In terms of Section 12(5) of the Arbitration and Conciliation (Amendment) Act, 2015 read with Schedule VII to the Act, any employee of a party to the arbitration proceeding is ineligible for being appointed as an arbitrator.
IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment delivered on: 19.12.2016
ARB.P. 159/2016
MADHAVA HYTECH-RANI (JV)
V
IRCON INTERNATIONAL LIMITED
CORAM
HON’BLE MR JUSTICE VIBHU BAKHRU
1. Madhava Hytech-Rani (JV) (hereafter ‘Madhava’) has filed the present
petition under Section 11 of the Arbitration and Conciliation Act, 1996
(hereafter ‘the Act’) for appointment of a sole Arbitrator to adjudicate the
disputes that have arisen between the parties in connection with a contract
dated 05.12.2007.
2. The Respondent, IRCON International Ltd. (hereafter ‘IRCON’),
opposes the present petition principally on the ground that an earlier petition
filed by Madhava for similar reliefs was dismissed and therefore, one of the
persons - who are employees of IRCON - is to be appointed as an arbitrator.
3. The aforesaid controversy arises in the context of the following facts:
3.1 IRCON invited bids for the work of 'improvement and up-gradation of
existing road of state highways into 2 lanes road from Laheriasarai (Ch-0.000
Km.) to Hanuman Nagar (Ch-16.471 Km.) in Darbhanga District of 16.471
Km. length' (hereafter 'the work'). Madhava having submitted the lowest
tender was issued a Letter of Intent on 30.10.2007. Thereafter, Madhava and
IRCON signed the Contract on 05.12.2007 (hereafter 'the Contract') for
execution of the works. The Contract was required to be completed by
29.10.2009.
3.2 Clause 72 of the Contract provided for the settlement of disputes by
arbitration, the relevant extract of which is set out below:
“72.0 SETTLEMENT OF DISPUTES
All disputes or differences of any kind whatsoever
that may arise between the Employer /Engineer and
the Contractor in connection with or arising out of the
contract or subject matter thereof or the execution of
works, whether during the progress of works or after
their completion, whether before or after
determination of-contract shall be settled as under:-
72.1 Mutual settlement
All such disputes or differences shall in the first
place be referred by the Contractor to the
Employer in writing for resolving the same
through mutual discussions, negotiations,
deliberation etc. associating representatives from
both the sides and concerted efforts shall be
made for reaching amicable settlement of
disputes or differences.
72.2 Conciliation/Arbitration
72.2.1 It is a term of this contract that
Conciliation/Arbitration of disputes shall not be
commenced unless an attempt has first been
made by the parties to settle such disputes
through mutual settlement.
72.2.2 If the Contractor is not satisfied with the
settlement by the Employer on any matter in
question, disputes or differences, the Contractor
may refer to the Managing Director of the
Employer in writing to settle such disputes or
differences, through Conciliation or Arbitration
provided that the demand for Conciliation or
Arbitration shall specify the matters, which are
in question or subject of the disputes or
differences as also the amount of claim, item
wise. Only such dispute (s) or difference {s) in
respect of which the demand has been made,
together with counter claims of the Employer
shall be referred to Conciliator or Arbitrator as
the case may be and other matters shall not be
included in the reference.
72.2.3 Managing Director of the Employer may
himself act as Sole Conciliator/Sole Arbitrator or
may at his option appoint another person as Sole
Conciliator or Sole Arbitrator, as the case may
be. In case, Managing Director of the Employer
decides to appoint a Sole Conciliator/Sole
Arbitrator, then a panel of atleast three names
will be sent to the Contractor. Such persons may
be working-/retired employees of the Employer
.who had not been connected with the work. The
Contractor shall suggest minimum two names
out of this panel for appointment of Sole
Conciliator/ Sole Arbitrator. Managing Director
of the Employer will appoint Sole Conciliator/
Sole Arbitrator out of the names agreed by the
Contractor.
72.2.4 In case, the Contractor opts for settlement of
disputes through Conciliation at first stage and if
the efforts to resolve all or any of the disputes
thorough Conciliation fails, the Contractor may
refer to the Managing Director of the Employer
for settlement of such disputes or differences
through Arbitration. The appointment of Sole
Arbitrator shall be done by the Managing
Director of the Employer as per the procedure
described above. No disputes or differences shall
be referred to Arbitration after expiry of 60 days
from the date of notification of failure of
Conciliation.
72.2.5 The Conciliation and/or Arbitration
proceedings shall be governed by the provisions
of the Indian Arbitration and Conciliation Act
1996 or any statutory modification or reenactment
thereof and the rules made thereunder
and for the time being in force shall apply to the
conciliation and arbitration proceedings under
this clause.”
