Madras High Court
M/S.Gharpure Engineering & ... vs Chief Executive Officer on 15 September, 2022
Arb.O.P(Com.Div)No.265 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 15.09.2022
CORAM
THE HONOURABLE MR.JUSTICE SENTHILKUMAR RAMAMOORTHY
Arb.O.P.(Com.Div)No.265 of 2022
M/s.Gharpure Engineering & Constructions
Private Limited,
Plot No.35/1, D II Block,
MIDC, Chinchwad,
Pune-411 019, rep. by its
Authorised signatory, A.Sathyamurti ... Petitioner
vs.
Chief Executive Officer,
Office of Wellington Cantonment Board,
Wellington Cantt,
Ministry of Defence, Govt. of India,
Wellington, The Nilgiris,
Tamilnadu.
... Respondent
PRAYER: Petition filed under Section 11(6)(a) of the Arbitration and
Conciliation Act, 1996, pleased to:
a. Appoint an arbitrator to adjudicate the disputes between the petitioner
and the respondent in terms of the Arbitration agreement dated 27.02.2019;
1/15
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Arb.O.P(Com.Div)No.265 of 2022
b. direct the respondent to pay costs;
For Petitioner : Mr.V.Prakash, Senior Advocate
for Adv. Lilly Francis
For Respondent : Mr.M.Vijayan,
for M/s.King and Partridge
**********
ORDER
The petitioner was awarded a contract for the construction, erection and
commissioning of a sewage system by the respondent, namely, the Wellington
Cantonment Board (the Board). The agreed position is that the relevant contract
was terminated and a dispute ensued in relation thereto. The petitioner issued a
notice dated 01.04.2022 by which the petitioner outlined the outstanding claims,
invoked clause 52 of the contract between the parties, and requested the
respondent to constitute an arbitral tribunal to adjudicate the dispute. The said
notice was not responded to by the respondent. Eventually, the petitioner
presented this petition under Section 11 of the Arbitration and Conciliation Act,
1996 (the Arbitration Act) on 07.06.2022.
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2. Learned senior counsel for the petitioner submits that there is more than
one arbitration clause in the contract between the parties. Although the petitioner
had cited clause 52 in the notice dated 01.04.2022, he states that the more
appropriate clause is clause 16 of the agreement dated 27.02.2019. However,
according to learned senior counsel, the stipulation in clause 16 that the Director
Defence Estate (DE) in the Command or any other Officer nominated by the
Principal Director DE shall be the arbitrator contravenes Section 12(5) of the
Arbitration Act read with Schedule VII thereof. By way of substantiation, he
submits that the Director DE and other Officers nominated by the Principal
Director DE are part of the defence establishment and the Board is also a part of
such defence establishment. Therefore, he submits that the person named in clause
16 or any other Officer nominated by the Principal Director, DE in terms thereof
is disqualified to act as an arbitrator. In such circumstances, he submits that the
Court should make the appointment.
3. This petition is strongly opposed by the respondent. Learned counsel for
the respondent refers to the notice dated 01.04.2022 and points out that the
petitioner invoked clause 52 of the tender documents. Clause 52 is inapplicable to
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Arb.O.P(Com.Div)No.265 of 2022
the present dispute, according to learned counsel, and the relevant clause is clause
16 of the agreement dated 27.02.2019. Because the petitioner invoked the wrong
clause, learned counsel submits that the present petition is liable to be rejected by
leaving it open to the petitioner to issue a fresh notice citing the relevant clause.
Assuming the first contention were to be rejected, the second contention of
learned counsel is that the arbitral tribunal should be constituted only in
accordance with clause 16. He counters the contention of learned senior counsel
by submitting that the Director, DE is not a member of the Board but an
employee of the Central Government. He further submits that the Board is a
Municipality as per Article 243-P of the Constitution and is, therefore, not under
the control or influence of the Central Government.
4. Learned senior counsel for the petitioner placed reliance on the judgment
of the Supreme Court in Perkins Eastman Architects DPC and another v. HSCC
(India) Limited (Perkins) (2020) SCC 760, particularly paragraphs 20 and 21
thereof, and submitted that the Supreme Court concluded that unilateral
appointments without counter balancing the interest of the counter party
concerned contravene Section 12 (5) read with Schedule VII. On the other hand,
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Arb.O.P(Com.Div)No.265 of 2022
learned counsel for the respondent relied on the subsequent judgment in Central
Organization for Railway Electrification v. ECI-SPIC-SMO-MCML (JV)
(Railway Electrification)(2020) 14 SCC 712, wherein previous judgments of the
Supreme Court in cases such as TRF Ltd. v. Energo Engineering Projects Ltd.,
(2017) 8 SCC 377, and Perkins were discussed while upholding clause 64(3)(b)
of the GCC in Railway contracts. Therefore, he contended that all unilateral
appointments are not treated similarly. Indeed, he reiterated that neither the
Principal Director DE nor the named arbitrator are members of the Board and that,
therefore, if the appointment were to be made as per clause 16, neither the
appointing authority nor appointee would be one of the parties to the dispute. He
also contended that the named arbitrator would not fall within any of the 19
entries in Schedule VII.
