Madras High Court
Larsen & Toubro Construction ... vs Fast Reactor Fuel Cycle Facility on 26 June, 2023
Arb.O.P.(Comm.Div.)No.198 of 2023
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated : 26.06.2023
Coram
The Honourable Mr.Justice KRISHNAN RAMASAMY
Arb.O.P.(Comm.Div.) No.198 of 2023
Larsen & Toubro Construction Limited,
Heavy Civil Infrastructure,
Rep. by its Power of Attorney Holder,
Mr.R.Lakshmanan
Having its Construction Division Headquarters Office at:
Mount Poonamallee Road,
Manapakkam, P.B.No.979,
Chennai – 600 089.
Having its Registered Office at:
L & T House,
Narottam Morarji Marg,
Ballard Estate,
Mumbai – 400 001.
...Petitioner
Versus
1.Fast Reactor Fuel Cycle Facility,
Rep. by its Project Director, Mr.K.S.Rahaman,
Indira Gandhi Centre for Atomic Research,
Department of Atomic Energy,
Kalpakkam, Kancheepuram – 603 102.
2.Mr.K.Srinivas,
Director, Engineering Services Group,
Sole Arbitrator, TSD Building,
Bhabha Atomic Research Centre,
Mumbai – 400 085.
...Respondents
1/19
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Arb.O.P.(Comm.Div.)No.198 of 2023
Original Petition filed under Section 14(1) r/w. Section 15 of the
Arbitration and Conciliation Act, 1996 praying to terminate the mandate of
the Sole Arbitrator, Mr.K.Srinivas, Director, ESG, BARC, the 2nd
respondent herein who has been unilaterally and unlawfully appointed by
the 1st respondent as the Sole Arbitrator to adjudicate the dispute between
the petitioner and 1st respondent and to appoint a neutral, independent
person to act as the Sole Arbitrator to adjudicate the dispute between the
petitioner and 1st respondent vide Agreement No.IGCAR/FRFCF/CV-1A/A-
012/2014 dated 17.04.2014.
For Petitioner : Mr.Anirudh Krishnan
For Respondents : Mr.S.Janarthanan,
Senior Central Govt. Standing Counsel
ORDER
The present petition has been filed under Section 14(1) r/w. Section
15 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as
'Act') seeking to terminate the mandate of the Sole Arbitrator,
Mr.K.Srinivas, Director, ESG, BARC (second respondent herein) who has
been unilaterally appointed by the first respondent as Sole Arbitrator for
adjudicating the dispute between the parties and to appoint a neutral,
independent person to act as Sole Arbitrator to adjudicate the dispute arisen
between the parties under the Agreement No.IGCAR/FRFCF/CV-1A/A-
012/2014 dated 17.04.2014.
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2. The learned counsel for the petitioner submitted that the petitioner
was awarded the package for excavation, dewatering, sub-soil investigation,
geological mapping, consolidation grouting and backfilling works for
various plant buildings of the first respondent at Kalpakkam vide
Agreement No.IGCAR/FRFCF/CV-1A/A-012/2014 dated 17.04.2014 r/w.
Work Order No.IGCAR/FRFCF/CV-1A/Tr/002/2013-WO dated
24.03.2014. The contractually envisaged sequence of work was that the
petitioner was to complete excavation works, the excavated land was to be
given to the interfacing contractors for execution of foundation works and
then re-handed to the petitioner for taking up backfilling works. The said
works were scheduled to be completed by 06.04.2017. The construction
schedule under the contract envisaged that 18 months would be spent on
excavation and another 18 months would be spent on backfilling activities.
Due to delay caused by the first respondent, the petitioner was not able to
complete the work within the contractually envisaged timeline. Seven
times, the petitioner was granted extension of time for completing the
works. Finally, the petitioner has completed the said work only by
31.12.2021. After completing the entire works, the petitioner requested the
first respondent to issue the work completion certificate. Despite the
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repeated requests of petitioner, the first respondent has not yet issued the
work completion certificate to the petitioner. Further, the first respondent
has not yet made payment to the final bills raised by the petitioner. Though
the petitioner has raised claims in relation to price escalation; compensation
for additional costs incurred due to COVID-19 pandemic; reimbursement of
GST; payment of final bill; reimbursement of excise duty and Value Added
Tax on high-speed Diesel, etc., the first respondent has rejected the same
without any reason. The attempts made by the petitioner to resolve its
claims amicably with the first respondent were also failed.
