Punjab-Haryana High Court
M/S Saumansh Infrastructure Pvt. Ltd vs M/S Sepset Properties Pvt. Ltd on 5 November, 2024
Neutral Citation No:=2024:PHHC:143980
ARB-373-2023 (O&M) & ARB-374-2023 (O&M) -1-
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
ARB-373-2023 (O&M)
Reserved on 29.10.2024
Pronounced on 05.11.2024
M/s Saumansh Infrastructure Private Limited ...Applicant
Versus
M/s Sepset Properties Private Limited ...Respondent
And
ARB-374-2023 (O&M)
M/s G.D. Buildtech Private Limited ...Applicant
Versus
M/s Sepset Properties Private Limited ...Respondent
CORAM: HON'BLE MR. JUSTICE JAGMOHAN BANSAL
Present: Mr. Avinash Trivedi, Advocate
Mr. Rhythm Nagpal, Advocate and
Mr. Abhimanyu Batra, Advocate for the applicant
Mr. J.S. Rana, Advocate for the respondent
***
JAGMOHAN BANSAL, J.
1. As common issues are involved in both the captioned
applications, with the consent of parties, the same are hereby disposed of by
this common order. For the sake of brevity and convenience, facts are
borrowed from ARB-373-2023.
2. Through instant application under Section 11 read with Section
14 and 15 of the Arbitration and Conciliation Act, 1996 (for short '1996
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Act'), the applicant is seeking appointment of an Arbitrator and termination of
mandate of Arbitrator appointed by the respondent.
3. The applicant and respondent are Limited Companies registered
under the Companies Act, 1956. The respondent is engaged in the business of
building and developing housing projects. It, with respect to its residential
complex named as Paras Dew's at Gurgaon-Dwarka Expressway, Sector 106,
Gurugram, awarded a contract to the applicant. The job of the applicant was to
execute civil and structural work. The value of the contract was
₹16,32,89,461/-. An agreement dated 13.06.2014 was executed between the
parties. After the said agreement dated 13.06.2014, the parties entered into
Work Order Agreements dated 30.05.2015 and 06.08.2015.
4. The applicant claims that it has completed allotted works within
time scheduled and to the utmost satisfaction of the respondent. It submitted
final bills but respondent did not make payment. The applicant sent letter
dated 17.12.2022 but respondent did not pay any heed. The applicant served
legal notice dated 13.02.2023 in terms of Clause 15 of the agreement which
prescribes mechanism for settlement of dispute. The respondent, in response
to notice dated 13.02.2023 of the applicant, vide letter dated 04.03.2023
intimated appointment of Sh. V.K. Maheshwari, Principal Judge, Family
Court (Retired) as a Sole Arbitrator to adjudicate the disputes.
5. The applicant vide application dated 17.04.2023 under Section 16
of 1996 Act requested the Arbitrator not to proceed with the matter. The
ground of filing said application was that respondent has made unilateral
appointment of the Arbitrator.
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6. The Arbitrator vide e-mail dated 21.04.2023 sent first proceeding
to the applicant and fixed the matter for 15.05.2023. The applicant preferred
application ARB No.241 of 2023 under Section 11 read with Sections 14 and
15 of 1996 Act before this Court. The said application was withdrawn on
29.05.2023 with liberty to avail remedies in accordance with law.
7. The applicant requested the Arbitrator to decide its application
challenging constitution of the Tribunal. The Arbitrator asked the respondent
to file its reply and the matter was fixed for 06.07.2023. The Arbitrator
adjudicated application filed under Section 16 of 1996 Act vide order dated
13.07.2023. The Arbitrator dismissed the application and upheld his
appointment. Feeling aggrieved from the order passed by the Arbitral
Tribunal, the applicant has filed the instant application seeking appointment of
an Arbitrator in terms of Section 11 read with Sections 14 and 15.
8. Mr. Avinash Trivedi, learned counsel for the applicant submits
that respondent has made unilateral appointment of a Sole Arbitrator. The said
appointment is contrary to mandate of Sections 11 and 12 of 1996 Act. A
party to contract cannot make unilateral appointment. Consent of both sides is
mandatory. This Court in exercise of power conferred by Section 11 can set
aside appointment made by one party and make appointment of an
independent Arbitrator. Independence and impartiality are two pillars of
adjudication by an Arbitrator. The appointment made by the respondent
cannot be treated as appointment of an independent and impartial Arbitrator.