5. Two issues arise for consideration. The first issue relates to whether the
present petition is maintainable. The petitioner instituted this petition after the
notice dated 01.04.2022 did not elicit a response from the respondent.
Undoubtedly, the petitioner invoked clause 52 of the tender documents in the said
notice and not clause 16 of the agreement. It should be noticed, however, that the
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Arb.O.P(Com.Div)No.265 of 2022
respondent did not reply to this notice and point out that the petitioner had relied
upon an inappropriate clause. The petition was filed under Section 11 after more
than two months. The admitted position is that there are at least 2 clauses dealing
with dispute resolution through arbitration. In the communication dated
01.04.2022, the petitioner set out its claims, referred to the dispute resolution
clause, albeit by citing the wrong clause, and called upon the respondent to
constitute the arbitral tribunal. In the facts and circumstances, the communication
dated 01.04.2022 satisfies the requirement of Section 21 of the Arbitration Act,
and the failure by the respondent to reply justifies the filing of a petition under
Section 11 thereof.
6. The second issue to be dealt with is whether the tribunal should be
constituted strictly in accordance with clause 16 or by this Court appointing the
arbitrator. In this connection, it is relevant to set out clause 16 which reads as
under:
"16. The Director, DE in the command or any other
Officer nominated by the Principal Director, DE, the
Command shall be the arbitrator for the purpose of
arbitration. The provision of the Arbitration and Conciliation
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Arb.O.P(Com.Div)No.265 of 2022
Act, 1996 shall apply to the arbitration proceedings. The
award passed by the arbitrator shall be binding on both the
parties."
7. The above clause provides for a named arbitrator. Such named arbitrator
is the Director, DE, in the command. The clause also enables the Principal
Director DE to nominate any other Officer as the arbitrator. This leads to the
question whether the named arbitrator or nominated arbitrator would fall within
the categories specified in Schedule V or VII of the Arbitration Act.
8. By Act 3 of 2016, the Arbitration Act, including Section 12, was
amended and Schedules V and VII were introduced therein. Section 12, as
amended, is set out below:
''12.Grounds for challenge.—[(1) When a person is
approached in connection with his possible appointment as
an arbitrator, he shall disclose in writing any
circumstances,— (a) such as the existence either direct or
indirect, of any past or present relationship with or interest
in any of the parties or in relation to the subject-matter in
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dispute, whether financial, business, professional or other
kind, which is likely to give rise to justifiable doubts as to
his independence or impartiality; and (b) which are likely to
affect his ability to devote sufficient time to the arbitration
and in particular his ability to complete the entire
arbitration within a period of twelve months.
Explanation 1.—The grounds stated in the Fifth Schedule
shall guide in determining whether circumstances exist
which give rise to justifiable doubts as to the independence
or impartiality of an arbitrator.
Explanation 2.—The disclosure shall be made by such
person in the form specified in the Sixth Schedule.
(3) An arbitrator may be challenged only if (a)
circumstances exist that give rise to justifiable
doubts as to his independence or impartiality, or
(b) he does not possess the qualifications agreed
to by the parties.
(4) A party may challenge an arbitrator appointed
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by him, or in whose appointment he has
participated, only for reasons of which he
becomes aware after the appointment has been
made. 1
(5) 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:
Provided that parties may, subsequent to
disputes having arisen between them, waive the
applicability of this sub-section by an express
agreement in writing.''
As is evident from the use of the words “such as” in clause (a) of sub-section (1),
the legislative intent is that the arbitrator should disclose all circumstances which
are likely to give rise to justifiable doubts as to independence or impartiality, and
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the expressly enumerated categories are illustrative and not exhaustive.