3.3 According to Madhava, it faced several difficulties on the work site -
all attributable to IRCON - which delayed the execution of the work. This
led Madhava to invoke the arbitration clause and seek appointment of an
arbitrator to adjudicate disputes regarding idling of machinery due to nonutilization
of equipment, unprecedented price rise, etc. on 04.04.2009.
Thereafter, on 29.05.2010, Madhava made representations to IRCON for
release of pending amounts, followed by another representation reiterating
its demand for appointment of an arbitrator.
3.4 By a communication dated 22.07.2010, IRCON advised Madhava to
resort to resolution of disputes by mutual settlement in terms of its earlier
letter dated 27.04.2009. According to Madhava, it had not received the
letter dated 27.04.2009; this was subsequently provided to Madhava on
04.08.2010, on its request. Madhava, by a communication dated
10.09.2010, sent a contract-wise statement of the disputes and requested
for an amicable settlement of disputes.
3.5 In the meanwhile, IRCON at the request of Madhava extended the
time for completion of the work till 31.12.2010 by its letter dated
29.06.2010.
3.6 On 15.09.2010, IRCON issued a letter to Madhava wherein it
granted a week’s time to Madhava to remedy the manner of execution of
the Contract. Madhava sent a letter dated 20.09.2010, seeking release of
the pending bills. In response to Madhava’s letter dated 10.09.2010,
IRCON by its letter dated 22.09.2010, summarily rejected the claims of
Madhava without any discussion or negotiation. Thereafter, by letter dated
27.09.2010, IRCON terminated the Contract and proceeded to invoke the
bank guarantees (hereafter ‘BGs’) furnished by Madhava.
3.7 Subsequent to the encashment of the BGs, IRCON by its letter dated
31.03.2012 asked Madhava to intimate the balance confirmation of the
dues owed by IRCON within 15 days, failing which, the amount estimated
by IRCON would be presumed to be correct. Madhava states that as per the
records of IRCON, the balance amount payable was `1,42,51,172/-.
Madhava by its letter dated 07.08.2012 sought certified copies of the
running account bills and copies of the Measurement Books for the work
done in order to finalize and communicate the balance confirmation as
asked for by IRCON. The said letter was followed by another reminder,
however, IRCON did not send a response to the same. This led Madhava to
once again invoke the arbitration by its letter dated 27.10.2012.
3.8 As Madhava received no response from IRCON to the aforesaid
letter dated 27.10.2012, it approached this Court by filing a petition under
Section 11 of the Act for appointment of an arbitrator (in ARB.P. no.
470/2013).
3.9 Before this Court, IRCON placed a letter dated 11.02.2013 sent in
response to Madhava’s letter dated 27.10.2012, whereby IRCON had
suggested names of three of its employees and called upon Madhava to
select two of them so that IRCON could appoint one of the two to act as an
arbitrator. Before this Court, Madhava contended that since all the
suggested persons were employees of IRCON, it did not believe that they
would render an impartial and fair decision. By an order dated 02.04.2014,
this court observed that in terms of the arbitration clause, Madhava had
agreed that the sole arbitrator may be a working or a retired employee of
IRCON and rejected the petition with the liberty granted to Madhava to
respond to the letter dated 11.02.2013 sent by IRCON. The relevant extract
of the said order is set out below:-
" 3.From the aforesaid, it would appear that the petitioner
sought to deviate from the procedure agreed between the
parties for constitution of the Arbitral Tribunal. Notice
was issued in this petition to the respondents, who have
filed their reply. Along with the reply, the respondents
have placed on record the communication stated to have
been issued to the petitioner on 11.02.2013 in response to
the petitioner's communication of 27.10.2012. The
respondents sought to act in terms of Clause 72.2.3 by
suggesting three names to the petitioner, one of whom
could act as an Arbitrator. The petitioner was called upon
to suggest two names from the said panel, one of whom
could be appointed as the Arbitrator. A copy of this
communication along with the courier receipt has been
placed on record.
7 In my view, this apprehension of the petitioner, at this
stage, has no merit. The petitioner agreed to resolution of
disputes through arbitration by an Arbitrator appointed by
the respondent, and also agreed that the Arbitrator may be
a working/ retired employee of the respondent. The
agreement provides that the Arbitrator not be connected
with the work in question. It is not the petitioner's case
that any or all the three names suggested by the
respondent were, in any way, connected with the work
assigned to the petitioner under the contract. In any event,
it shall be open to the petitioner to raise its pleas in
arbitration under Sections 12 and 13 before the Arbitral
Tribunal.
8. Accordingly, I find no merit in this petition and the same
is dismissed. It is open to the petitioner to respond to the
respondent's letter dated 11.01.2013."
3.10 Thereafter, Madhava sought to appeal against the said decision
before the Supreme Court by filing a Special Leave Petition, being S.L.P.