The applicant has no doubt about the independence, integrity or competence
of the Arbitrator who is a Retired Judicial Officer, however, unilateral
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appointment made by the respondent is not just and fair and is contrary to
Section 12.
9. In response to a query of the Bench, Mr. Avinash Trivedi,
submitted that this Court in terms of judgments of Supreme Court in TRF
Limited v. Energo Engineering Projects Limited, (2017) 8 SCC 377 and
Perkins Eastman Architects DPS and others v. HSCC (India) Ltd., (2020)
20 SCC 760 can make appointment under Section 11 of 1996 Act despite
order passed by Arbitrator under Section 16 of 1996 Act. This Court can
ignore appointment made by the respondent and make fresh appointment of an
Arbitrator.
10. Per contra, Mr. J.S. Rana, learned counsel for the respondent
submits that as per arbitration agreement, the respondent has authority to
make appointment of a Sole Arbitrator. The respondent has rightly made
appointment of the Sole Arbitrator. The appointed Arbitrator has furnished
declaration under Section 12(5) and he is a Retired Judicial Officer, thus,
there is no question to invoke jurisdiction of this Court under Section 11 of
1996 Act. The applicant, on a previous occasion, withdrew its petition with
liberty to avail remedies as permissible by law. It filed application before the
Arbitrator under Section 16 of 1996 Act. The said application was dismissed
by a detailed order passed by the Arbitrator. This Court cannot set aside order
passed by the Arbitrator under Section 16.
11. I have heard the arguments of learned counsel for both sides and
perused the record with their able assistance.
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12. The conceded position emerging from the record is that the
parties entered into different agreements including Work Order Agreement
dated 30.05.2015. A dispute erupted between the parties. The applicant
served legal notice upon the respondent who in turn appointed a Sole
Arbitrator. The applicant objected appointment of the said Arbitrator. It filed
petition under Section 11 read with Sections 14 and 15 of 1996 Act before this
Court which was dismissed as withdrawn with liberty to avail remedies in
accordance with law. The applicant again approached the Arbitrator and
questioned validity of appointment of the Arbitrator. The Arbitrator rejected
application of the applicant under Section 16. The applicant has filed fresh
application under Section 11 read with Sections 14 and 15 of the 1996 Act.
13. The parties entered into different contracts including Work Order
Agreement dated 30.05.2015. The arbitration clause which formed part of
aforesaid Work Order Agreement is reproduced as below:
"Settlement of Disputes: Any dispute arising out of this work
order shall be settled as per terms & conditions of this work
order. In case of failure to settle amicably, the dispute shall be
finally resolved in accordance with the Arbitration &
Conciliation Act, 1996 by sole Arbitrator to be nominated
(including nomination of replacement Arbitrator, if
necessitated by vacancy of the post caused by any reason
whatsoever) by the Client. The venue of arbitration shall be
Gurgaon. This sub contract is governed as per the Laws of
India and the jurisdiction of only Gurgaon Courts shall apply."
14. From the perusal of above quoted clause, it is evident that the
parties have agreed to resolve their disputes through a Sole Arbitrator to be
nominated by the client (respondent). The applicant is objecting appointment
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on the sole ground that the respondent has made unilateral appointment and
said appointment is contrary to Section 12(5) read with judgments of Supreme
Court in TRF Limited (supra) and Perkins Eastman (supra).
15. The Supreme Court in Indian Oil Corporation Limited v. Raja
Transport (P) Limited, (2009) 8 SCC 520 has adverted to scope and reach of
Section 11 of 1996 Act. The relevant extracts of the judgment are reproduced
as below:-
"48. In the light of the above discussion, the scope of Section
11 of the Act containing the scheme of appointment of
arbitrators may be summarised thus:
(i) Where the agreement provides for arbitration with
three arbitrators (each party to appoint one arbitrator
and the two appointed arbitrators to appoint a third
arbitrator), in the event of a party failing to appoint an
arbitrator within 30 days from the receipt of a request
from the other party (or the two nominated arbitrators
failing to agree on the third arbitrator within 30 days
from the date of the appointment), the Chief Justice or
his designate will exercise power under sub-section (4)
of Section 11 of the Act.
(ii) Where the agreement provides for arbitration by a
sole arbitrator and the parties have not agreed upon any
appointment procedure, the Chief Justice or his
designate will exercise power under sub-section (5) of
Section 11, if the parties fail to agree on the arbitration
within thirty days from the receipt of a request by a
party from the other party.
