration clause by rejecting the demand

of the respondent for appointment of an independent arbitrator cannot be

faulted. In that case, the respondent participated in the arbitration

proceedings without raising any objection and for the first time after the

Amendment Act, 2015 came into effect, raised objection regarding

constitution of the Arbitral Tribunal. The High Court entertained the

apprehension of the respondent as reasonable in exercise of power under

Section 11(6) applying principles of impartiality/neutrality and to avoid AC-100/2019

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doubt in the mind of the petitioner, but the Supreme Court while reversing

the judgment of the High Court held that the fact that the named arbitrator

happens to be an employee of one of the parties to the arbitration agreement

has not by itself, before the Amendment Act came into force, rendered such

appointment invalid and unenforceable.

11. In judgment of Supreme Court in Raja Transport Pvt. Ltd. (supra)

relied on by the Supreme Court in Aravali Power Company Pvt. Ltd.

(supra), the same argument was repelled by the Supreme Court holding

thus:-

"34. The fact that the named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or partiality of lack of independence on his part. There can however be a justifiable apprehension about the independence or impartiality of an Employee-Arbitrator, if such person was the controlling or dealing authority in regard to the subject contract or if he is a direct subordinate (as contrasted from an officer of an inferior rank in some other department) to the officer whose decision is the subject matter of the dispute.

35. Where however the named arbitrator though a senior officer of the government/statutory body/government company, had nothing to do with execution of the subject contract, there can be no justification for anyone doubting his independence or impartiality, in the absence of any specific evidence. Therefore, senior officer(s) (usually heads of department or equivalent) of a government/statutory corporation/ public sector undertaking, not associated with the contract, are considered to be independent and impartial and are not barred from functioning as Arbitrators merely because their employer is a party to the contract.

*** *** ` ***

45. If the arbitration agreement provides for arbitration by a named Arbitrator, the courts should normally give effect to the provisions of the arbitration agreement. But as clarified by Northern Railway Administration [Northern Railway Admn. V Patel Engg. Co.Ltd. (2008) 10 SCC 240], where there is material to create a reasonable apprehension that the person mentioned in the arbitration agreement as the Arbitrator is not likely to act independently or impartially, or if the named person is not available, then the Chief Justice or his designate may, after recording reasons for not following the agreed procedure of referring the dispute to the named arbitrator, appoint an independent Arbitrator in accordance with section 11(8) of the Act. In other words, referring the disputes to the named arbitrator shall be the rule. The Chief Justice or his designate will have to merely reiterate the arbitration agreement by referring the parties to the named arbitrator or named Arbitral Tribunal. Ignoring the named Arbitrator/Arbitral Tribunal and AC-100/2019

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nominating an independent arbitrator shall be the exception to the rule, to be resorted for valid reasons."

12. The view similar to Raja Transport Pvt. Ltd. (supra) was also taken

by the Supreme Court in ACE Pipeline Contracts (P) Ltd. Vs. Bharat

Petroleum Corpn Ltd. (2007) 5 SCC 304 and Union of India and

another Vs. M.P. Gupta (2004) 10 SCC 504 holding that mere fact that

the named arbitrator is an employee of one of the parties is not ipso facto a

ground to raise any presumption of bias or partiality or lack of

independence on his part.

13. In Union of India Vs. Parmar Construction Company (2019) 15

SCC 682, the Supreme Court upon a conjoint reading of Section 21 of the

Principal Act and Section 26 of the Amendment Act, held that where the

request to refer the dispute to arbitration has been sent and received by the

other side before the 2015 Amendment Act came into force and in other

words where the arbitration commenced prior to 23.10.2015, the provision

of the 2015 Amendment Act shall not apply to such of the arbitral

proceedings which have commenced in terms of the provisions of Section

21 of the Principal Act unless the parties otherwise agree. The Court should

first appoint the arbitrators in the manner provided for in the arbitration

agreement but where the independence and impartiality of the arbitrator(s)

appointed/nominated in terms of the arbitration agreement is in doubt, or

where the Arbitral Tribunal appointed in the manner provided in the

arbitration agreement has not functioned and it becomes necessary to make

fresh appointment, the Chief Justice or his designate, in the given

circumstances, after assigning cogent reasons in appropriate cases, may AC-100/2019

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resort to an alternative arrangement to give effect to the appointment of

independent arbitrator under Section 11(6) of the Act of 1996.