(Civil) no. 14528/2014. The Supreme Court rejected the same. A review
petition filed by Madhava against the order dated 02.04.2014 was also
dismissed.
3.11 Madhava by a letter dated 15.01.2016, requested IRCON for the
appointment of an arbitrator. The said letter was followed by another letter
sent by Madhava on 25.01.2016, whereby Madhava intimated IRCON that
the names on the panel forwarded by it were not eligible for appointment as
arbitrators inasmuch as they were disqualified from being appointed as
arbitrators on account of their employment with IRCON. IRCON did not
respond to the aforesaid letter and therefore Madhava has filed the present
petition seeking appointment of an arbitral tribunal.
Submissions
4. Mr Nandan Kumar, learned counsel appearing for IRCON submitted
that the decision of this Court in Arb.P. 470/2013, which was the earlier
petition filed by Madhava under Section 11 of the Act, had become final;
therefore, Madhava was bound to choose two names out of the three
names forwarded by IRCON for being appointed as an arbitrator. He
earnestly contended that it was not open for Madhava to re-agitate the
same issues as were considered by this Court while dismissing Madhava’s
earlier application under Section 11 of the Act. He stated that IRCON was
ready and willing to appoint one of the two arbitrators as chosen by
Madhava from the panel as suggested by IRCON.
5. Dr Amit George, learned counsel appearing for Madhava referred to
the letter dated 11.02.2013 and pointed out that all the three persons
suggested by IRCON to act as arbitrators were serving employees of
IRCON and, therefore, were ineligible for being appointed as an arbitrator.
He further submitted that the present petition could not be rejected on the
principle of res judicata because the decision of this Court in the petition
filed earlier by Madhava (Arb.P.470/2013) was rendered in the context of
the un-amended Act and the provisions of Arbitration and Conciliation
(Amendment) Act, 2015 (hereafter 'the Amendment Act’) were not in
issue. He also referred to the decision of the Supreme Court in Shakuntla
Devi v. Kamla &Ors.: (2005) 5 SCC 390 in support of his contention.
Reasoning and Conclusion
6. At the outset, it is necessary to observe that there has been a
considerable delay on the part of Madhava to respond to the IRCON’s
letter dated 11.02.2013. Madhava’s petition (Arb.P.470/2013) was
dismissed by this Court on 02.04.2014 and the Special Leave Petition
preferred against the said order was also dismissed on 04.07.2014. The
Review Petition filed by Madhava was also rejected by this Court on
21.11.2014. However, Madhava responded to IRCON’s letter dated
11.02.2013 only on 15.01.2016, which is almost two years after this Court
had dismissed Madhava’s earlier petition. However, Mr Kumar, learned
counsel for IRCON did not press any objections on account of Madhava’s
delay in responding to IRCON’s letter dated 11.02.2013; on the contrary,
he stated that IRCON was ready and willing to appoint any arbitrator from
the names as suggested by it in its letter dated 11.02.2013.
7. Thus, the only questions that arise for consideration are (i) whether
any of the persons named by IRCON in the letter dated 11.02.2013 could
be appointed as Arbitrators? and (ii) whether Madhava is precluded from
approaching this Court on account of dismissal of its earlier petition?
8. It is relevant to note that in terms of clause 72.2.5 of the Contract,
the parties had expressly agreed that arbitration proceedings would be
governed by the Act or “any statutory modification or re-enactment”.
9. The Amendment Act has introduced significant and material
amendments in the Act. Section 12(1) and Section 12(5) of the Act (as
amended) are relevant and read as under:-
"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 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.”
(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 subsection
by an express agreement in writing."
10. In terms of Section 12(5) of the Act read with Schedule VII to the
Act, any employee of a party to the arbitration proceeding is ineligible for
being appointed as an arbitrator. Thus, none of the three persons as
suggested by IRCON are eligible for being appointed as an arbitrator under
the Act, as amended by virtue of the Amendment Act. This was also fairly
conceded by Mr Kumar.
11. The next issue to be addressed is whether the amendments
introduced by the Amendment Act would be applicable in this case.
Admittedly, the arbitration clause was invoked by Madhava prior to
23.10.2015 - the date on which the Amendment Act came into force;
therefore, by virtue of Section 26 of the Amendment Act, the amendments
to the Act would not be applicable to the arbitral proceedings in this case,
unless the parties had agreed otherwise. Section 26 of the Amendment Act
is relevant and is set out below:-
"26. Act not to apply to pending arbitral proceedings. -
Nothing contained in this Act shall apply to the arbitral
proceedings commenced, in accordance with the provisions
of section 21 of the principal Act, before the commencement
of this Act unless the parties otherwise agree but this Act
shall apply in relation to arbitral proceedings commenced on
or after the date of commencement of this Act."