(iii) Where the arbitration agreement specifies the
appointment procedure, then irrespective of whether the
arbitration is by a sole arbitrator or by a three-member
Tribunal, the Chief Justice or his designate will exercise
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power under sub-section (6) of Section 11, if a party
fails to act as required under the agreed procedure (or
the parties or the two appointed arbitrators fail to reach
an agreement expected of them under the agreed
procedure or any person/institution fails to perform any
function entrusted to him/it under that procedure).
(iv) While failure of the other party to act within 30 days
will furnish a cause of action to the party seeking
arbitration to approach the Chief Justice or his
designate in cases falling under sub-sections (4) and (5),
such a time-bound requirement is not found in sub-
section (6) of Section 11. The failure to act as per the
agreed procedure within the time-limit prescribed by the
arbitration agreement, or in the absence of any
prescribed time-limit, within a reasonable time, will
enable the aggrieved party to file a petition under
Section 11(6) of the Act.
(v) Where the appointment procedure has been agreed
between the parties, but the cause of action for invoking
the jurisdiction of the Chief Justice or his designate
under clauses (a), (b) or (c) of sub-section (6) has not
arisen, then the question of the Chief Justice or his
designate exercising power under sub-section (6) does
not arise. The condition precedent for approaching the
Chief Justice or his designate for taking necessary
measures under sub-section (6) is that
(i) a party failing to act as required under the
agreed appointment procedure; or
(ii) the parties (or the two appointed arbitrators)
failing to reach an agreement expected of them
under the agreed appointment procedure; or
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(iii) a person/institution who has been entrusted
with any function under the agreed appointment
procedure, failing to perform such function.
(vi) The Chief Justice or his designate while exercising
power under sub-section (6) of Section 11 shall
endeavour to give effect to the appointment procedure
prescribed in the arbitration clause.
(vii) If circumstances exist, giving rise to justifiable
doubts as to the independence and impartiality of the
person nominated, or if other circumstances warrant
appointment of an independent arbitrator by ignoring
the procedure prescribed, the Chief Justice or his
designate may, for reasons to be recorded ignore the
designated arbitrator and appoint someone else."
16. From the perusal of above quoted para, it is evident that power
under Section 11(6) can be exercised by the High Court where a party has
failed to act as required under the agreed appointment procedure or the parties
(or the two appointed Arbitrators) have failed to reach an agreement expected
of them under the agreed appointment procedure or a person/institution who
has been entrusted with any function under the agreed appointment procedure
has failed to perform such function. The High Court while exercising power
under Section 11(6) shall endeavour to give effect to the appointment
procedure prescribed in the arbitration clause. It means the factor which must
weigh in mind of the Court is "procedure prescribed in the arbitration clause".
In the case in hand, procedure has been prescribed for the
appointment of the Arbitrator. As per prescribed procedure, there would be a
Sole Arbitrator who would be nominated by the client i.e. respondent. The
client-respondent on account of dispute raised by the applicant has made
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appointment of a Sole Arbitrator. The said Arbitrator in terms of Section 12(5)
has brought on record declaration disclosing that he is neither directly nor
indirectly connected with parties or the subject matter. The applicant is not
disputing integrity or impartiality of the Arbitrator. Sole objection of the
applicant is that respondent has made unilateral appointment. The applicant
has heavily placed reliance upon judgments of Supreme Court in TRF
Limited (supra) and Perkins Eastman (supra). In TRF Limited (supra), as
per arbitration clause, Managing Director or his nominee could be Sole
Arbitrator. The appointment of Managing Director as Arbitrator was contrary
to statutory provision, thus, he was ineligible. The Supreme Court relying
upon its earlier judgment in State of Orissa v. Commissioner of Land
Records & Settlement, (1998) 7 SCC 162 and Roop Chand v. State of
Punjab, AIR 1963 SC 1503 concluded that delegatee of the State Government
is equal to State Government, thus, delegatee of Managing Director is equal to
Managing Director. The Managing Director became ineligible in terms of
Section 12(5), thus, he could not nominate a person. It is inconceivable in law
that a person who is statutorily ineligible can nominate a person. The
concluding part of the judgment is reproduced as below:
"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 cannot nominate another as an
arbitrator. The arbitrator becomes ineligible as per
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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 [TRF Ltd. v. Energo Engg.
