Telangana High Court
Vindhya Telelinks Limited vs South Central Railways on 15 March, 2024
Author: K. Lakshman
Bench: K. Lakshman
1
HONOURABLE SRI JUSTICE K. LAKSHMAN
ARBITRATION APPLICATON No.80 OF 2020
ORDER:
Heard Mr. Avinash Desai learned senior counsel representing Mr.
T.P.S. Harsha learned counsel for the Applicant, Mr. M Ramakrishna,
learned counsel representing Mr. Gadi Praveen Kumar, learned Deputy
Solicitor General of India for Respondent.
2. This Arbitration Application is filed under Section 11 (6) of the
Arbitration and Conciliation Act, 1996 (hereinafter 'the Act') read with
the Scheme for Appointment of Arbitrator, 1996, for appointment of
independent Arbitrator to adjudicate the dispute between the parties.
FACTS:-
3. The Applicant herein is a company incorporated under the
Companies Act, and inter alia engaged in the business of manufacturing
and supply of various types of cables. Respondent has invited tender
bearing No.56185427 for supply of PVC insulated armoured, unscreened,
underground railways signaling cable, copper conductor, size 30 core x
1.5sq. MM confirming to specification No.IRS: 63/2014 REV 4 in drums
of 500 mts, length (for short, 'the product'). The applicant has
participated in the said tender and was declared as successful bidder to
purchase orders bearing No.36.18, 5427.1.03360 dated 23.08.2019 for
supply of 45.3 KM of product of the cable and purchase order
No.56.18.5427.1.03361 for supply of 38.46 KM of product was placed
on the applicant. The tender was governed by the Indian Railways
Standard Conditions of Contract (for short 'IRSCC') which contains an
arbitration clause for resolution of disputes. On receipt of purchase order,
the Applicant immediately procured the requisite raw material and started
the process to manufacturing the product and was subsequently delivered
by the applicant without any delay and in time.
4. Vide letter dated 18.11.2019, applicant intimated Deputy
CMM/Signal of respondent that entire ordered quantity in terms of both
the purchase orders have been manufactured and offered to RDSO for
inspection. The Applicant informed that product under purchase orders
has been delivered to the consignees warehouse.
5. According to the applicant, there are disputes between the
applicant and respondent with regard to supply, value, lower price said to
have been supplied by third party, reduction rate for product and supply
by the Applicant etc., sought to be invoked. There is correspondence
between the applicant and the respondent. The Applicant had explained
the same in detail the present application.
6. It is further contended by the applicant that in spite of repeated
intimation with regard to reduction of price as allegedly offered by third
party is not applicable on the supplies made by the Applicant and
invocation of fall clause is based on mis-application and mis-
interpretation. The respondent with an intention to unjustly enrich
themselves at the cost of the Applicant and while exploiting its dominant
position, issued a letter on 01.06.2020 to all the Zonal railways
requesting the said Zones to deduct a sum of Rs.83,13,426/- from
outstanding bills of the applicant. On receipt of the same, the Applicant
through its Counsel got issued a legal notice dated 17.06.2020 to the
respondent to desist from taking any coercive steps against the Applicant,
and invoking the Arbitration Clause. In spite of receipt of the said notice,
dated 17.06.2020, the respondent failed to withdraw the letter dated
01.06.2020. The respondent, instead of complying with the requisitions
of the legal notice issued by the Applicant, vide communication dated
28.09.2020 sought waiver of applicability of Section 12(5) of the Act
from the Applicant. The Applicant vide letter dated 01.10.2020 denied to
waive applicability of Section 12(5) of the Act and intimated the
respondent that the disputes are required to be adjudicated by a sole
Arbitrator to be appointed in accordance of the Act.
7. Thus, according to the Applicant, disputes arose with the
respondent arbitrarily, illegally, while misinterpreting the IRSCC
invoked various Clauses with the intention to cause unwarranted loss to
the Applicant. In spite of various communications, correspondences
issued by the Applicant thereby intimating the deliberate violation by
respondent of the terms of the IRSCC, the respondent instead of
rectifying the illegality committed by it, continued with its mala fide
intention issued a letter to all the zonal railways with a request to deduct
a huge sum for the outstanding bills of Applicant. The respondent failed
to withdraw the letter addressed to all Zonal Railways in spite of legal
notice issued by the Applicant and thus disputes and differences which
arose between the parties have been left unsolved and the same are
required to be adjudicated by arbitrator.
