Itd Cementation India Limited vs Konkan Railway Corporation Limited

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION IN ITS COMMERCIAL DIVISION

Commercial Arbitration Petition No. 1106 OF 2018

ITD Cementation India Ltd. ...Petitioner Versus Konkan Railway Corporation Ltd. ...Respondent

AND

Commercial Arbitration Petition No. 1107 OF 2018

ITD Cementation India Limited. ...Petitioner Versus Konkan Railway Corporation Limited. ...Respondent ----

Dr.Birendra Saraf with Mr.Raj Panchmatia, Ms.Jyoti Sinha, Mr.Himanshee Vidhani and Mr.Varun Mansinghka i/b. Khaitan & Co., for the Petitioner.

Ms.Kiran Bagalia with Subhash Gutle, Mushraf Shaikh, for the Respondent. ----- CORAM : G.S. KULKARNI, J.

Dated : 12 December 2019

Judgment:

1. These are two applications under Sections 11(6) read with Section

14(2) and 15(2) of the Arbitration and Conciliation Act,1996 (for short

'the Arbitration Act') whereby the petitioner has prayed that it be declared

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that the mandate of the "standing arbitral tribunal" constituted under the

agreement between the parties stands terminated and has further prayed

for appointment of an arbitral tribunal for adjudication of present and

future disputes between the parties arising under the agreement between

the parties, in accordance with the provisions of the Arbitration Act as

amended.

2. The prayers in both these petitions are identical. It would be

appropriate to note the prayers as made in one of the petitions

(Commercial Arbitration Petition no.1106 of 2018) which reads thus:-

(a) that this Hon'ble Court in exercise of its powers under Section 14(2) of the Arbitration and Conciliation Act,1996 be pleased to hold that the mandate of the present Standing Arbitral Tribunal constituted under the Agreement, has been terminated;

(b) that this Hon'ble Court in exercise of its powers under Section 11(6) read with Section 15(2) of the Arbitration and Conciliation Act,1996 be pleased to take necessary steps to appoint an arbitral tribunal to adjudicate upon the all present and future disputes between the parties under the agreement, in accordance with the procedure agreed upon between the parties and the provisions of the Arbitration and Conciliation Act,1996, as amended;"

3. As the parties have advanced arguments on the above petition, it

would be appropriate to refer to the facts in Commercial Arbitration

Petition no.1106 of 2018.

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4. In nutshell the facts are:

The petitioner is a company incorporated under the Companies Act,

1956 interalia engaged in the business of construction and infrastructure.

Respondent-Konkan Railway Corporation is a Government Company.

Respondent had issued a tender for the work of construction of tunnels

namely "T1 on the Katra-Dharam section of the Udhampur-Srinagar-

Baramulla, New B.G.Rail Link Project" in the State of Jammu and Kashmir.

The petitioner was a successful bidder and was awarded the contract for

the said work. A contract agreement dated 24 September 2014 came to

be executed between the petitioner and the respondent which interalia

contained general and special conditions of contract. A clause for dispute

resolution was provided, being Clause 55 of the Special Conditions of the

Contract, whereunder the parties agreed for reference of the disputes to

arbitration by forming a "standing arbitral tribunal". Clause 55 which

provides for composition of a "standing arbitral tribunal" reads thus:-

55.0 Standing Arbitral Tribunal

55.1 The Arbitral Tribunal shall consist of a panel of three Gazetteed Rly. Officers not below JA Grade, or two Railway Gazetted Officers not below JA Grade and a retired Railway Officer,retired not below the rank of SAG Officer as the Arbitrators. The Standing Arbitral Tribunal shall be formed within three months from the date of the execution of the Contract. For this purpose, the Corporation will send a panel of more than 3 (Three) names of

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Gazetted Rly. Officers of one or more departments of the Railway, which may also include the name (s) of Retired Railway Officers to the contractor from the panel approved by Northern Railway. Within two weeks from the receipt of the list, the Contractor shall intimate in writing two names from the said list to the Chairman and Managing Director KRCL. The Chairman and Managing Director/KRCL shall appoint at least one out of them as the contractor's nominee and will also simultaneously appoint the balance number of arbitrators from the panel approved by Northern Railways duly indicating the presiding Arbitrator from amongst the 3 Arbitrators so appointed. While nominating the Arbitrators, it will be necessary to ensure that one out of them is from the Accounts department.