12. Having stated the above, it is relevant to observe that in the present
case, the parties had specifically agreed that the arbitration proceedings
would be governed by the Act or any statutory modification or any reenactment
thereof. Thus, the present case falls within the exception as
provided under Section 26 of the Amendment Act as the parties have
expressly agreed that any statutory modification to the Act would be
applicable. Therefore, the Amendment Act would apply to the arbitral
proceedings in this case.
13. In view of the aforesaid, Madhava had, by its letter dated
25.01.2016, requested IRCON to nominate a neutral arbitrator since the
names as suggested by IRCON in its letter dated 11.02.2013 were
ineligible for being appointed as arbitrators. The relevant extract of the said
letter is set out below:
"5. We were offered to suggest two names amongst the
following names for the appointment of arbitrator by
IRCON International limited vide letter cited under
reference no.l. However, since all the suggested names are
serving employees of your organization they do not qualify
or appointment as arbitrators as per the amended
Arbitration and 'Conciliation Act 1996 which is in force
now.
6. We have here below reproduced the section 12 (5) of
Arbitration and Conciliation Act 1996,
"Section 12(5): Notwithstanding any prior agreement to
the contrary, any person whose relationship, With the
parties or counsel or the subject-matter of dispute, falls
under any of the categories specified in the Seventh
Schedule shall be ineligible to be appointed as an
arbitrator.
PROVIDED that the parties may, subsequent to disputes
having arisen between them waive the applicability of this
sub-section by an express agreement in writing."
As per serial no. 1 of Seventh Schedule of Arbitration and
Conciliation Act 1996 "The arbitrator is an employee,
consultant, advisor or has any other past or present
business relationship with the party." Further, as per serial.
no.1 of the Fifth Schedule of Arbitration and Conciliation
Act, 1996 (he grounds give rise to justifiable doubts as to
the independence or impartiality of arbitrators), "The
arbitrator is an employee, consultant, adviser or has any
other past or present business relationship with the party".
From the above it is clear the appointment of any of the
above persons suggested by you is not in consonance with
and is impermissible as per the Arbitration and
Conciliation Act, 1996.
In light of the aforesaid facts and circumstances, we
hereby request IRCON International Limited to consider
the above, and nominate a neutral arbitrator further to
which we also shall nominate a neutral arbitrator
immediately on hearing from you, without wasting any
time, and both of the appointed arbitrator can thereafter
select a presiding arbitrator and thereby constitute the
arbitral tribunal..."
14. Admittedly, IRCON failed to respond to the said request. In the
aforesaid circumstances, an independent arbitrator is required to be
appointed in this case. The only question that remains is whether Madhava
is entitled to approach this Court under Section 11 of the Act considering
its earlier petition had been dismissed.
15. The earlier petition had been dismissed prior to the enactment of the
Amendment Act. At the material time, if the parties agreed, an employee
of a party to the arbitral proceedings could be appointed as an arbitrator.
The said law no longer holds good as Section 12(5) of the Act begins with
a non obstante clause and notwithstanding any prior agreement between
the parties, a person who is related to a party as specified in Seventh
Schedule to the Act would be ineligible for being appointed as an
arbitrator. This issue was not before the Court while considering
Madhava’s earlier petition and, therefore, Madhava cannot be precluded
from approaching this Court in view of the substantive change in the law.
16. In Mathura Prasad Bajoo Jaiswal and Ors. v. Dossibai N.B.
Jeejeebhoy: (1970) 1 SCC 613, the Supreme Court had held as under:-
“7. Where the law is altered since the earlier decision, the
earlier decision will not operate as res judicata between the
same parties: Tarini Charan Bhattacharjee case. It is
obvious that the matter in issue in a subsequent proceeding
is not the same as in the previous proceeding, because the
law interpreted is different.”
17. In view of the principle as explained by the Supreme Court above,
the present petition cannot be rejected solely on the ground that Madhava’s
earlier petition had been dismissed.
18. Before concluding, it is also necessary to observe that Madhava
would always have the right to challenge the appointment of an arbitrator
under Section 12 of the Act notwithstanding that it has participated in the
appointment of the arbitrator. Therefore, even if IRCON’s contention is
accepted that only one of the three persons named must be appointed as an
arbitrator - which this Court does not concur with - Madhava would prevail
in its challenge to that appointment as it is not disputed that arbitrator as
appointed would be ineligible to act as such. Thus, it is difficult to
understand IRCON's resistance for appointment of an independent and a
neutral arbitrator.
19. In view of the above, the present petition is allowed. Justice Sunita
Gupta, Former Judge of Delhi High Court, (Mobile No.9910384628) is
appointed as the Sole Arbitrator to adjudicate the disputes between the
parties. This is subject to the Arbitrator making the necessary disclosure
under Section 12 of the Act and further not being ineligible under Section
12(5) of the Act. The fees of the Arbitrator shall be in accordance with
Schedule IV to the Act.