8. According to the Applicant, the arbitration clause mentioned in
the IRSCC has been rendered void and infructuous warranting
appointment of an independent and sole arbitrator by this Court.
9. The respondent filed counter contending as follows:-
The present arbitration application is not maintainable since the
Applicant did not array the Union of India as a party and that an Arbitral
Tribunal has already been constituted on 06.11.2020 to adjudicate the
disputes of the parties and the said Arbitral Tribunal is not arrayed as a
party. The respondent has already appointed an Arbitral Tribunal
consisting of three Retired Railway Officers.
10. The Applicant is not entitled for any amount much less an
amount of Rs.83,12,426/-. The demand made by respondent/Railways to
the Applicant on 04.03.2020 to remit an amount of Rs.83,13,426/- is
legal and valid. The applicant has not filed the latest amendments dated
12.12.2018 issued by the Ministry of Railways, Railway Board,
Government of India to Clause No.2900 i.e. settlement of disputes. The
contention of the Applicant that the General Manager, South Central
Railway, Secunderabad has become ineligible to appoint an Arbitrator
after the amendment of the Act and the principle laid down by the Apex
Court in Perkins Eastman Architects DPC vs. HSCC (India) Limited 1
and also TRF Limited vs. Energo Engineering Projects Ltd 2 are not
applicable. In Central Organization for Railway Electrification
(CORE) vs. M/s ECI-SPIC-SMO-MCML (IV) 3, the Apex Court has
considered all the issues under amended Arbitration Act raised by the
Applicant also Section 12 of the amended Act, and considering the power
of General Manager of Railways, to appoint Railway as Arbitrators to
adjudicate the disputes of the parties held that the Retired Railway
Officers can act as Arbitrators. An Arbitral Tribunal has already been
constituted consisting of three Railway Retired Officers on 06.11.2020.
Therefore, the present Arbitration Application is liable to dismissed. The
respondent has promptly issued replies herein to all the letters including
legal notice sent by the Applicant. The contentions and allegations raised
AIR 2020 SC 59
2017 (8) SCC page 377
2020 (1) ALT Page 70 (SC)
by the applicant in the said legal notice are false and baseless. With the
said submissions respondent sought to dismiss the present application.
11. The applicant has filed rejoinder contending that the
respondent has suppressed vital and material facts including letters issued
by the applicant and also the replies sent by the respondents including
letter addressed by Mr. Sundar Ram Madduri, alleged Presiding Officer.
The respondent was aware of filing and pendency of the present
arbitration application i.e. the date of nomination and appointment of
purported Arbitral Tribunal which fact is evident from the documents
filed along with the rejoinder. Thus, the respondent is trying to mislead
this Court. The latest amendments dated 12.12.2018 as mentioned by
respondent were not furnished to the Applicant. The Applicant is not
aware of the same. Therefore, the question of filing of the said
amendments by the Applicant along with the present application does not
arise.
12. The respondent has nominated and appointed arbitral Tribunal
during pendency of the present application filed on 06.11.2020 i.e. after
expiry of 143 days from the date of issuance of notice invoking
arbitration clause and during pendency of the present arbitration
application filed on 08.10.2020. Placing reliance on the principle laid
down by the Apex Court in Central Organization for Railway
Electrification (supra) which is misconceived. With the said
submissions, the applicant sought to appoint an Arbitrator.
13. Mr. Avinash Desai, learned senior counsel representing Mr.
T.P.S. Harsha, learned counsel for the Applicant, Mr. M Ramakrishna,
learned counsel representing Mr. Gadi Praveen Kumar, learned Deputy
Solicitor General of India have made their submissions extensively and
this Court had a thoughtful consideration of the same. Mr. Avinash Desai
learned senior counsel placed reliance on various judgments and the
same will be referred contextually in below paragraphs.
14. Respondent has relied on two judgments i.e. Central
Organization for Railway Electrification (supra) and Government of
Haryana and PWD Haryana (B & R Branch) BS Delhi Road Private
Limited 4.
15. There is no dispute that the applicant participated in the tender
and was declared as successful bidder. There are disputes between the
(2019) 3 SCC 505
applicant and respondent with regard to supply of the said material
pursuant to the aforesaid purchase orders. As discussed supra, there is no
dispute with regard to exchange of correspondence between the applicant
and respondent including notice, legal notices and replies etc.
16. According to the applicant, General Manger of South Central
Railways is ineligible to appoint Arbitrator and communication dated
28.09.2020 issued by respondent seeking waiver and the applicability of
Section 12(5)of the Act is illegal.