55.5 Reference to Arbitration

55.5.1. In partial modification of Clause 43 of the Standard General Conditions of Contract of Northern Railway, the Contractor has to prepare and furnish to the Engineer-in-charge and to Chief Engineer of Project once in every six months an account giving full and detailed particulars of all the claims for any additional expenses, to which the contractor may consider himself entitled to and all extra or additional works ordered by the engineer which he has executed during the preceding six months. If any dispute has arisen as regards execution of the works under the contract, while submitting the said half yearly claims, the contractor shall give full particulars of such dispute in the said submission. After signing Contract Agreement, within six months, contractor shall submit all the claims from the date of award of contract in first submission of claims.

55.5.2 The Contractor will submit a copy of the half yearly claims under 55.5.1 to the Chief Engineer, along with particulars of any other disputes which may have arisen between the parties in respect of the execution of the contract to the Arbitral Tribunal.

55.5.3 The parties shall submit all the relevant documents in support of their claims and the reasons for raising the dispute to the TRIBUNAL.

55.5.4 If the claims made by the Contractor in the said submission to Chief Engineer is refuted or the payment is not made within one month from the date of the submission of the said half yearly claims, a dispute would be deemed to have arisen between the parties. The contractor, within one month from the date when the dispute arises or is deemed to have arisen, will communicate to the

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Arbitral Tribunal on a half-yearly basis of the said refusal/nonpayment. The said communication will be the reference of the dispute to the ARBITRAL TRIBUNAL appointed under the present agreement.

55.5.5 The said claims of the contractor so referred to ARBITRAL TRIBUNAL so far as it relates to the disputed claims, shall be treated as Statement of Claims of the Contractor and the ARBITRAL TRIBUNAL shall call upon KRCL to submit its reply. The ARBITRAL TRIBUNAL after giving an opportunity of being heard to both parties, decide the dispute within a period of two months from the date of communication of the dispute under clause 55.5.3 above. The Arbitral Tribunal will pass a reasoned award in writing, while deciding the Dispute. Once the award is declared, the Arbitral Tribunal cannot review the same except what is permissible in terms of provisions contained in Arbitration and Conciliation Act, 1996. The parties shall be entitled to the remedies under the Arbitration and Conciliation Act, 1996 or any amendment thereof.

56. Settlement through court

56.1 It is a term of this contract that the Contractor shall not approach any Court of Law for settlement of such disputes or differences unless an attempt has first been made by the parties to settled such disputes or differences through clauses 55.0 above.

56.2. The contract shall be governed by the law for the time being in force in the Republic of India. In case of any disputes/differences resulting in court cases/ between contractor & KRCL the jurisdiction shall be of courts at Mumbai only."

5. In terms of the above clauses, after execution of the contract

agreement, the respondent by its letter dated 3 February 2015 forwarded

to the petitioner a panel of arbitrators (comprising of four names) and

requested the petitioner to suggest two names out of the said panel one of

whom can be appointed as the petitioner's nominee on the Standing

arbitral tribunal. The petitioner by its letter dated 12 February 2015

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informed the respondent of it s choice of two names from the said panel.

6. Respondent thereafter formed a standing arbitral tribunal,

comprising of Mr.P.K.Aggarwal - Presiding Arbitrator, Mr.Rajkumar Sarkar

- petitioner's nominee and Mrs.Preeti Jha- Respondent's nominee. The

petitioner has contended that two of the appointed arbitrators were

serving employees of the Northern Railways.

7. In executing the contractual work, the petitioner had addressed

various communications to the respondent and more particularly letters

dated 17 April 2015 and 3 June 2016 with regard to the revision in the

applicable toll tax cost being levied pursuant to the notification dated 31

March 2015 and 30 May 2016 issued by the Government of Jammu and

Kashmir. Petitioner had requested the respondent to reimburse the

petitioner, the amount of additional toll tax incurred by the petitioner.