2.1. The learned counsel further submitted that as per Clause 25 of
General Conditions of Contract (GCC), any dispute or difference arises
between the parties in relation to the contract shall be settled by a Sole
Arbitrator as per the provisions of the Act. For better appreciation, Clause
25 of GCC is extracted hereunder:
“CLAUSE 25: SETTLEMENT OF DISPUTES &
ARBITRATION
Except where otherwise provided in the contract, all
questions and disputes relating to the meaning of the specifications,
design, drawings and instructions here-in before mentioned and as
to the quality of workmanship or materials used on the work or as to
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any other question, claim, rights, matter or thing whatsoever in any
way arising out of or relating to the contract, designs, drawings,
specifications, estimates, instructions, orders or these conditions or
otherwise concerning the works or the execution or failure to
execute the same whether arising during the progress of the work or
after the cancellation, termination or abandonment thereof be dealt
with as mentioned hereinafter:
(i) If the contractor considers any work demanded of him to
be outside the requirements of the contract, or disputes any
drawings, record or decision given in writing by the Engineer-in-
Charge on any matter in connection with or arising out of the
contract or carrying out of the work, to be unacceptabe, he shall
promptly within 15 days request the Superintending Engineer in
writing for written instruction or decision. Thereupon, the
Superintending Engineer shall give his written instructions or
decision within a period of one month from the receipt of the
contactor's letter.
If the Superintending Engineer fails to give his instructions or
decision in writing within the aforesaid period of if the contractor is
dissatisfied with the instructions or decision of the Superintending
Engineer, the contractor may, within 15 days of the receipt of the
Superintending Engineer's decision, appeal to the Project Director
who shall afford an opportunity to the contractor to be heard, if the
latter so desires, and to offer evidence in support of his appeal. The
Project Director shall give his decision within 30 days of receipt of
contractor's appeal. If the contractor is dissatisfied with his
decision, give notice to the Project Director for appointment of
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arbitrator failing which the said decision shall be binding and
conclusive and not referable to adjudication by the arbitrator.
(iii) Except where the decision has become final, binding and
conclusive in terms of Sub-Para (i) above disputes or difference
shall be referred for adjudication through arbitration by a sole
arbitrator appointed by the Director, IGCAR/Secretary, DAE. If the
arbitrator so appointed is unable or unwilling to act or resigns his
appointment or vacates his office due to any reason whatsoever
another sole arbitrator shall be appointed in the manner aforesaid.
Such person shall be entitled to proceed with the reference from the
stage at which it was left by his predecessor.
It is a term of the contract that the party invoking arbitration
shall give a list of disputes with amounts claimed in respect of each
such dispute along with the notice for appointment of arbitrator and
giving reference to the rejection by the Project Director of the
appeal.
It is also a term of this contract that no person other than a
person appointed by such Director, IGCAR/Secretary, DAE, as
aforesaid should act as arbitrator and if for any reason that is not
possible, the matter shall not be referred to arbitration at all.
It is also a term of this contract that if the contractor does not
make any demand for appointment of arbitrator in respect of any
claims in writing as aforesaid within 120 days of receiving the
intimation from Engineer-in-Charge that the final bill is ready for
payment of the claim of the contractor shall be deemed to have been
waived and absolutely barred and the Government shall be
discharged and released of all liabilities under the contract in
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respect of these claims.
The arbitration shall be conducted in accordance with the
provisions of the Arbitration and Conciliation Act, 1996, (26 of
1996) or any statutory modifications or re-enactment thereof and the
rules made thereunder and for the time being in force shall apply to
the arbitration proceeding under this clause.
It is also a term of this contract that the arbitrator shall
adjudicate on only such disputes as are referred to him by the
appointing authority and give separate award against each dispute
and claim referred to him and, in all cases, where the total amount
of the claims by any party exceeds Rs.1,00,000/- the arbitrator shall
give reasons for the award.