17. In the light of the aforesaid submissions, it is relevant to extract
clause No.2900(a)(i)(ii)(iv) of IRSCC:-
2900(a)(i): In the event of any question, dispute or difference orining 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, Le., excepted matters (non-arbitrable)] the same
shall be referred to the sole arbitration of an Arbitrator in terms of the Arbitration
and Conciliation Act, 1996 as amended by Arbitration and Conciliation
(Amendment) Act, 2015. Arbitrator shall be a person possessing qualifications laid
down in para 2900 (a) (ii) and shall be appointed 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/Director General (Railway Stores), 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 Ministry
of Railways.
2900(a)(ii): Qualification for appointment as Sole Arbitrator:
(a) Retired Railway officer not below SAG level 3 years after his date
of retirement.
(b) Age of Arbitrator at the time of appointment shall not exceed 70
years.
2900(a)(iv): The award of the arbitrator shall be final and binding on the
parties to this Contract.
18. It is also relevant to note that the Government of India,
Ministry of Railways in supersession of the previous instructions on the
supply of arbitration in works and stores contract, vide proceedings dated
12.12.2018 issued the arbitration policy with approval of the Board. ME,
FC & CRB). The same is relevant and extracted below :-
1.0. Works Contracts. Detailed procedure has been enshrined in Indian Railways
Standard General Conditions of Contract (GCC) issued in November 2018
1.1. Appointment of Arbitrator whore applicability of Section 12 (5) of Arbitration and
Conciliation Act has not been waived off
In cases where the total value of all plains in question added together does not exceed
50,00,000/- (Rupees Fifty Lakh), the Arbitral Tribunal shall consist of a Retired
Railway Officer, not below the rank of General Administrative Grade, as the arbitrator.
Detailed procedure provided for in GDC-Nov 2018 will be followed
1.2. Fee and Emoluments to Retired Railway Officer(s) working as
Arbitrator(s) - This shall continue to be governed in accordance with the latest
instructions of the Board (currently as per Railway Board's letter No. 2000/CE-
VCT/14/Main dated 16.05.2018 & 17.01.2018) However as prescribed vide the
Fourth Schedule of the Arbitration and Conciliation Act 1996, In the event, the
arbitral tribunal is a sole arbitrator, he shall be entitled to an additional amount
of twenty-five per cent over and above the fee calculated as per the instructions
mentioned above
2.0. Stores Contracts- Amendment to IRS Conditions of Contract-Para 2900
Clause 2900 of the Indian Railways Standard Conditions of Contract (Supply
Contract) may be revised as per the Annexure-A, enclosed.
This issues in consultation with Stores Directorate and concurrence of
Associate Finance of Transformation Cell. Railway Board.
Clause No.2901, 2905 is also relevant and the same is extracted
below:-
2901. Conciliation of disputes. All disputes and differences of any kind
whatsoever string out of or in connection with the contract, whether during the
currency of the contract or after its completion and whether before or after the
determination of the contract. Shall be referred by any of the parties to the
concerned. "Chief Materials Manager (CMM) or "Divisional Railway
Manager" or "Executive Director" through "Notice of Dispute", CMM or
Divisional Railway Manager or Executive Director shall, within 30 days after
receipt of "Notice of Dispute", notify the name of sole conciliator to the parties.
The Conciliator shall assist the parties to reach an amicable settlement in an
independent and impartial manner within the terms of contract
If the parties each agreement on settlement of the dispute, they shall draw up a
written settlement agreement duly signed by parties and conciliator. When the
parties sign the settlement agreement, it shall be final and binding on the
parties.
The parties shall not initiate, during the conciliation proceedings, any arbitral or
Judicial proceedings in respect of dispute that is the subject matter of the
conciliation proceedings.
The conciliation proceedings shall be terminated:
1. By the signing of the settlement agreement, on the date of agreement, or
2 By written declaration of the conciliator, after consultation with the parties,
to the effect that further efforts at conciliation are no longer justified, on the
date of declaration; or
3. By a written declaration of any party in the conciliator to the effect that the
conciliation proceedings are terminated, on the date of declaration;
2905: Appointment of Arbitrators:-
2005(a) Appointment of Arbitrator where applicability of section 12 (5) of
Arbitration and Conciliation Act has been waived off:
(i). In cases where the total value of all claims in question added together does
not exceed ₹ 1,00,00,000/- (Rupees One Crore only), the Arbitral Tribunal shall
consist of a Sole Arbitrator who shall be a Gazetted Officer of Railway not
below Junior Administrative Grade, nominated by the General Manager. The
sole arbitrator shall be appointed within 60 days from the day when a written
and valid demand for arbitration is received by General Manager.