20. The petition stands disposed of.
VIBHU BAKHRU, J
DECEMBER 19, 2016
Print Page
IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment delivered on: 19.12.2016
ARB.P. 159/2016
MADHAVA HYTECH-RANI (JV)
V
IRCON INTERNATIONAL LIMITED
CORAM
HON’BLE MR JUSTICE VIBHU BAKHRU
1. Madhava Hytech-Rani (JV) (hereafter ‘Madhava’) has filed the present
petition under Section 11 of the Arbitration and Conciliation Act, 1996
(hereafter ‘the Act’) for appointment of a sole Arbitrator to adjudicate the
disputes that have arisen between the parties in connection with a contract
dated 05.12.2007.
2. The Respondent, IRCON International Ltd. (hereafter ‘IRCON’),
opposes the present petition principally on the ground that an earlier petition
filed by Madhava for similar reliefs was dismissed and therefore, one of the
persons - who are employees of IRCON - is to be appointed as an arbitrator.
3. The aforesaid controversy arises in the context of the following facts:
3.1 IRCON invited bids for the work of 'improvement and up-gradation of
existing road of state highways into 2 lanes road from Laheriasarai (Ch-0.000
Km.) to Hanuman Nagar (Ch-16.471 Km.) in Darbhanga District of 16.471
Km. length' (hereafter 'the work'). Madhava having submitted the lowest
tender was issued a Letter of Intent on 30.10.2007. Thereafter, Madhava and
IRCON signed the Contract on 05.12.2007 (hereafter 'the Contract') for
execution of the works. The Contract was required to be completed by
29.10.2009.
3.2 Clause 72 of the Contract provided for the settlement of disputes by
arbitration, the relevant extract of which is set out below:
“72.0 SETTLEMENT OF DISPUTES
All disputes or differences of any kind whatsoever
that may arise between the Employer /Engineer and
the Contractor in connection with or arising out of the
contract or subject matter thereof or the execution of
works, whether during the progress of works or after
their completion, whether before or after
determination of-contract shall be settled as under:-
72.1 Mutual settlement
All such disputes or differences shall in the first
place be referred by the Contractor to the
Employer in writing for resolving the same
through mutual discussions, negotiations,
deliberation etc. associating representatives from
both the sides and concerted efforts shall be
made for reaching amicable settlement of
disputes or differences.
72.2 Conciliation/Arbitration
72.2.1 It is a term of this contract that
Conciliation/Arbitration of disputes shall not be
commenced unless an attempt has first been
made by the parties to settle such disputes
through mutual settlement.
72.2.2 If the Contractor is not satisfied with the
settlement by the Employer on any matter in
question, disputes or differences, the Contractor
may refer to the Managing Director of the
Employer in writing to settle such disputes or
differences, through Conciliation or Arbitration
provided that the demand for Conciliation or
Arbitration shall specify the matters, which are
in question or subject of the disputes or
differences as also the amount of claim, item
wise. Only such dispute (s) or difference {s) in
respect of which the demand has been made,
together with counter claims of the Employer
shall be referred to Conciliator or Arbitrator as
the case may be and other matters shall not be
included in the reference.
72.2.3 Managing Director of the Employer may
himself act as Sole Conciliator/Sole Arbitrator or
may at his option appoint another person as Sole
Conciliator or Sole Arbitrator, as the case may
be. In case, Managing Director of the Employer
decides to appoint a Sole Conciliator/Sole
Arbitrator, then a panel of atleast three names
will be sent to the Contractor. Such persons may
be working-/retired employees of the Employer
.who had not been connected with the work. The
Contractor shall suggest minimum two names
out of this panel for appointment of Sole
Conciliator/ Sole Arbitrator. Managing Director
of the Employer will appoint Sole Conciliator/
Sole Arbitrator out of the names agreed by the
Contractor.
72.2.4 In case, the Contractor opts for settlement of
disputes through Conciliation at first stage and if
the efforts to resolve all or any of the disputes
thorough Conciliation fails, the Contractor may
refer to the Managing Director of the Employer
for settlement of such disputes or differences
through Arbitration. The appointment of Sole
Arbitrator shall be done by the Managing
Director of the Employer as per the procedure
described above. No disputes or differences shall
be referred to Arbitration after expiry of 60 days
from the date of notification of failure of
Conciliation.
72.2.5 The Conciliation and/or Arbitration
proceedings shall be governed by the provisions
of the Indian Arbitration and Conciliation Act
1996 or any statutory modification or reenactment
thereof and the rules made thereunder
and for the time being in force shall apply to the
conciliation and arbitration proceedings under
this clause.”
3.3 According to Madhava, it faced several difficulties on the work site -
all attributable to IRCON - which delayed the execution of the work. This
led Madhava to invoke the arbitration clause and seek appointment of an
arbitrator to adjudicate disputes regarding idling of machinery due to nonutilization
of equipment, unprecedented price rise, etc. on 04.04.2009.