It is also a term of the contract that if any fees are payable to
the arbitrator, these shall be paid equally by both the parties.
It is also a term of the contract that the arbitrator shall be
deemed to have entered on the reference on the date he issues notice
to both the parties calling them to submit their statement of claims
and counter statement of claims. The venue of the arbitration shall
be such place as may be fixed by the arbitrator in his sole discretion.
The fees, if any, of the arbitrator shall, if required in his sole
discretion. The fees, if any, of the arbitrator shall, if required to be
paid before the award is made and published, be paid half and half
by each of the parties. The cost of the reference and of the award
(including the fees, if any, of the arbitrator) shall be in discretion of
the arbitrator who may direct to any by whom and in what manner,
such costs, or any part thereof shall be paid and fix or settle the
amount of costs to be so paid.”
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2.2. Since no Superintending Engineer has been appointed by the
first respondent for the present contract package, the petitioner placed its
claims directly before the Project Director of first respondent by way of
Letter dated 27.01.2023 bearing no.L&T/HCI/CACM-B/FRFCF/001
(hereinafter referred to as 'Notice of Dispute'). In the said Notice of
Dispute, the petitioner had set out the factual background of the dispute and
listed all its claims in a consolidated manner. Further, in the said Notice of
Dispute, it has been stated that if the first respondent fails to response to this
notice within a period of 30 days, the petitioner would treat the silence as a
rejection of its claims and initiate arbitration proceedings against the first
respondent and it has also been stated that if the petitioner is dissatisfied
with the decision rendered by the Project Director of first respondent, the
petitioner would initiate arbitration proceedings against the first respondent.
Even after 30 days from the receipt of said Notice of Dispute, the Project
Director of first respondent did not respond to it. Hence, the petitioner sent
a Arbitration Notice dated 16.03.2013 to the Project Director of first
respondent, wherein, it has been stated that the petitioner has nominated
Mr.S.Soundararajan (Former Chief Engineer, Chennai Port Trust) as Sole
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Arbitrator to resolve the dispute between the parties and the first respondent
is called upon to accept the nomination of said Sole Arbitrator, within a
period of 30 days from the date of receipt of the said notice. After the
receipt of said notice, the first respondent issued his response to the claims
raised by the petitioner in Notice of Dispute. However, the petitioner has
not accepted the response made by the first respondent to Notice of Dispute
since the time limit for making response to the said Notice of Dispute has
expired on 03.03.2023 itself. Hence, the petitioner requested the first
respondent to respond to the Arbitration Notice dated 16.03.2023.
2.3. Thereafter, the Project Director of first respondent sent a Letter
dated 05.04.2023 to the petitioner, stating that the petitioner's nomination of
Sole Arbitrator was not acceptable and hence, Mr.K.Srinivas (second
respondent) has been unilaterally appointed as Sole Arbitrator to adjudicate
the dispute between the parties.
2.4. The learned counsel for the petitioner contended that in the
present case, without the consent of the petitioner, the first respondent has
unilaterally appointed an Arbitrator to adjudicate the disputes between the
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parties, which is in violation of provisions of Section 12(5) of the
Arbitration and Conciliation Act, 1996. It is pertinent to extract Section
12(5) of the Act hereunder:
“12. Ground for challenge.-
(1).......................
(2).......................
(3).......................
(4).......................
(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.”