(ii): In cases where the total value of all claims in question added together
exceeds 21,00,00,000/- (Rupees One Crore only), the Arbitral Tribunal shall
consist of a panel of three Gazetted Railway Officers not below Junior
Administrative Grade of 2 Railway Gazetted Officers not below Junior
Administrative Grade and a retired Railway Officer, retired not below the rank
of Senior Administrative Grade Officer, as the arbitrators. For this purpose, the
Railway will send a panel of at least four (4) names of Gazetted Railway
Officers of one or more departments of the Railway which may also include the
name(s) of retired Railway Officer(s) empanelled to work as Railway Arbitrator
to the Contractor within 60 days from the day when a written and valid demand
for arbitration is received by the General Manager.
Contractor will be asked to suggest to General Manager at least 2 names out of
the panel for appointment as Contractor's nominee within 30 days from the date
of dispatch of the request by Railway. The General Manager shall appoint at
least one out of them as the Contractor's nominee and will, also simultaneously
appoint the balance number of arbitrators either from the panel or from outside
the panel, duly indicating the 'presiding arbitrator from amongst the 3
arbitrators so appointed. General Manager shall complete this exercise of
appointing the Arbitral Tribunal within 30 days from the receipt of the names of
Contractor's nominees. While nominating the arbitrators, it will be necessary to
ensure that one of them is from the Accounts Department. An officer of
Selection Grade of the Accounts Department may be considered of equal status
to the officers in Senior Administrative Grade of other departments of the
Railways for the purpose of appointment of arbitrator.
iii: The serving railway officer working in arbitral tribunal, in the ongoing
arbitration cases as per clause 2005(a) (i) above, and clause 2005(a)(ii) above,
can continue as arbitrator in the tribunal even after his retirement.
25(b): Appointment of Arbitrator where applicability of Section 12 (5)
Arbitration and Conciliation Act has not been waived off:
( in cases where the total value of all claims in question added together does not
exceed Rs.50,00,000/- (Rupees Fifty Lakh only), the Arbitral Tribunal shall
consist a Retired Railway Officer, retired not below the rank of Senior
Administrative Grade Officer, as an arbitrator. For this purpose the Railway
will send a panel of at least four (4) names of retired Railway Officer()s)
empanneled to work as Railway Arbitrator duty indicating their retirement
dates to the Contractor within 60 days from the day when a written and valid
demand for arbitration is received by the General Manager.
Contractor will be asked to suggest to General Manager at least 2 names out of
panel for appointment as arbitrator within 30 days from the date of dispatch of
request by Railway. The General Manager shall appoint at least one out of them
as arbitrator
(ii). In cases where the total value of all claims in question added together
exceed Rs.50,00,000/- (Rupees Fifty Lakh only), the Arbitral Tribunal shall
consist of three retired Railway Officers, retired not below the rank of Senior
Administrative Grade Officer. For this purpose, the Railway will send a panel
of at least four (4) names tof retired Railway Officer(s) empanelled to work as
Railway Arbitrators duly indicating their retirement dates to the Contractor
within 60 days from the day when a written and valid demand for arbitration is
received by the General Manager.
Contractor will be asked to suggest to General Manager at least 2 names out of
the panel for appointment as Contractor's nominee within 30 days from the date
of dispatch of the request by Railway. The General Manager shall appoint at
least one out of them as the Contractor's nominee and will, also simultaneously
appoint the balance number of arbitrators either from the panel or from outside
the panel, duly indicating the 'Presiding Arbitrator' from amongst the 3
arbitrators so appointed, General Manager shall complete this exercise of
appointing the Arbitral Tribunal within 30days from the receipt of the names of
Contractor's nominees. While nominating the arbitrators, it will be necessary to
ensure that one of them has served in the Accounts Department.
19. It is also relevant to note sub section 5 of Section 12 of the Act
was brought into statute by way of amendment to Act No.3 of 2016 w.e.f.
23.10.2015 and the same is extracted below:-
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.