Projects Ltd., 2016 SCC OnLine Del 2532] expressed by the
High Court is not sustainable and we say so."
17. In Perkins Eastman (supra), the Court considered two categories
of cases. The first, similar to one dealt in TRF Limited (supra) i.e. where the
Managing Director himself is nominated as an Arbitrator with an additional
power to appoint any other person as an Arbitrator and second, where the
Managing Director is not to act as Arbitrator but is empowered or authorized
to appoint any other person of his choice or discretion as an Arbitrator. The
Court observed that if test applied to first category of cases is applied to
second category of cases, in all cases a party to the agreement would be
disentitled to make any appointment of an Arbitrator on its own and it would
always be available to argue that a party or an official or an authority having
interest in the dispute would be disentitled to make appointment of an
Arbitrator. The Court further observed that in TRF Limited (supra),
ineligibility was a result of operation of law and it was held that a person who
is ineligible to act as an Arbitrator cannot make appointment of another
Arbitrator. A person who has an interest in the outcome or decision of the
Tribunal must not have power to appoint a Sole Arbitrator. The Court can
make appointment in exercise of power under Section 11(6) if there are
justifiable doubts as to the independence and impartiality of the person
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nominated or if other circumstances warrant appointment of an independent
Arbitrator by ignoring procedure prescribed. The Law Commission in its
Report No.246 has also opined that even where State has power to make
appointment of adjudicator, the duty to appoint an impartial and independent
adjudicator is much more onerous and mere prior agreement between the
parties at the time of contract cannot be said to have waived off right of
natural justice.
Unless the appointment of the Arbitrator is ex facie valid and
such appointment satisfies the Court exercising jurisdiction under Section
11(6), acceptance of such appointment as a fait accompli to debar the
jurisdiction under Section 11(6) cannot be countenanced in law. The Court
concluded that if there are justifiable doubts as to independence and
impartiality of the person nominated or other circumstances warrant, the Court
can make appointment of an independent Arbitrator and ignore the agreed
procedure.
18. In the case in hand, the applicant on the earlier occasion filed
identical application i.e. ARB No.241 of 2023 before this Court which was
withdrawn with liberty to avail remedies in accordance with law. The
applicant approached Arbitrator and raised question of unilateral appointment.
The Arbitrator adjudicated application of the applicant filed under Section 16
of 1996 Act. The application was dismissed. This Court cannot sit over said
decision of Arbitrator as Appellate Court and set aside the same while
exercising power under Section 11(6).
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19. The applicant has filed instant application raising same issues
and on the same grounds which were part of earlier application i.e. ARB
No.241 of 2023. The said application was dismissed as withdrawn and there
is no reason to entertain second application on the same set of facts and
circumstances. There is no change in the factual or legal position warranting
interference.
20. In the arbitration clause, procedure has been prescribed. The
respondent has made appointment as per procedure. In the absence of
violation of procedure, there is no manifest reason to entertain instant
application.
21. The Arbitrator has furnished declaration in terms of Section
12(5) of 1996 Act. The applicant is not doubting integrity or impartiality of
the Arbitrator. In the absence of justifiable doubt as to the independence and
impartiality of the Arbitrator, this Court cannot ignore appointment made as
per procedure and further make appointment of an Arbitrator in terms of
Section 11(6). The Supreme Court neither in TRF Limited (supra) nor in
Perkins Eastman (supra) has held that appointment of the Arbitrator by one
party to the agreement should be ignored irrespective of absence of doubt as
to impartiality and integrity or violation of Section 12(5). In the instant case,
neither there is doubt as to integrity or impartiality of the Arbitrator nor
violation of Section 12(5) read with 5th and 7th Schedule of 1996 Act. In the
absence of justifiable reason, appointment of the Arbitrator, made in
accordance with arbitration clause, cannot be set aside.
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22. In the wake of above discussion and findings, this Court is of the
considered opinion that there is no reason to invoke power conferred by
Section 11(6) of the Arbitration and Conciliation Act, 1996 and supersede
appointment of Sole Arbitrator made by respondent. The applications san
merit, thus, deserve to be dismissed and accordingly dismissed.
23. Pending application(s), if any, shall stand disposed of.
(JAGMOHAN BANSAL)
JUDGE
05.11.2024
Mohit Kumar
Whether speaking/reasoned Yes
Whether reportable Yes
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