14. In Union of India Vs. Pradeep Vinod Construction Company

(2020) 2 SCC 464, the respondent(s) were registered contractors with the

Railways and the request of respondent(s) for appointment of arbitrator

invoking Clause 64 of the contract was declined by the Railways stating

that their claims have been settled and respondent(s) have issued "no claim"

certificate and executed supplementary agreement recording "accord and

satisfaction" and hence, the matter is not referable to arbitration. Reversing

judgment of the High Court, the Supreme Court held that since request for

appointment of arbitrator was made much prior to coming into force of

Amendment Act, 2015, provisions of Amendment Act, 2015 shall not apply

to arbitral proceedings in terms of Section 21 of the Principal Act unless the

parties otherwise agree. Thus, request by respondent(s) contractors should

be examined in accordance with the principal Act, 1996, without taking

resort to Amendment Act, 2015. Reversing the judgment of the High Court,

the Union of India was directed by the Supreme Court to appoint arbitrator

in terms of Clause 64(3) of the agreement within a period of one month

under intimation to the respondent(s) contractors.

15. In S.P.Singla Constructions Pvt. Ltd. Vs. State of Himachal

Pradesh and another (2019) 2 SCC 488, the Chief Engineer, H.P. PWD

appointed Superintendent Engineer pursuant to request of appellant as

arbitrator in terms of Clause 65 of agreement but appellant-petitioner

challenged such appointment on premise that arbitrator had not been

appointed by name but had been appointed by designation. Reliance in that AC-100/2019

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case was also placed on Section 12(5) as amended with effect from

23.10.2015 by Amendment Act 3 of 2016. It was held that Amendment Act

shall not apply to the Arbitral Tribunal which had commenced its

proceedings before its enforcement, inasmuch as same cannot have

retrospective operation in arbitral proceedings already commenced unless

parties otherwise agree. Repelling the argument of the appellant, similar to

the one raised in the present case, the Supreme Court held that it was

permissible to appoint a person by designation. The arbitration agreements

involving government contracts providing that an employee of department

or a higher official unconnected with the work or contract will be arbitrator

are neither void nor unreasonable. Once appointment of arbitrator is made

at the instance of Government, arbitration agreement could not have been

invoked for second time. In the present case also when on invocation of

arbitration clause by the petitioner, the Arbitral Tribunal consisting of the

officers named by designation had already been appointed and has been

acted upon, it cannot be said that there ever remained any vacuum in the

Arbitral Tribunal because mere change of incumbents by reason of transfer

or retirement would not make any difference as they were made members of

the Arbitral Tribunal by designation and not by name. Therefore, there does

not arise any necessity to appoint another Arbitral Tribunal.

16. The Supreme Court in the judgment in Central Organization for

Railway Electrification Vs ECI-SPIC-SMO-MCML (JV) reported in

2019 SCC Online SC 1635, considered the case of TRF Limited, supra,

relied upon by learned counsel for the petitioner. The Supreme Court also

considered that after amendment of the Arbitration and Conciliation Act, AC-100/2019

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1996 w.e.f. 23.10.2015, the Railway Board made modification in Clause 64

of the General Conditions of Contract and issued notification dated

16.11.2016 for implementation of modification. The Supreme Court in

Central Organization for Railway Electrification, supra in Paragraphs-31 &

39 of the judgment held as under:

"31. As discussed earlier, as per the modified Clause 64(3)(b) of GCC, when a written and valid demand for arbitration is received by the General Manager, the Railway will send a panel of at least four names of retired railway officers empanelled to work as arbitrators. The contractor will be asked to suggest to the General Manager at least two names out of the panel for appointment as contractor's nominee within thirty days from the date of dispatch of the request by the Railway. Vide letter dated 27.07.2018, the respondent has sought for appointment of an arbitrator for resolving the disputes. The appellant by its letter dated 24.09.2018 (which is well within the period of sixty days) in terms of Clause 64(3)(a)(ii) (where applicability of Section 12(5) of the Act has been waived off) sent a panel of four serving railway officers of JA Grade to act as arbitrators and requested the respondent to select any two from the list and communicate to the office at the earliest for formation of Arbitration Tribunal. By the letter dated 26.09.2018, the respondent conveyed their disagreement in waiving the applicability of Section 12(5) of the Amendment Act, 2015. By the letter dated 25.10.2018, in terms of Clause 64(3)(b) of GCC (where applicability of Section 12(5) has not been waived off) the appellant has nominated a panel of four retired railway officers to act as arbitrators and requested the respondent to select any two from the list and communicate to the appellant within thirty days from the date of the letter for formation of Arbitration Tribunal. The respondent has neither sent its reply nor selected two names from the list and replied to the appellant. Without responding to the appellant, the respondent has filed petition under Section 11(6) of the Arbitration and Conciliation Act before the High Court on 17.12.2018. When the respondent has not sent any reply to the communication dated 25.10.2018, the respondent is not justified in contending that the appointment of Arbitral Tribunal has not been made before filing of the application under Section 11 of the Act and that the right of the appellant to constitute Arbitral Tribunal is extinguished on filing of the application under Section 11(6) of the Act.