20. In Central Organization for Railway Electrification (supra),
the Apex Court considered the scope of Section 12(5) of the Act and
clause 64 of the IRGCC. In the said case, the respondent therein has sent
a letter dated 27.07.2018 calling upon the appellant to constitute an
Arbitral Tribunal, the appellant has sent the communication dated
24.09.2018 nominating the panel of serving officers of Junior
Administrative Grade to act as arbitrators and asked the respondent to
select any two from the list and communicate to the office of the General
Manager. 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. In response to the respondent's letter dated
26.09.2018, the appellant has sent a panel of four retired Railway
Officers to act as arbitrators giving the details of those retired officers
and requesting the respondent to select any two from the list and
communicate to the office of the General Manager. Since the respondent
has been given the power to select two names from out of the four names
of the panel, the power of the appellant nominating its arbitrator gets
counter-balanced by the power of choice given to the respondent. Thus,
the power of the General Manager to nominate the arbitrator is counter-
balanced by the power of the respondent to select any of the two
nominees out of the four names suggested from the panel of the retired
officers. Considering the modified Clauses 64(3)(a)(ii) and 64(3)(b) of
GCC, the Apex Court held that it cannot therefore be said that the
General Manager has become ineligible to act as the arbitrator and there
is no merit in the contrary contention of the respondent. The decision in
TRF Limited (supra) is not applicable to the said case.
21. Whereas in the present case, the present application under
Section 11(6) of the Act was filed on 08.10.2020 and the respondent
Arbitral Tribunal was constituted on 06.11.2020 i.e. after lapse of 143
days from the date of issuance of notice invoking arbitration clause and
during pendency of the present application filed on 08.10.2020.
22. The said judgment is referred to Larger Bench for consideration
in Tantia Constructions Limited vs Union Of India 5, vide order dated
11.01.2021 in SLP © No.1276 of 2020, the Apex Court upheld the
appointment of arbitrator under Section 11(6) of the Act made by
Calcutta High Court.
23. It is also relevant to state that in Tantiya (supra) vide A.P.
No.732 of 2018 Calcutta High Court considered Section 12(5) of the Act
as well as VII Schedule of the Act, 1996 and held that the General
Manager of the respondent Railway cannot appoint any existing Railway
Officer as an arbitrator to adjudicate the disputes and differences of the
parties. However, the General Manager of the respondent Railway
prepared a panel of four persons amongst whom two are the serving
officers of the Railway.
24. It was further held that in spite of request made by the
petitioner by the letter dated 12.07.2018, the General Manager of the
respondent railway, being the appointing authority did not prepare a fresh
panel comprising persons covered by any of the categories of the seventh
Schedule of the Act of 1996, who are not after waiting for a period of
thirty days from the date of receipt of said letter dated 12.07.2018 by the
General Manager of the respondent railway. petitioner has filed the said
application. Therefore, in view of decisions of the Supreme Court in the
cases of Datar Switchgears Ltd. vs. Tata Finance Ltd. 6 and Punj
Lloyd Ltd. vs. Petronet MHB Ltd. 7this application was allowed and
arbitrator was appointed by the Calcutta High Court.
25. Union of India had filed SLP © No.12670 of 2020 challenging
the said order. Vide order dated 11.01.2021, the Apex Court held that
judgment of High Court of Calcutta cannot be faulted with. However,
reliance has been placed on three Judge Bench of the Apex Court in
Central Organization for Railway Electrification (supra), the three
Judge Bench of Apex Court while disagreeing with its view for the basic
reason that once the appointing authority itself is incapacitated from
referring the matter to arbitration, it does not then follow that
notwithstanding this yet appointments may be valid depending on the
(2000) 8 SCC 151
(2006) 2 SCC 638
facts of the case. Thus, the order passed by Calcutta High Court was
confirmed in Tantiya supra. Mere referring the matter to a larger bench
without there being any stay is not a ground.
26. In Bharat Broadband Network Limited vs. United
Telecoms Limited 8, the Apex Court extensively considered the scope
and ambit of Section 12(5) of the Act, paragraph Nos.15, 18 and 20 of
the said judgments are relevant and the same are extracted below:-
15. Section 12(5), on the other hand, is a new provision which relates to the de
jure inability of an arbitrator to act as such. Under this provision, any prior
agreement to the contrary is wiped out by the non- obstante clause in Section
12(5) the moment any person whose relationship with the parties or the counsel
or the subject matter of the dispute falls under the Seventh Schedule. The sub-
section then declares that such person shall be "ineligible" to be appointed as
arbitrator. The only way in which this ineligibility can be removed is by the
proviso, which again is a special provision which states that parties may,
subsequent to disputes having arisen between them, waive the applicability
of Section 12(5) by an express agreement in writing. What is clear, therefore, is
that where, under any agreement between the parties, a person falls within any
of the categories set out in the Seventh Schedule, he is, as a matter of law,
ineligible to be appointed as an arbitrator. The only way in which this
ineligibility can be removed, again, in law, is that parties may after disputes
have arisen between them, waive the applicability of this sub-section by an
"express agreement in writing". Obviously, the "express agreement in writing"
has reference to a person who is interdicted by the Seventh Schedule, but who
is stated by parties (after the disputes have arisen between them) to be a person
in whom they have faith notwithstanding the fact that such person is interdicted
by the Seventh Schedule.