8. The petitioner also by its letter dated 26 August 2016 requested the

respondent to furnish reasons for the respondent deducting excess works

contract tax, based on the Jammu and Kashmir General Sales Tax Act,

1962, in lieu of the work carried out by the petitioner under the contract

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agreement, over and above the petitioner's contractual liability.

Thereafter, correspondence exchanged between the parties. The petitioner

made a grievance to the respondent that the deduction of this amount was

severely hampering the cash flow and general progress of the work under

the agreement and demanded release of the amounts.

9. Thereafter, the petitioner by its letter dated 30 August 2016

informed the respondent about complete stoppage of all tunneling

activities under the contract agreement since 28 August 2016 owing to a

cavity formation at TIP2 tunnel face. It was highlighted that stoppage of

the work was beyond the control of the petitioner. Further by its letter

dated 3 January 2017 the petitioner appraised the respondent of the

various steps which were taken towards resumption of tunneling activity

consequent to formation of cavity at TIP2 tunnel phase. The petitioner

also informed the respondent of additional cost incurred as a result of

tunnel collapse at tunnel face at TIP2 and that only an amount of Rs.2.43

crores was received from the respondent by the petitioner and substantial

amounts being outstanding towards the balance un-recovered cost payable

by the respondent. A half yearly statement of claim for the period ending

31 December 2018 came to be submitted by the petitioner to the

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respondent by petitioner's letter dated 14 February 2017 with a request to

the respondent to release pending dues owed to the petitioner.

10. The petitioner contends that due to repeated tunnel collapse during

the period August 2016 to September 2016 and further tunnel collapse

during February 2017 to October 2017 in all there being six major tunnel

collapses, the petitioner was constrained to take urgent remedial measures

to work on the instances and for prevention of future instances. For this

the petitioner had incurred huge additional cost which according to the

petitioner were in the best interest of the project. The petitioner contends

that repeatedly the respondent was informed of the additional

expenditure incurred and the serious financial crunch being faced by the

petitioner and that despite these difficulties the petitioner had continued

to work as the project was of national importance. The petitioner

contended that the payment however was withheld by the respondent

despite repeated requests to the respondent to release these payments.

11. The petitioner has contended that time for completion of the project

was also extended which was however for reasons beyond the petitioner's

control. Despite the same, the petitioner was unable to reduce its staff and

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minimise the loss in view of Clause 48.4 of Special conditions of contract

which entitled the respondent to recover the amounts from the petitioner

on monthly basis in case the petitioner did not deploy the minimum staff

at site.

12. As there was no response from the respondent to the petitioner in

regard to the petitioner's correspondence on release of payments and to

clear the outstanding dues, the petitioner by its letter dated 5 July 2017

informed the respondent that as the dues were not cleared, the dispute

relating to non payment of the dues be referred to arbitration. In this

letter the petitioner also made specific reference to the amendments under

the Arbitration and Conciliation (Amendment) Act, 2015 and the decision

of the Supreme Court on eligibility of the arbitrators as held in Voestalpine

Schienen GmbH Vs. Delhi Metro Rail Corporation Ltd. 1, and requested the

respondent to provide the entire list of arbitrators on the panel maintained

by the respondent alongwith their qualifications and professional

experience. The petitioner states that thus there was no favourable reply

to this letter from the respondent.

1 (2017)4 SCC 665

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13. Thereafter, the petitioner by its letter dated 13 February 2018

submitted its statement of claim to the respondent for the period ending

31 December 2017 with all details and supporting documents. The

petitioner requested the respondent to clear the outstanding dues

approximately Rs.3455.73 lacs on account of these claims. The petitioner

has contended that the entire claims alongwith the interest thereon has

remained unpaid, as despite the petitioner's letter dated 13 February 2018

respondent had failed to take any steps. As no reply was received to the

petitioner's letters dated 5 July 2017 and 13 February 2018 and the

respondent not having taken any steps in accordance with the amended

provisions of the Act, for appointing an arbitral tribunal to adjudicate

upon the disputes between the parties, the petitioner has filed the present

petition.