Thereafter, on 29.05.2010, Madhava made representations to IRCON for
release of pending amounts, followed by another representation reiterating
its demand for appointment of an arbitrator.
3.4 By a communication dated 22.07.2010, IRCON advised Madhava to
resort to resolution of disputes by mutual settlement in terms of its earlier
letter dated 27.04.2009. According to Madhava, it had not received the
letter dated 27.04.2009; this was subsequently provided to Madhava on
04.08.2010, on its request. Madhava, by a communication dated
10.09.2010, sent a contract-wise statement of the disputes and requested
for an amicable settlement of disputes.
3.5 In the meanwhile, IRCON at the request of Madhava extended the
time for completion of the work till 31.12.2010 by its letter dated
29.06.2010.
3.6 On 15.09.2010, IRCON issued a letter to Madhava wherein it
granted a week’s time to Madhava to remedy the manner of execution of
the Contract. Madhava sent a letter dated 20.09.2010, seeking release of
the pending bills. In response to Madhava’s letter dated 10.09.2010,
IRCON by its letter dated 22.09.2010, summarily rejected the claims of
Madhava without any discussion or negotiation. Thereafter, by letter dated
27.09.2010, IRCON terminated the Contract and proceeded to invoke the
bank guarantees (hereafter ‘BGs’) furnished by Madhava.
3.7 Subsequent to the encashment of the BGs, IRCON by its letter dated
31.03.2012 asked Madhava to intimate the balance confirmation of the
dues owed by IRCON within 15 days, failing which, the amount estimated
by IRCON would be presumed to be correct. Madhava states that as per the
records of IRCON, the balance amount payable was `1,42,51,172/-.
Madhava by its letter dated 07.08.2012 sought certified copies of the
running account bills and copies of the Measurement Books for the work
done in order to finalize and communicate the balance confirmation as
asked for by IRCON. The said letter was followed by another reminder,
however, IRCON did not send a response to the same. This led Madhava to
once again invoke the arbitration by its letter dated 27.10.2012.
3.8 As Madhava received no response from IRCON to the aforesaid
letter dated 27.10.2012, it approached this Court by filing a petition under
Section 11 of the Act for appointment of an arbitrator (in ARB.P. no.
470/2013).
3.9 Before this Court, IRCON placed a letter dated 11.02.2013 sent in
response to Madhava’s letter dated 27.10.2012, whereby IRCON had
suggested names of three of its employees and called upon Madhava to
select two of them so that IRCON could appoint one of the two to act as an
arbitrator. Before this Court, Madhava contended that since all the
suggested persons were employees of IRCON, it did not believe that they
would render an impartial and fair decision. By an order dated 02.04.2014,
this court observed that in terms of the arbitration clause, Madhava had
agreed that the sole arbitrator may be a working or a retired employee of
IRCON and rejected the petition with the liberty granted to Madhava to
respond to the letter dated 11.02.2013 sent by IRCON. The relevant extract
of the said order is set out below:-
" 3.From the aforesaid, it would appear that the petitioner
sought to deviate from the procedure agreed between the
parties for constitution of the Arbitral Tribunal. Notice
was issued in this petition to the respondents, who have
filed their reply. Along with the reply, the respondents
have placed on record the communication stated to have
been issued to the petitioner on 11.02.2013 in response to
the petitioner's communication of 27.10.2012. The
respondents sought to act in terms of Clause 72.2.3 by
suggesting three names to the petitioner, one of whom
could act as an Arbitrator. The petitioner was called upon
to suggest two names from the said panel, one of whom
could be appointed as the Arbitrator. A copy of this
communication along with the courier receipt has been
placed on record.
7 In my view, this apprehension of the petitioner, at this
stage, has no merit. The petitioner agreed to resolution of
disputes through arbitration by an Arbitrator appointed by
the respondent, and also agreed that the Arbitrator may be
a working/ retired employee of the respondent. The
agreement provides that the Arbitrator not be connected
with the work in question. It is not the petitioner's case
that any or all the three names suggested by the
respondent were, in any way, connected with the work
assigned to the petitioner under the contract. In any event,
it shall be open to the petitioner to raise its pleas in
arbitration under Sections 12 and 13 before the Arbitral
Tribunal.
8. Accordingly, I find no merit in this petition and the same
is dismissed. It is open to the petitioner to respond to the
respondent's letter dated 11.01.2013."
3.10 Thereafter, Madhava sought to appeal against the said decision
before the Supreme Court by filing a Special Leave Petition, being S.L.P.
(Civil) no. 14528/2014. The Supreme Court rejected the same. A review
petition filed by Madhava against the order dated 02.04.2014 was also
dismissed.
