Madras High Court
M/S.Concrete Products & ... vs Southern Railways on 29 November, 2022
Arb.O.P.(Comm.Div.) No.224 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 29.11.2022
CORAM
THE HONOURABLE MR.JUSTICE SENTHILKUMAR RAMAMOORTHY
Arb.O.P.(Comm.Div.) No.224 of 2022
M/s.Concrete Products & Construction Company
Rep. by its Joint Managing Partner,
No.398, Poonamallee High Road,
Kilpauk, Chennai – 600 010. ... Petitioner
vs.
1.Southern Railways,
Rep. by its Principal Chief Engineer/
General Manager,
Headquarters Office,
Park Town, Chennai-600 003.
2.Mr.Kota Krishnamurthy
Appointed as Sole Arbitrator,
Flat No.304, Shilpa Park View Apartments,
8-2-428/A/2, Road,
No.5, Banjara Hills,
Hyderabad – 500 034. ... Respondents
PRAYER: Arbitration Original Petition filed under Section 11(6) and 14(2)
of the Arbitration and Conciliation Act, 1996, praying to (i) pass order and
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Arb.O.P.(Comm.Div.) No.224 of 2022
directions terminating the appointment of the Sole Arbitrator, 2nd respondent
by the first respondent vide letter No.G.16/DGM/ARB/2012/39 (E.117350)
dated 07.03.2022 under Section 14(2) of the Arbitration and Conciliation
Act,1996; (ii) Pass order and directions to appoint an Independent and Sole
Arbitrator to adjudicate upon all disputes and differences between the
petitioner and the first respondent arising out of Agreement bearing
No.CE/2/CS of 2010 dated 20.02.2010.
For Petitioner : Mr.E.Manoharan
For Respondents : Mr.P.T.Ramkumar for R-1
Standing counsel, Railways
ORDER
This petition is presented as a composite petition under Section 11(6)
and 14(2) of the Arbitration and Conciliation Act,1996(the Arbitration Act).
Upon disputes arising between the parties under the Agreement dated
20.02.2010, an arbitral tribunal was constituted. The said tribunal
pronounced an arbitral award dated 03.03.2014. Such award was
challenged by filing O.P.No.185 of 2015. The said O.P. was allowed by
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order dated 06.12.2021. While allowing the petition, the Court left it open
to the petitioner to institute de novo arbitral proceedings in accordance with
the relevant contract as regards refusal of interest as per the Micro, Small
and Medium Enterprises Development Act, 2006(the MSMED Act), the
grant of liquidated damages and forfeiture of security deposit.
2. Pursuant to the above order, the petitioner issued a communication
dated 02.02.2022 and requested the first respondent to agree upon an
arbitrator for the resolution of disputes pertaining to the three issues referred
to above. By reply dated 07.03.2022, the first respondent appointed the
second respondent as the sole arbitrator under Clause 2900 of the IRS
Conditions of Contract. Such appointment is assailed and the petitioner
seeks the appointment of an arbitrator by this Court.
3. Learned counsel for the petitioner submits that the appointment
under communication of 07.03.2022 is not in accordance with the
arbitration clause. By drawing reference to the amended Clause 2900, it is
submitted that the said clause provides for a panel of arbitrators to be
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Arb.O.P.(Comm.Div.) No.224 of 2022
appointed as per prescribed procedure. It is further submitted that an
arbitral tribunal consisting of three arbitrators should be appointed if the
cumulative value of the claim exceeds Rs.50 lakhs. The second submission
is that the first respondent did not provide a panel within 60 days of the
receipt of the communication dated 02.02.2022. Consequently, the first
respondent has forfeited the right to appoint arbitrators. In support of this
contention, learned counsel for the petitioner relied on the judgment of the
Hon'ble Supreme Court in Deep Trading Company v. Indian Oil
Corporation and Others (2013) 4 SCC 35, particularly paragraph 22
thereof.
4. These contentions were refuted by learned counsel for the first
respondent. The first submission is that this is the second round of dispute
resolution and the first round was in accordance with unamended clause
2900. Therefore, the unamended Clause 2900 applies to the second round
also. As per the unamended Clause 2900, a Gazetted Railway Officer
should be appointed by the General Manager as the sole arbitrator. In view
of the fact that a Gazetted Railway Officer is ineligible after the amendment
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Arb.O.P.(Comm.Div.) No.224 of 2022
to Section 12(5) of the Arbitration Act, an ex-employee was appointed under
communication dated 07.03.2022. By relying upon the orders of this Court
in M/s.Nellai Concrete Products & Construction Co. (P) Ltd. v. Union of
India, order dated 05.09.2014 in O.P.No.173 of 2014, and Offshore
Infrastructure Limited v. Bharat Heavy Electricals Limited, 2017 (6) CTC
301, particularly paragraphs 26 to 28 thereof, it is contended that there is no
prohibition under Schedule VII of the Arbitration Act for the appointment of
an ex-employee. It is further submitted that the request for appointment of
an arbitrator was not addressed to the General Manager.