14. The petitioner has contended that the current members of the

standing arbitral tribunal namely Mr.P.K.Aggarwal-Presiding Arbitrator,

and Mrs.Preeti Jha-Respondent's nominee, are existing employees of

Indian Railways (as part of the Northern Railways, a functional division of

Indian Railways) and as such are working under the Indian Railways. As

regards the third member Mr.Satya Pal, the petitioner has contended that

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he is also a former employee of Indian Railways (as a part of South

Central Railways, functional division of Indian Railways). The petitioner

contends that neutrality, impartiality and independence of the present

members of the standing arbitral tribunal is likely to be compromised, in

the event the present members of the standing arbitral tribunal arbitrate

upon the disputes between the petitioner and respondent.

15. It is contended by the petitioner that the respondent is an

undertaking of the Indian Railways and entirely under its authority,

Supervision, and control. It is contended that an "affiliate" entity is

defined under the Seventh Schedule of the Act as amended, to encompass

"all companies in one group of companies including the parent company".

The petitioner has contended that on account of current shareholding of

51% of the Indian Railways in the share capital of the respondent, the

Indian Railways qualifies as the parent entity of the Respondent and

hence, is an "affiliate" of the respondent. The petitioner referring to sub-

section (5) of Section 12 of the Act contends that the spirit of the non-

obstante clause as incorporated by the 2015 Amendment Act is to ensure

neutrality in the arbitration proceedings. It is contended that

notwithstanding the fact that the source of arbitrator's appointment is

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deduced from the contract and has been explicitly agreed between the

contracting parties, the appointment of an arbitrator must nonetheless

withstand the test of impartiality and independence as the Act would

prescribe. The petitioner also contends that Section 12(5) read with

Seventh Schedule makes it clear that if an arbitrator falls in any one of the

categories specified in the Seventh Schedule, such arbitrator becomes

ineligible to act as arbitrator. Once such ineligibility is established, then he

becomes de jure unable to perform his functions within the meaning of

Section 14(1)(a) of the Act. It is thus contended that the mandate of

ineligible arbitrator's appointment is liable to be terminated pursuant to

Section 14(2) of the Act as amended. The petitioner contends that in the

light of the respondent's continued failure and neglected to undertake

steps to ensure appointment of arbitral tribunal in compliance with the

provisions of the Act as amended, the prayers as made in the petition

ought to be granted.

16. A reply affidavit has been filed on behalf of the respondent. The

respondent at the outset has contended that the petitioner was earlier

awarded construction of T6, T10, T11, T12 and T19 contractual work in

respect of Udhampur Srinagar Baramullah Rail Link project under an

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agreement dated 18 October 2010. It is contended that the said contract

also provided for standing Arbitral Tribunal during the execution of the

contract and for resolution of all the disputes between the parties under

Clause 56. The said arbitration agreement also provided for panel of three

or more gazetted railway officers not below JA grade or two railway

Gazetted Officers not below JA grade and a retired Railway Officer, who

retried not below the rank of SAG officer from the panel approved by the

Northern Railway. There was also a procedure that a list of at least three

names of the Gazetted Railway officers from the panel approved by the

Northern Railway should be sent to the contractor and the contractor was

required to intimate two names from the said list, out of which the

Managing Director of the respondent shall appoint one, as contractor's

nominee and simultaneously appoint the remaining arbitrators indicating

the name of Presiding Arbitrator. It is contended that the present

agreement was signed by the petitioner without demur and following the

procedure as contained in the said agreement, an arbitral tribunal of

Mr.P.K.Agarwal, Mr.Satya Pal and Mr.Ajit Kumar was constituted and

intimated to the petitioner on 25 February 2015. It is stated that one of

the arbitrator Mr.Ajit Kumar retired and in his place the respondent

appointed Ms.Preeti Jha and the petitioner was so informed by

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respondent's letter dated 8 February 2016.

17. The respondent has contended that after the dispute arose between

the parties, the constituted arbitral tribunal is available. It is contended by

the respondent that the present arbitral tribunal, after retirement of

Mr.Ajit Kumar has been reconstituted in the year 2016 and thus after the

amendment of the Arbitration Act and after the dispute had arisen, the

parties have accepted the constitution of the arbitral tribunal in

accordance with the agreed terms.