xxx xxx xxx

39. There is an express provision in the modified clauses of General Conditions of Contract, as per Clauses 64(3)(a)(ii) and 64(3)(b), the Arbitral Tribunal shall consist of a panel of three Gazetted Railway Officers [Clause 64(3)(a)(ii)] and three retired Railway Officers retired not below the rank of Senior Administrative Grade Officers [Clause 64(3)(b)]. When the agreement specifically provides for appointment of Arbitral Tribunal consisting of three arbitrators from out of the panel serving or retired Railway Officers, the appointment of the arbitrators should be in terms of the agreement as agreed by the parties. That being the conditions in the agreement between the parties and the General Conditions of the Contract, the High Court was not justified in appointing an independent sole arbitrator ignoring Clauses 64(3)(a)(ii) and 64(3)(b) of the General Conditions of Contract and the impugned orders cannot be sustained."

AC-100/2019

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17. In Rajasthan Small Industries Corporation Ltd. Vs. Ganesh

Containers Movers Syndicate (2019) 3 SCC 282, the Supreme Court held

that the Amendment Act, 2015, as made effective with effect from

23.10.2015, cannot have retrospective operation in the arbitral proceedings

already commenced unless the parties otherwise agree. In that case,

proceedings before the Arbitral Tribunal continued till 17.8.2011 and

thereafter, no progress was made. The respondent filed application under

Sections 11 and 15 before the High Court on 13.5.2015 seeking

appointment of an arbitrator for adjudication of the disputes and differences

between the appellant and the respondent. The Supreme Court held that the

respondent having participated in the proceedings before the Arbitral

Tribunal for quite some time and also having expressed faith in the sole

arbitrator, was not justified in challenging the appointment of Managing

Director of appellant Corporation as the sole arbitrator. Further in the

absence of any material to show that arbitrator had not acted independently

or impartially, there could not be a presumption of bias or lack of

independence on his part. It was held that the High Court was not right in

appointing the arbitrator without keeping in view the terms of the agreement

between the parties. In the present case too, the petitioner has not been able

to produce any material to show any bias or partiality on the part of any of

members of the Arbitral Tribunal and therefore failed to substantiate that

one or more of them have not acted impartially or independently.

18. The matter can be examined even from another angle. The Supreme

Court in the case of Union of India vs. Parmar Construction Company, AC-100/2019

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reported in (2019) 15 SCC 682, held that conjoint reading of Section 21 of

principal Act and Section 26 of the Amendment Act, 2015 leaves no manner

of doubt that the provisions of the 2015 Amendment Act shall not apply to

such of the arbitral proceedings which have commenced in terms of the

provisions of Section 21 of the Principal Act unless the parties otherwise

agree. The Supreme Court also held that the request by respondent

contractors for referring the dispute to arbitration was made and received by

the appellants much before the 2015 Amendment Act came into force. Thus,

the applications/requests made by the respondent contractors have to be

examined in accordance with the principal Act, 1996 without taking resort

to the 2015 Amendment Act which came into force from 23.10.2015. This

was also the view taken by the Supreme Court in BCCI vrs. Kochi Cricket

Private Ltd. (2018) 6 SCC 287.

19. The judgment of this Court in M/s HCL Technologies Limited

(supra) cited by the petitioner is distinguishable on facts. The dispute in that

case arose much after the enforcement of the Amendment Act, 2015 came

into effect from 23.10.2015. In fact, as would be evident from para 5 of that

judgment, notice was served by the applicant on non-applicant on 16.6.2020

invoking the arbitration clause contained in Clause 1.23 of the agreement

proposing to nominate the name of a retired Acting Chief Justice of this

Court as the sole arbitrator to resolve the dispute between the parties. Not

only that judgment therefore is distinguishable on facts but the ratio of that

judgment does not apply to the present matter.

20. In view of the aforesaid discussion, the present application fails and it

is hereby dismissed. It would be however open for the petitioner to AC-100/2019

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participate in proceedings before the Arbitral Tribunal constituted by the

respondent as Stationery Purchase Committee which shall decide the matter

expeditiously in accordance with the law.

21. There shall be no order as to costs.

(Mohammad Rafiq) Chief Justice Anchal/C

Digitally signed by CHRISTOPHER PHILIP Date: 2021.08.27 18:37:18 +05'30'