18. On the facts of the present case, it is clear that the Managing Director of the
appellant could not have acted as an arbitrator himself, being rendered
(2019) 5 SCC 755
ineligible to act as arbitrator under Item 5 of the Seventh Schedule, which reads
as under:
"Arbitrator's relationship with the parties or counsel xxx xxx xxx
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 involved in the matters in dispute in the arbitration" Whether such
ineligible person could himself appoint another arbitrator was only made clear
by this Court's judgment in TRF Ltd. (supra) on 03.07.2017, this Court holding
that an appointment made by an ineligible person is itself void ab initio. Thus, it
was only on 03.07.2017, that it became clear beyond doubt that the appointment
of Shri Khan would be void ab initio. Since such appointment goes to
"eligibility", i.e., to the root of the matter, it is obvious that Shri Khan's
appointment would be void. There is no doubt in this case that disputes arose
only after the introduction of Section 12(5) into the statute book, and Shri Khan
was appointed long after 23.10.2015. The judgment in TRF Ltd.(supra)
nowhere states that it will apply only prospectively, i.e., the appointments that
have been made of persons such as Shri Khan would be valid if made before the
date of the judgment. Section 26 of the Amendment Act, 2015 makes it clear
that the Amendment Act, 2015 shall apply in relation to arbitral proceedings
commenced on or after 23.10.2015. Indeed, the judgment itself set aside the
order appointing the arbitrator, which was an order dated 27.01.2016, by which
the Managing Director of the respondent nominated a former Judge of this
Court as sole arbitrator in terms of clause 33(d) of the Purchase Order dated
10.05.2014. It will be noticed that the facts in the present case are somewhat
similar. The APO itself is of the year 2014, whereas the appointment by the
Managing Director is after the Amendment Act, 2015, just as in the case
of TRF Ltd. (supra). Considering that the appointment in the case of TRF
Ltd. (supra) of a retired Judge of this Court was set aside as being non-est in
law, the appointment of Shri Khan in the present case must follow suit.
20. This then brings us to the applicability of the proviso to Section 12(5) on
the facts of this case. Unlike Section 4 of the Act which deals with deemed
waiver of the right to object by conduct, the proviso to Section 12(5) will only
apply if subsequent to disputes having arisen between the parties, the parties
waive the applicability of sub-section (5) of Section 12 by an express
agreement in writing. For this reason, the argument based on the analogy
of Section 7 of the Act must also be rejected. Section 7 deals with arbitration
agreements that must be in writing, and then explains that such agreements may
be contained in documents which provide a record of such agreements. On the
other hand, Section 12(5) refers to an "express agreement in writing". The
expression "express agreement in writing" refers to an agreement made in
words as opposed to an agreement which is to be inferred by conduct.
Here, Section 9 of the Indian Contract Act, 1872 becomes important. It states:
"9. Promises, express and implied.--In so far as a proposal or acceptance of
any promise is made in words, the promise is said to be express. In so far as
such proposal or acceptance is made otherwise than in words, the promise is
said to be implied." It is thus necessary that there be an "express" agreement in
writing. This agreement must be an agreement by which both parties, with full
knowledge of the fact that Shri Khan is ineligible to be appointed as an
arbitrator, still go ahead and say that they have full faith and confidence in him
to continue as such. The facts of the present case disclose no such express
agreement. The appointment letter which is relied upon by the High Court as
indicating an express agreement on the facts of the case is dated 17.01.2017. On
this date, the Managing Director of the appellant was certainly not aware that
Shri Khan could not be appointed by him as Section 12(5) read with the
Seventh Schedule only went to the invalidity of the appointment of the
Managing Director himself as an arbitrator. Shri Khan's invalid appointment
only became clear after the declaration of the law by the Supreme Court in TRF
Ltd. (supra) which, as we have seen hereinabove, was only on
03.07.2017. After this date, far from there being an express agreement between
the parties as to the validity of Shri Khan's appointment, the appellant filed an
application on 07.10.2017 before the sole arbitrator, bringing the arbitrator's
attention to the judgment in TRF Ltd. (supra) and asking him to declare that he
has become de jure incapable of acting as an arbitrator. Equally, the fact that a
statement of claim may have been filed before the arbitrator, would not mean
that there is an express agreement in words which would make it clear that both
parties wish Shri Khan to continue as arbitrator despite being ineligible to act as
such. This being the case, the impugned judgment is not correct when it
applies Section 4, Section 7, Section 12(4), Section 13(2), and Section 16(2) of
the Act to the facts of the present case, and goes on to state that the appellant
cannot be allowed to raise the issue of eligibility of an arbitrator, having itself
appointed the arbitrator. The judgment under appeal is also incorrect in stating
that there is an express waiver in writing from the fact that an appointment
letter has been issued by the appellant, and a statement of claim has been filed
by the respondent before the arbitrator. The moment the appellant came to
know that Shri Khan's appointment itself would be invalid, it filed an
application before the sole arbitrator for termination of his mandate.