18. The respondent has contended that the railway is one of the largest

employer in India, next to the Indian Army. The railway engineering is a

special class of engineering and specially the Udhampur Srinagar

Baramulla Rail Link is a project one of its kind in Asia. It is contended

that from the thousands of employees of the Indian Railways, a

proposition that a railway officer merely because he is in the employment

of the Railways would be a biased arbitrator, is only imaginary and

baseless. It is contended that the agreed procedure for constitution of

arbitral tribunal does not offend the provisions of Section 12(5) of the

Amended Act. The respondent has contended that the Northern Railway

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had circulated to the petitioner vide respondent's letter dated 11 August

2017 a panel of names consisting of serving officers of Northern Railway,

Central Railway and other Railway Zones, Retired Officers (Finance-SAG

and above), Retired Officers (Engineering SAG and above). The

respondent has also contended that the list consists of members of

Railway Board, Chief Engineers, Chief Executive Officers, FA & CAOs, the

Director/Executive Director (Finance) etc. and that there are officers also

from other PSUs like IRCON, the Chief Safety Officers who are

independent officers of Aviation department. It is contended that a bare

perusal of these lists would show very high ranking officers having

expertise are being appointed and that none of the officers are even

remotely involved in execution of the contract. Hence, there is no reason

for any apprehension that the members of the panel being biased or not

independent. It is stated that the members of the panel are not covered in

any of the embargo created under Section 12 of the Act who would have

any influence on the contractual work. The respondent has contended

that the Courts have consistently held having named arbitrators from the

same department or Government servants does not prove any bias or

partiality. Thus the contention as urged on behalf of the petitioner that the

arbitral tribunal as constituted, is hit by the provisions of Section 12(5) of

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the Act, according to the respondent, is completely misconceived.

19. A rejoinder affidavit has been placed on record on behalf of the

petitioner denying the contentions as urged in the reply affidavit of the

respondent. Referring to the decision of the Supreme Court in

"Voestalpine Schienen GMBH Vs. Delhi Metro Rail Corporation" (supra) it

is contended that a broad panel of arbitrators to be provided is what is

expected from the respondent to have neutrality and impartiality of the

arbitral process.

20. It is on the above pleadings, I have heard the learned Counsel for

the parties.

Submissions on behalf of the Petitioner.

21. Dr.Saraf, learned Counsel for the petitioner has made the following

submissions:-

(i) The standing arbitral tribunal constituted in accordance with clause

55 of the contract is violative of Section 12(5) of the Act as amended by

the 2015 Amendment Act, as the tribunal is formed from a restricted list

out of a panel comprising only of existing/retired railway employees. In

doing so the respondent is obliged to give to the petitioner a panel of only

three names of Gazetted Railway Officer who may include retired officers

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from which the petitioner is expected to select two nominees and out of

the two nominees so selected, the Chairman and Managing Director of the

respondent to appoint at least one person as nominee on behalf of the

petitioner. It is submitted that this apart the Managing Director is required

to appoint one more person from the restricted list as a nominee on behalf

of the respondent. It is the Managing Director himself who appoints the

third arbitrator from the said restricted list. Thus, the standing arbitral

tribunal formed by following the said procedure under Clause 55 raises

justifiable doubts about independence and impartiality of the arbitral

tribunal.

(ii) It is submitted that the reference of disputes to arbitration is distinct

and different from the formation of the tribunal and it takes place every

six months. Each dispute is a separate reference which is evident from

reading of clause 55.5 and in particular Clause 55.5.4 which in no

uncertain terms provides ".... ... .. The said communication will be the

reference of the dispute to the Arbitral Tribunal appointed under the

present agreement". It is submitted that it is incumbent upon the

respondent to follow the directions and guidelines as laid down by the

Supreme Court in the case Voestalpine Schienen GMBH Vs. Delhi Metro

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Rail Corporation"(supra) and cannot compel the petitioner to first refer

the dispute to an arbitral tribunal which was constituted contrary to the

said guidelines. It is contended that the Supreme Court in paragraphs 26

and 27 of this decision while holding that appointment of former

Government employees was in violation of Section 12 of the Arbitration

Act, in paragraph 21 has clearly held that providing of a restricted list

/panel, leads to suspicion about independence and/or impartiality of the

arbitrators to be appointed and that such a provision should be deleted.

The Supreme Court has also held that a wide choice from the panel should

be offered to the contractor and two arbitrators should be given the

freedom to choose third arbitrator from the entire panel.