Explanation 1 to sub-section(1) of Section 12 puts the matter beyond doubt by
prescribing that the grounds set out in Schedule V are to be used as a guide. In
Clarke Energy India Private Ltd. v. SAS EPC Solution Private Ltd. 2021-5-
L.W.929, I examined Sections 12-15 of the Arbitration Act in considerable detail
and concluded that a challenge under Section 12 and 13 before the arbitral
tribunal may only be made by providing evidence of the existence of one or more
of the circumstances in Schedule V or VII or circumstances substantially similar
or analogous thereto or at least within the framework of the Schedules.
9. Schedules V and VII overlap to the extent that the first 19 entries in
Schedule V are repeated in Schedule VII. In terms of implications, if an arbitrator
falls within any of the categories listed in Schedule VII, such person is ineligible
for appointment notwithstanding any prior agreement to the contrary. On the other
hand, as regards the other 15 categories in Schedule V, the existence of one or
more of such circumstances would lead to the conclusion that any grievance
canvassed as to independence or impartiality is justified although the person
concerned may not be ineligible.
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10. The above discussion undoubtedly indicates that the entries in Schedule
V and VII are broad categories. The legislative intent, as gleaned from text and
context, was to illustratively and broadly set out objective criteria to identify
conflict of interest so as to avoid, if possible, the formation of an arbitral tribunal
comprising any person whose appointment is likely to lead to justifiable doubts as
to independence or impartiality, and enable a challenge by an aggrieved party on
such grounds before the arbitral tribunal. Consequently, the categories in
Schedule V and VII should be construed liberally and not narrowly. Some of the
entries in Schedule VII, which are relevant for the present purpose, are set out
below:
''1.The arbitrator is an employee, consultant, advisor
or has any other past or present business relationship with
a party.
2.The arbitrator currently represents or advises one
of the parties or an affiliate of one of the parties.
5. The arbitrator is a manager, director or part of the
management, or has a similar controlling influence, in an
affiliate of one of the parties if the affiliate is directly
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involved in the matters in dispute in the arbitration.
12. The arbitrator is a manager, director or part of
the management, or has a similar controlling influence in
one of the parties.
13. The arbitrator has a significant financial interest
in one of the parties or the outcome of the case.''
The above entries disclose that the relationship may be business-related,
professional, financial or control/influence-based. It could also be indirect; for
instance, through an affiliate.
11. The petitioner asserted that he has justifiable doubts as to the
impartiality or independence of persons appointed by the Principal Director, DE,
on the ground that the DE and the Board are a part of the defence establishment.
Learned senior counsel for the petitioner pointed out that the Officer commanding
the station could be appointed by the Central Government in terms of Section
12(3) (a) of the Cantonments Act, 2006, and that the President of the Cantonment
Board is the Officer commanding the station as per Section 19 thereof. Therefore,
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Arb.O.P(Com.Div)No.265 of 2022
he submitted that the person who executed the agreement was the President of the
Cantonment Board and such President may be appointed by the Central
Government. Learned counsel for the respondent contended, however, that the
respondent is a municipality and not the Central Government. He further
contended that the Principal Director DE (the appointing authority) and Director,
DE (named arbitrator) are not members of the Board. The contentions of learned
counsel for the respondent are technically correct. But, as discussed above,
Schedule V and VII are required to be construed broadly and also apply if the
arbitrator belongs to an affiliate of one of the parties or is otherwise likely to be
under the controlling influence of one of the parties. A perusal of the
Cantonments Act, 2006 indicates that the Central Government plays a not
insignificant role in the functioning of Cantonments and such role cannot be
disregarded because the Board is a municipality. It is also pertinent to bear in
mind that no appointment has been made currently and, therefore, an appointment
by Court does not displace any person. The limited exercise undertaken herein is
to assess whether the apprehension of bias by the petitioner is justified or baseless
and I conclude that it is not baseless. Therefore, the facts and circumstances
justify departing from the appointment procedure in clause 16 of the agreement.
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Arb.O.P(Com.Div)No.265 of 2022
12. For reasons set out above, this petition is allowed by appointing Mr.
Justice V.Parthiban, retired Judge of this Court, No.5069, Z Block, 12 th Street,
Anna Nagar, Chennai-40 (mobile no.9444094401) as the sole Arbitrator. The
Arbitrator is called upon to enter upon reference and adjudicate the dispute. It is
open to the Arbitrator to fix the fees and expenses in relation to the arbitral
proceedings in consultation with the parties.
15.09.2022
anu/rrg
Index : Yes / No
Internet : Yes / No
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Arb.O.P(Com.Div)No.265 of 2022
SENTHILKUMAR RAMAMOORTHY J.
anu/rrg
Arb.O.P.(Com.Div)No.265 of 2022
15.09.2022
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