3.11 Madhava by a letter dated 15.01.2016, requested IRCON for the
appointment of an arbitrator. The said letter was followed by another letter
sent by Madhava on 25.01.2016, whereby Madhava intimated IRCON that
the names on the panel forwarded by it were not eligible for appointment as
arbitrators inasmuch as they were disqualified from being appointed as
arbitrators on account of their employment with IRCON. IRCON did not
respond to the aforesaid letter and therefore Madhava has filed the present
petition seeking appointment of an arbitral tribunal.
Submissions
4. Mr Nandan Kumar, learned counsel appearing for IRCON submitted
that the decision of this Court in Arb.P. 470/2013, which was the earlier
petition filed by Madhava under Section 11 of the Act, had become final;
therefore, Madhava was bound to choose two names out of the three
names forwarded by IRCON for being appointed as an arbitrator. He
earnestly contended that it was not open for Madhava to re-agitate the
same issues as were considered by this Court while dismissing Madhava’s
earlier application under Section 11 of the Act. He stated that IRCON was
ready and willing to appoint one of the two arbitrators as chosen by
Madhava from the panel as suggested by IRCON.
5. Dr Amit George, learned counsel appearing for Madhava referred to
the letter dated 11.02.2013 and pointed out that all the three persons
suggested by IRCON to act as arbitrators were serving employees of
IRCON and, therefore, were ineligible for being appointed as an arbitrator.
He further submitted that the present petition could not be rejected on the
principle of res judicata because the decision of this Court in the petition
filed earlier by Madhava (Arb.P.470/2013) was rendered in the context of
the un-amended Act and the provisions of Arbitration and Conciliation
(Amendment) Act, 2015 (hereafter 'the Amendment Act’) were not in
issue. He also referred to the decision of the Supreme Court in Shakuntla
Devi v. Kamla &Ors.: (2005) 5 SCC 390 in support of his contention.
Reasoning and Conclusion
6. At the outset, it is necessary to observe that there has been a
considerable delay on the part of Madhava to respond to the IRCON’s
letter dated 11.02.2013. Madhava’s petition (Arb.P.470/2013) was
dismissed by this Court on 02.04.2014 and the Special Leave Petition
preferred against the said order was also dismissed on 04.07.2014. The
Review Petition filed by Madhava was also rejected by this Court on
21.11.2014. However, Madhava responded to IRCON’s letter dated
11.02.2013 only on 15.01.2016, which is almost two years after this Court
had dismissed Madhava’s earlier petition. However, Mr Kumar, learned
counsel for IRCON did not press any objections on account of Madhava’s
delay in responding to IRCON’s letter dated 11.02.2013; on the contrary,
he stated that IRCON was ready and willing to appoint any arbitrator from
the names as suggested by it in its letter dated 11.02.2013.
7. Thus, the only questions that arise for consideration are (i) whether
any of the persons named by IRCON in the letter dated 11.02.2013 could
be appointed as Arbitrators? and (ii) whether Madhava is precluded from
approaching this Court on account of dismissal of its earlier petition?
8. It is relevant to note that in terms of clause 72.2.5 of the Contract,
the parties had expressly agreed that arbitration proceedings would be
governed by the Act or “any statutory modification or re-enactment”.
9. The Amendment Act has introduced significant and material
amendments in the Act. Section 12(1) and Section 12(5) of the Act (as
amended) are relevant and read as under:-
"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 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.”
(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 subsection
by an express agreement in writing."
10. In terms of Section 12(5) of the Act read with Schedule VII to the
Act, any employee of a party to the arbitration proceeding is ineligible for
being appointed as an arbitrator. Thus, none of the three persons as
suggested by IRCON are eligible for being appointed as an arbitrator under
the Act, as amended by virtue of the Amendment Act. This was also fairly
conceded by Mr Kumar.
11. The next issue to be addressed is whether the amendments
introduced by the Amendment Act would be applicable in this case.
Admittedly, the arbitration clause was invoked by Madhava prior to
23.10.2015 - the date on which the Amendment Act came into force;
therefore, by virtue of Section 26 of the Amendment Act, the amendments
to the Act would not be applicable to the arbitral proceedings in this case,
unless the parties had agreed otherwise. Section 26 of the Amendment Act
is relevant and is set out below:-
"26. Act not to apply to pending arbitral proceedings. -
Nothing contained in this Act shall apply to the arbitral
proceedings commenced, in accordance with the provisions
of section 21 of the principal Act, before the commencement
of this Act unless the parties otherwise agree but this Act
shall apply in relation to arbitral proceedings commenced on
or after the date of commencement of this Act."
12. Having stated the above, it is relevant to observe that in the present
case, the parties had specifically agreed that the arbitration proceedings
would be governed by the Act or any statutory modification or any reenactment
thereof. Thus, the present case falls within the exception as
provided under Section 26 of the Amendment Act as the parties have
expressly agreed that any statutory modification to the Act would be
applicable. Therefore, the Amendment Act would apply to the arbitral
proceedings in this case.