(iii) Even the Delhi High Court in the case Afcons Infrastructure Ltd. vs

Rail Vikas Nigam Limited2 considering the similar case, appointed an

independent arbitrator while considering the judgment of the Supreme

Court in Voestalpine Schienen GMBH Vs. Delhi Metro Rail

Corporation"(supra). The contention of the respondent that Section 12

does not have retrospective effect and that the standing arbitral tribunal as

already formed, would continue to exist and to be valid, is erroneous. It is

2 2017 SCC Online (Del) 8675

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submitted that formation of standing arbitral tribunal does not in any

manner exclude the application of Section 12 after the amendment to

Section 12. It is submitted that, Section 21 of the Act clearly provides that

arbitration proceedings in respect of a particular dispute would commence

on the date on which a request for that dispute to be referred to

arbitration is received by the respondent. It is submitted that in the

present case, the dispute which is a subject matter of the present

proceedings, has arisen after coming into force 2015 amendment. Even

Clause 55.5.4 of the agreement expressly provides that the communication

of the dispute shall be the reference of the dispute to the arbitral tribunal.

Thus, it is not as if Section 12(5) of the Act is being applied to the pending

arbitral proceedings, but the same is applied to the disputes and

commencement of the arbitration which has arisen after 2015

amendment. It is submitted that Section 26 of the Amendment Act (Act

no.3 of 2016) excludes application of the amendment to arbitral

proceedings which have commenced in accordance with the provisions of

Section 21 of the Principal Act before commencement of the Act and those

which commence after the 2015 Amendment Act was brought into force.

(iv) It is next submitted that considering all pervasive control of Indian

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Railways on the respondent, the standing arbitral tribunal constituted out

of the panel of only existing/retired railway employees, is violative of

Section 12(5) of the Act and in any case raises justifiable doubts as

regards independence and impartiality of the tribunal.

(v) In supporting these submissions, a reference is being made to clause

(2) of the General Conditions of the Contract in the present case wherein

it is specifically mentioned that the present project has been entrusted to

the respondent by the Railway Board, Government of India, through

Northern Railways and in this regard a contract agreement dated 9 August

2005 has been executed between the respondent and Northern Railways.

It is further submitted that it is an admitted position that Indian Railways

(through Government of India) holds 51% of the respondent's

shareholding. The rest of the shareholding in the respondent is held by

Government of Maharashtra, Government of Goa, Government of

Karnataka and Government of Kerala. It is submitted that even the

organizational structure of Ministry of Railways makes the respondent as

one of the Central Public Sector Enterprises. The Articles of Association

also clearly show that the Government of India controls with all force, the

respondent including appointment of contractors of the respondent,

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issuance of contractors, investing monies, borrowings /raising /securing /

payment of monies, dividends, accounts etc. Even the auditors of the

respondent are to be appointed with the specific approval of the

Comptroller and Auditor General of India. It is thus submitted that the

respondent is an undertaking of Indian Railways and entirely under their

direction and control and therefore, affiliated entity as defined under

Seventh Schedule of the Act.

(vi) It is submitted that in the case of this very respondent, the learned

Single Judge of this Court (K.R.Shriram, J.) in Afcons Infrastructure Ltd.

Vs. Konkan Railway Corporation3, following the decision of the Supreme

Court in Voestalpine Schienen GMBH Vs. Delhi Metro Rail

Corporation"(supra) has directed the respondent to prepare a broad based

list of panel of the arbitrators. In support of this submission, learned

Counsel for the petitioner has principally relied on the the decision of the

Supreme Court in Voestalpine Schienen GmBH Vs. Delhi Metro Rail

Corporation (supra), the decision of the learned Single Judge of the Delhi

High Court in Afcons Infrastructure Ltd. Vs. Rail Vikas Nigam Ltd.4,

3 Commercial Appeal No.135 of 2017 decided on 23.10.2018 4 2017 SCC OnLine Del 8675

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Bernard Ingenieure ZT - GMBH Vs. Ircon International Ltd. 5, and the

decision in NCCL-Premco(JV) Vs. Rail Vikas Nigam Ltd.6

Submissions on behalf of the Respondent.