A mere perusal of the above provision makes it clear that the persons
mentioned in Schedule VII of the Act would be ineligible to be appointed as
Arbitrator. Further, proviso to Section 12(5) envisages that the persons
mentioned in Schedule VII are also ineligible to nominate any person as
arbitrator and the parties may subsequent to disputes having arisen between
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them, waive the applicability of this sub-section by an express agreement in
writing. However, no such consent was obtained by the respondent. Hence,
the unilateral appointment of the arbitrator made by the first respondent is
in violation of provisions of Section 12(5) of the Act. In support of his
contentions, he placed reliance on the judgment, TRF and Bharat
Broadband Network Limited Vs. United Telecoms Limited reported in
(2019) 5 SCC 755, wherein, the Hon'ble Apex Court referred to Section
12(5) of the Act in the context of appointment of an arbitrator by a
Managing Director of a corporation, who became ineligible to act as
arbitrator under the Seventh Schedule. The relevant portion of the said
judgment reads as follows:
“50. First, we shall deal with Clause (d). There is no quarrel
that by virtue of Section 12(5) of the Act, if any person who falls
under any of the categories specified in the Seventh Schedule shall
be ineligible to be appointed as the arbitrator. There is no doubt and
cannot be, for the 13 language employed in the Seventh Schedule,
the Managing Director of the Corporation has become ineligible by
operation of law. It is the stand of the learned Senior Counsel for the
appellant that once the Managing Director becomes ineligible, he
also becomes ineligible to nominate. Refuting the said stand, it is
canvassed by the learned Senior Counsel for the respondent that the
ineligibility cannot extend to a nominee if he is not from the
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Corporation and more so when there is apposite and requisite
disclosure. We think it appropriate to make it clear that in the case
at hand we are neither concerned with the disclosure nor objectivity
nor impartiality nor any such other circumstance. 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 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. But, here is a case where the Managing Director
is the “named sole arbitrator” and he has also been conferred with
the power to nominate one who can be the arbitrator in his place.
Thus, there is subtle distinction……
xxx xxx xxx
54. In such a context, the fulcrum of the controversy would
be, can an ineligible arbitrator, like the Managing Director,
nominate an arbitrator, who may be otherwise eligible and a
respectable person. As stated earlier, we are neither concerned with
the objectivity nor the individual respectability. We are only
concerned with the authority or the power of the Managing Director.
By our analysis, we are obligated to arrive at the conclusion that
once the arbitrator has become ineligible by operation of law, he
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cannot nominate another as an arbitrator. The 14 arbitrator
becomes ineligible as per prescription contained in Section 12(5) of
the Act. It is inconceivable in law that person who is statutorily
ineligible can nominate a person. Needless to say, once the
infrastructure collapses, the superstructure is bound to collapse.
One cannot have a building without the plinth. Or to put it
differently, once the identity of the Managing Director as the sole
arbitrator is lost, the power to nominate someone else as an
arbitrator is obliterated. Therefore, the view expressed by the High
Court is not sustainable and we say so.”
2.5. The definition of 'express and implied authority' is explicitly
defined under Section 187 of the Contract Act, which reads as under:
“187. Definitions of express and implied authority. An
authority is said to be express when it is given by words spoken or
written. An authority is said to be implied when it is to be inferred
from the circumstances of the case; and things spoken or written, or
the ordinary course of dealing, may be accounted circumstances of
the case.”
A perusal of the above makes it clear that an authority is to be implied when
it is inferred from the circumstances of the case and is said to be expressed
when it is given by words spoken or written. In the present case, from the
circumstances even if it is inferred that the authority is implied by the act of
the petitioner having not raised any objection towards the appointment of
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the Arbitrator made by the respondent unilaterally, the same cannot be taken
as implied authority inasmuch as the proviso to Section 12(5) of the Act
insists that the express agreement between the parties for providing consent
for unilateral appointment, must be in writing. Therefore, if the consent is
not in writing, no other inference can be drawn contrary to what is provided
under the proviso to Section 12(5) of the Act.
2.6. Moreover, as per the dictum laid down by the Hon'ble Supreme
Court in the case of Perkins Eastman Architects DPC and Anr. Vs. HSCC
(India) Ltd., reported in (2020) 20 SCC 760, any unilateral appointment of
Arbitrator without the consent of the other party would be non-est in law.
Therefore, the learned counsel prayed this Court to terminate the mandate of
the Sole Arbitrator who has been unilaterally appointed by the first
respondent and to appoint a neutral person as Sole Arbitrator for
adjudicating the dispute between the parties.