13. In view of the aforesaid, Madhava had, by its letter dated
25.01.2016, requested IRCON to nominate a neutral arbitrator since the
names as suggested by IRCON in its letter dated 11.02.2013 were
ineligible for being appointed as arbitrators. The relevant extract of the said
letter is set out below:
"5. We were offered to suggest two names amongst the
following names for the appointment of arbitrator by
IRCON International limited vide letter cited under
reference no.l. However, since all the suggested names are
serving employees of your organization they do not qualify
or appointment as arbitrators as per the amended
Arbitration and 'Conciliation Act 1996 which is in force
now.
6. We have here below reproduced the section 12 (5) of
Arbitration and Conciliation Act 1996,
"Section 12(5): Notwithstanding any prior agreement to
the contrary, any person whose relationship, With the
parties or counsel or the subject-matter of dispute, falls
under any of the categories specified in the Seventh
Schedule shall be ineligible to be appointed as an
arbitrator.
PROVIDED that the parties may, subsequent to disputes
having arisen between them waive the applicability of this
sub-section by an express agreement in writing."
As per serial no. 1 of Seventh Schedule of Arbitration and
Conciliation Act 1996 "The arbitrator is an employee,
consultant, advisor or has any other past or present
business relationship with the party." Further, as per serial.
no.1 of the Fifth Schedule of Arbitration and Conciliation
Act, 1996 (he grounds give rise to justifiable doubts as to
the independence or impartiality of arbitrators), "The
arbitrator is an employee, consultant, adviser or has any
other past or present business relationship with the party".
From the above it is clear the appointment of any of the
above persons suggested by you is not in consonance with
and is impermissible as per the Arbitration and
Conciliation Act, 1996.
In light of the aforesaid facts and circumstances, we
hereby request IRCON International Limited to consider
the above, and nominate a neutral arbitrator further to
which we also shall nominate a neutral arbitrator
immediately on hearing from you, without wasting any
time, and both of the appointed arbitrator can thereafter
select a presiding arbitrator and thereby constitute the
arbitral tribunal..."
14. Admittedly, IRCON failed to respond to the said request. In the
aforesaid circumstances, an independent arbitrator is required to be
appointed in this case. The only question that remains is whether Madhava
is entitled to approach this Court under Section 11 of the Act considering
its earlier petition had been dismissed.
15. The earlier petition had been dismissed prior to the enactment of the
Amendment Act. At the material time, if the parties agreed, an employee
of a party to the arbitral proceedings could be appointed as an arbitrator.
The said law no longer holds good as Section 12(5) of the Act begins with
a non obstante clause and notwithstanding any prior agreement between
the parties, a person who is related to a party as specified in Seventh
Schedule to the Act would be ineligible for being appointed as an
arbitrator. This issue was not before the Court while considering
Madhava’s earlier petition and, therefore, Madhava cannot be precluded
from approaching this Court in view of the substantive change in the law.
16. In Mathura Prasad Bajoo Jaiswal and Ors. v. Dossibai N.B.
Jeejeebhoy: (1970) 1 SCC 613, the Supreme Court had held as under:-
“7. Where the law is altered since the earlier decision, the
earlier decision will not operate as res judicata between the
same parties: Tarini Charan Bhattacharjee case. It is
obvious that the matter in issue in a subsequent proceeding
is not the same as in the previous proceeding, because the
law interpreted is different.”
17. In view of the principle as explained by the Supreme Court above,
the present petition cannot be rejected solely on the ground that Madhava’s
earlier petition had been dismissed.
18. Before concluding, it is also necessary to observe that Madhava
would always have the right to challenge the appointment of an arbitrator
under Section 12 of the Act notwithstanding that it has participated in the
appointment of the arbitrator. Therefore, even if IRCON’s contention is
accepted that only one of the three persons named must be appointed as an
arbitrator - which this Court does not concur with - Madhava would prevail
in its challenge to that appointment as it is not disputed that arbitrator as
appointed would be ineligible to act as such. Thus, it is difficult to
understand IRCON's resistance for appointment of an independent and a
neutral arbitrator.
19. In view of the above, the present petition is allowed. Justice Sunita
Gupta, Former Judge of Delhi High Court, (Mobile No.9910384628) is
appointed as the Sole Arbitrator to adjudicate the disputes between the
parties. This is subject to the Arbitrator making the necessary disclosure
under Section 12 of the Act and further not being ineligible under Section
12(5) of the Act. The fees of the Arbitrator shall be in accordance with
Schedule IV to the Act.
20. The petition stands disposed of.
VIBHU BAKHRU, J
DECEMBER 19, 2016
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