5. In response to these contentions, learned counsel for the petitioner
submitted that the amended arbitration clause was submitted to this Court
by the first respondent. If the amended arbitration clause is inapplicable and
the original arbitration clause is applicable, learned counsel submits that the
original arbitration clause contravenes Section 12(5) read with Schedule VII
of the Arbitration Act. Learned counsel invites my attention to the judgment
of the Hon'ble Supreme Court in Perkins Eastman Architects DPC and
another v. HSCC (India) Limited (2020) 20 SCC 760, particularly
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Arb.O.P.(Comm.Div.) No.224 of 2022
paragraph 20 thereof, and submits that the Hon'ble Supreme Court held
categorically that the unilateral appointment of the arbitrator by an employee
of one party is unlawful.
6. Upon taking note of the rival contentions, at the outset, unamended
Clause 2900(a) of the IRS Conditions of Contract is set out below:
''2900. Arbitration.
(a) In the event of any question, dispute or
difference arising under these conditions or any
special conditions of contract, or in connection with
this contract(except as to any matters the decision of
which is specially provided for by these or the
special conditions) the same shall be referred to the
sole arbitration of a Gazetted Railway Officer
appointed to be the arbitrator, by the General
Manager in the case of contracts entered into by the
Zonal Railways and Production Units; by any
Member of the Railway Board, in the case of
contracts entered into by the Railway Board and by
the Head of the Organisation in respect of contracts
entered into by the other Organisations under the
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Arb.O.P.(Comm.Div.) No.224 of 2022
Ministry of Railways. The Gazetted Railway Officer
to be appointed as arbitrator however will not be
one of those who had an opportunity to deal with the
matters to which the contract relates or who in the
course of their duties as railway servant have
expressed views on all or any of the matters under
dispute or difference. The award of the arbitrator
shall be final and binding on the parties to this
contract.''
The above clause provides for the reference of the dispute to sole arbitration
by a Gazetted Railway Officer. If an appointment is made in terms of
Clause 2900(a), it would clearly contravene Section 12(5) read with the VII
Schedule thereof inasmuch as such person would be within the embargo
prescribed in the first entry of Schedule VII. Therefore, the unamended
Clause 2900 is no longer enforceable. Learned counsel for the first
respondent submitted that arbitral proceedings commenced upon receipt of
the Section 21 notice prior to the first round of arbitration. Even proceeding
on the assumption that the said submission is correct, the amendment to
Section 12(5) read with VII Schedule would apply to all appointments made
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Arb.O.P.(Comm.Div.) No.224 of 2022
upon entry into force of Act 3 of 2016 on 23.10.2015. Since this
appointment was made on 07.03.2022, the amendment, including the
ineligibility prescribed in the VII Schedule, would apply.
7. On the other hand, if the amended Clause 2900 were to apply,
such clause provides for the provision of a panel of three arbitrators if the
cumulative value of claims exceeds Rs.50 lakhs. Learned counsel for the
petitioner states that the cumulative value of the claims, once interest is
included, would exceed Rs.50 lakhs. Therefore, the appointment is also not
in accordance with the amended Clause 2900. The other objection that the
notice dated 02.02.2022 was not addressed to the General Manager cannot
be countenanced because the first respondent transmitted the
communication to the General Manager, who made the appointment by
communication dated 07.03.2022. Since the first respondent did not act in
accordance with either the unamended Clause 2900 or the amended Clause
2900 until this petition was filed, the appointment would have to be made by
this Court.
8. Therefore, Arb.O.P.(Comm.Div.) No.224 of 2022 is allowed by
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Arb.O.P.(Comm.Div.) No.224 of 2022
appointing Mr. Justice V.Parthiban, retired Judge of this Court, No.5069,
12th Street, Z – Block, Anna Nagar, Chennai – 600 040(Mobile No.94440
94401), as the sole arbitrator. The sole arbitrator is requested to enter upon
reference and adjudicate the dispute. The fees and expenses in relation to
the arbitral proceedings may be fixed by the arbitral tribunal in consultation
with the parties.
29.11.2022
Index : Yes / No
Internet : Yes / No
rrg
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Arb.O.P.(Comm.Div.) No.224 of 2022
SENTHILKUMAR
RAMAMOORTHY,J.
rrg
Arb.O.P.(Comm.Div.) No.224 of 2022
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Arb.O.P.(Comm.Div.) No.224 of 2022
29.11.2022
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