3. Per Contra, the learned Senior Central Government Standing
Counsel appearing for the respondents submitted that as per Clause 25 of
GCC, if any dispute or difference arises between the parties, the same shall
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be referred for adjudication through arbitration by a Sole Arbitrator
appointed by the Director, IGCAR/Secretary, DAE. Accordingly,
Mr.K.Srinivas (second respondent) was appointed as Sole Arbitrator and the
same was also communicated to the petitioner by the first respondent. A
formal appointment order of Sole Arbitrator was communicated to both the
petitioner and the first respondent on 19.04.2023. Therefore, the learned
counsel prayed this Court to pass appropriate orders in this matter.
4. Heard the learned counsel on either side and perused materials
placed before this Court.
5. In the present case, without the consent of the petitioner, the first
respondent initiated the arbitral proceedings and appointed the Sole
Arbitrator unilaterally, for adjudicating the dispute between the parties. The
first respondent simply sent an intimation to the petitioner stating that a
Sole Arbitrator has been appointed for adjudicating the dispute between the
parties. The first respondent has not even given 30 days time to the
petitioner to provide its consent for unilateral appointment of Arbitrator.
Hence, the petitioner is before this Court.
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6. As rightly pointed out by the learned counsel for the petitioner, as
per Section 12(5) of the Act, the first respondent ought to have obtain the
consent of the petitioner in writing. Unless the petitioner provides its
consent for unilateral appointment of Arbitrator, the first respondent ought
not to have proceeded with the appointment of Arbitrator.
7. Not only in this case but also in many number of cases where the
respondent has unilaterally appointed an Arbitrator without the consent of
the petitioner, this Court has observed that such unilateral appointment of
Arbitrator is an absolute violation of the provision of Section 12(5) of the
Act. In the case of Perkins Eastman Architects DPC and Anr. Vs. HSCC
(India) Ltd., reported in (2020) 20 SCC 760 , the Hon'ble Apex Court has
also held that the unilateral appointment of Arbitrator is non-est in law.
8. According to the respondents, the Sole Arbitrator has been
appointed as per Clause 25 of GCC. However, this Court is of the opinion
that Clause 25 of GCC is not in accordance with the provision of Section
12(5) of the Act and the Agreement dated 17.04.2014 is illegal since the
same is also not in accordance with Section 12(5) of the Act.
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9. Considering the above facts and circumstances of the case and
also, in the light of the dictum laid down by the Hon'ble Supreme Court in
the case of TRF and Bharat Broadband Network Limited Vs. United
Telecoms Limited reported in (2019) 5 SCC 755, this Court is inclined to
terminate the mandate of the Sole Arbitrator, Mr.K.Srinivas, Director, ESG,
BARC (second respondent herein) who has been unilaterally appointed by
the first respondent and appoint a new person as Sole Arbitrator to
adjudicate the disputes arisen between the parties. Accordingly, this Court
pass the following order:
(i) The Hon'ble Mrs.Justice R.Banumathi, Former Judge of
Hon'ble Supreme Court, C-20, C-Block, Ground Floor, Defency
Colony, New Delhi – 110 024, Mobile No.7042955477 is appointed as new
Arbitrator to enter upon reference and adjudicate the dispute inter se the
parties.
(ii) The learned new Arbitrator shall pass award within a period of six
months from the date of receipt of a copy of this order, only after issuing
notice to the parties and hearing them.
(iii) The parties shall pay fees and other incidental charges to the
learned Arbitrator fixed by her, equally.
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(iv) In the event of non-appearance of the respondents before the
learned Arbitrator, petitioner shall pay the entire remuneration and other
expenses at first instance and thereafter, petitioner can recover the same
directly from the respondents.
10. Accordingly, this petition is ordered. The parties shall bear their
own costs. Since this Court has appointed the Arbitrator, it is open to the
petitioner as well as the respondents to seek other reliefs under the
provisions of Arbitration and Conciliation Act 1996, before the Arbitrator.
26.06.2023
mrr
Index : Yes/No
Speaking Order (or) Non-Speaking Order
Note to Registry: Issue order copy on 17.07.2023
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KRISHNAN RAMASAMY, J.
mrr
Arb.O.P.(Comm.Div.)No.198 of 2023
26.06.2023
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