27. In Ellora Paper Mills Limited vs. State of Madhya
Pradesh 9, the Apex Court relying on Bharat Broadband Network
Limited (supra) held that Arbitral Tribunal comprising of the officers of
one of the parties is ineligible to continue as such. Even then, Arbitral
Tribunal constituted on 06.11.2020 i.e. prior to the amendment Act 2015
coming into force. The Apex Court also considered non-commencement
of arbitral proceedings by constituting Arbitral Tribunal and neutrality of
the arbitrator. With the said findings, the Apex Court set aside the order
passed by the High Court and held that the earlier arbitral tribunal
consisting of purchase committee, has lost its mandate by operation of
law in view of Section 12(5) and 7th Schedule of the Act. With the said
findings, the Apex Court set aside the order passed by the High Court.
Appointment of Arbitral Tribunal during pendency of the proceedings
under Section 11(6) is of no consequence and appointment must be made
under Section 11(6) of the Act.
28. In Datar Switchgears Ltd. vs. Tata Finance Ltd. 10, the Apex
Court held that appointment of Arbitrator was made before filing of an
(2022) 3 SCC 1
(2000) 8SCC 151
application under Section 11(6) of the Act but the said appointment
cannot made beyond 30 days. On considering the said facts, the Apex
Court held that the appointment before an application under Section
11(6) of the Act was filed though it was beyond 30days from the date of
appointment of Arbitrator is valid and it cannot be said that the right was
forfeited after expiry of 30days from the date of admission.
29. In Deep Trading Company vs. Indian Oil Company 11,
relying on the principle laid down in Datar switchgears Ltd.(supra), on
considering the fact that the Arbitrator was appointed only during the
pendency of the proceedings under Section 11(6) of the Act, such
appointment after forfeiture of its right is of no consequence and has not
disentitled the party seeking appointment of arbitrator under Section
11(6) of the Act. Section 12(5) of the Act disqualifies the ineligible
arbitrator to nominate another person as an arbitrator. In TRF Ltd. vs.
Energo Engineering Projects Ltd. 12, the Apex Court held that once
name of arbitrator becomes ineligible by operation of law i.e. by virtue of
2015 amendment to Act, 1996, he cannot nominate another person as an
(2013) 4 SCC 35
(2017) 8 SCC 377
arbitrator. Once the identity of Managing Director as sole arbitrator was
lost, his power to nominate someone else as an arbitrator is also lost.
30. The Apex Court further held that waiver under Section 12(5) of
the Act read with Schedules 5 and 7 of Amendment Act, 2015, waiver
can only take place subsequent to dispute having arisen between the
parties and said waiver must be by an express agreement in writing. The
following issues fell for consideration before the Apex Court:-
1. Whether once the person who was required to arbitrate upon the
disputes arisen under the terms and conditions of the contract becomes
ineligible by operation of law, he would not be eligible to nominate a
person as an arbitrator, i.e. whether the Managing Director of the
respondent, who had become ineligible to act as an arbitrator subsequent
to the Arbitration and Conciliation (Amendment) Act, 2015, could not
have also nominated any other person as arbitrator?
2. Whether challenge to an appointment of arbitrator nominated by
Managing Director, under could only be made before the Arbitral
Tribunal or the same could be raised before the court in application
preferred under Section 11(6) of the Act.
The Apex Court held that clause No.33(c) of the GTCPO clearly
postulates that if the dispute cannot be settled by negotiation, it has to be
determined under the Act, as amended. Therefore, the amended
provisions do apply. Section 12(5) (as amended) commences with a non-
obstante clause. It categorically lays down that if a person whose
relationship with the parties or the counsel or the subject matter of
dispute falls under any of the categories specified in the Seventh
Schedule, he shall be ineligible to be appointed as an arbitrator. There is
a qualifier which indicates that parties may, subsequent to the disputes
arisen between them, waive the applicability by express agreement in
writing. The qualifier finds place in the proviso appended to Section
12(5) of the Act. On a careful scrutiny of the proviso, it is discernible that
there are fundamentally three components, namely, the parties can waive
the applicability of the sub-section, the said waiver can only take place
subsequent to dispute having arisen between the parties, and such waiver
must be by an express agreement in writing.
31. It is not in dispute that the Managing Director, by virtue of the
amended provision that was introduced Section 12(5), had enumerated
the disqualification in the Seventh Schedule. It has to be clarified here
that the agreement had been entered into before the amendment came
into force. The procedure for appointment was thus, agreed upon.
32. In Perkins Eastman Architecture DPC (supra) in paragraph
No.20, the Apex Court held-
20. We thus have two categories of cases. The first, similar to the one dealt
with in TRF Ltd, where the Managing Director himself is named as an
arbitrator with an additional power to appoint any other person as an arbitrator.
In the second category, the Managing Director is not to act as an arbitrator
himself but is empowered or authorised to appoint any other person of his
choice or discretion as an arbitrator. If, in the first category of cases thع
Managing Director was found incompetent, it was because of the interest that
he would be said to be having in the outcome of result of the dispute. The
element of invalidity would thus be directly relatable to and arise from the
interest that he would be having in such outcome or decision. If that be the test,
simila invalidity would always arise and spring even in the second category of
cases If the interest that he has in the outcome of the dispute, is taken to be the
basis for the possibility of bias, it will always be present irrespective of whether
the matter stands under the first or second category of cases. We are conscious
that if such deduction is drawn from the decision of this Court in TRF-
Ltd(supra). all cases having clauses similar to that with which we are presently
concerned, 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.
33. As discussed supra, vide order dated 12.03.2020 in Tantiya
(supra), Calcutta High Court referring to Section 12(5) and 7th
Schedule of the Act and also relying on the principles laid down by the
Apex Court in Datar (supra) and Punj (supra) appointed independent
arbitrators under Section 11(6) of the Act. The same was confirmed by
the Apex Court vide order dated 11.01.2021 in SLP No.12670 of 2020.
The same was followed by Delhi High Court in Margo Networks
Pvt.Ltd (supra), Overnite Express Limited vs. Delhi Metro Rail
Corporation 13, Steelman Telecom Ltd. vs. Power Grid
Corporation of India Ltd. 14
34. In the order dated 24.08.2023 in RCM Cargo Mover &
Company vs. Union of India 15, relied upon by respondent Railways,
the decision of Tantiya (supra) was not brought to the notice of this
Court and the same was not considered.
35. However, in the present case, the appointment of Arbitrator
was made after the notice seeking appointment of Arbitrator and
subsequently after filing of Application under Section 11(6) of the Act.
36. As discussed supra, there are disputes between the applicant
and respondents. There is no explicit agreement under Section 12(5) of
the Act. the Applicant did not accept for the waiver of the said clause.
The present application under Section 11(6) of the Act was filed on
08.10.2020 and the respondent had constituted the Arbitral Tribunal on
06.11.2020, i.e. after 143 days from the date of issuance of notice
(2022) DHC 3146
(2023) SCC OnLine Del. 4849
Arbitration Application No.96 of 2022 of the High Court of Telangana
invoking arbitration clause and during pendency of the present
application. Therefore, the said disputes have to be adjudicated by
sole arbitrator to be appointed by this Court.
37. In light of the aforesaid discussion and the law laid down by
the Apex Court, the present arbitration application is allowed.
Accordingly, Sri C. Hare Krishna Bhupathi, Retired District Judge,
Flat No.203, Laxmi Residency, Road No.9, New Nagole Colony, Ranga
Reddy District, is appointed as sole Arbitrator to adjudicate the disputes
between the parties.
Consequently, miscellaneous petitions, if any, pending in this
Arbitration Application shall stand closed.
_________________________
JUSTICE K. LAKSHMAN
Date:15.03.2024
Note: Issue copy forthwith.
b/o. VVR.