22. On the other hand, Ms.Kiran Bagalia, learned Counsel for the

respondent reiterating the contentions as urged by the respondent in the

reply affidavit would refer to the previous contract between the parties

dated 18 October 2010 to submit that the arbitral tribunal was constituted

under the earlier contract shall remain in force during the entire period of

principal contract as per clause 55.6.5.

23. It is submitted that under the provisions of the Special Conditions of

the contract, the parties having agreed for establishment of standing

arbitral tribunal in the manner provided under clause 55 of the Special

Conditions of the Contract, which was formed after following the

procedure and which now cannot be disturbed. It is submitted that the

amended Section 12 shall not apply in a case where the arbitral tribunal

has already been appointed before 23 October 2015. It is submitted that

the arguments of the petitioner are against the proviso to sub-section (5)

5 2018 SCC OnLine Del 7941 6 2018 SCC OnLine Del 11926

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of Section 12 of the Act.

24. It is submitted that it is not open for the petitioner to take a stand

that each of six monthly claim as provided in the contract, a fresh consent

of the parties, is necessary. It is submitted that the standing arbitral

tribunal constituted in March 2011 (under an earlier contract) has been

continued. The petitioner had also earlier submitted its claim before the

standing arbitral tribunal. It is submitted that the standing arbitral

tribunal has to continue till the end of the contract and till a no claim

certificate is issued. It is submitted that during the execution of the

contract, the tribunal was already appointed and the disputes have been

referred to arbitration and hence, the amended provision does not apply

to constitution of arbitral tribunal. It is submitted that the procedure

provided under the contract is similar to the procedure considered in

Voestalpine Schienen GMBH Vs. Delhi Metro Rail Corporation" (supra) by

the Supreme Court.

25. It is submitted that the arbitral tribunal was established on 3 March

2011 qua the earlier contract and the petitioner had participated in

constitution of the arbitral tribunal by selecting two names from the list of

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the arbitrators forwarded by the respondent, is by communication dated

21 February 2011 and at no point of time the petitioner ever raised a

challenge to the arbitral tribunal on the ground that there were

circumstances giving rise to justifiable doubts as to the arbitrator's

independence and impartiality. It is submitted that none of the amended

provisions of the Act are applicable to the facts of the present case.

26. It is next submitted that the provisions of the Seventh Schedule are

not applicable inasmuch as the Indian Railways' Employee/ Railway

officer is a qualification provided in the arbitration agreement executed

between the parties and it is unthinkable that each of these large number

of railway employees would be ineligible under the Seventh Schedule as

he is a railway officer, though such a person never had dealing even

remotely related to the subject contract. The decision of the Supreme in

Voestalpine Schienen GMBH Vs. Delhi Metro Rail Corporation" (supra) in

fact supports the case of the respondent.

27. In support of her submission, learned Counsel for the respondent

relies on the decision of the Supreme Court in Aravali Power Company

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Pvt. Ltd. vs M/S. Era Infra Engineering Ltd. 7; HRD Corporation (Mercus

Oil & Chemical Division) Vs. GAIL (India) Ltd. 8 (supra), S.P.Singla

Constructions Pvt.Ltd. Vs. State of Himachal Pradesh & Anr. 9 , Union of

India Vs. M.P. Gupta10, BTP Structural (I) Pvt.Ltd. Belgaum Vs. Bharat

Petroleum Corporation Ltd.11

Discussion and Conclusion

28. The short issue which falls for consideration in this petition is

whether the standing arbitral tribunal being constituted by the respondent

as per Clause 55 of the Special Conditions of the Contract would satisfy

the requirement of law as prescribed under Section 12 read with the

Schedules to the Arbitration Act as incorporated by the 2015 Amendment

Act.

29. Section 12 as amended by the 2015 Amendment Act provides for

number of requirements with an object that the arbitral tribunal which

would be constituted is independent and impartial and further that the

members of the arbitral tribunal do not have any direct or indirect, past or

7 (2017) 15 SCC 32 8 Civil Appeal no.11126 of 2017. Date:31/8/2017 9 Civil Appeal no.11824-11825 of 2018. Date 4/12/2018 10 (2004)10 SCC 504 11 2014(4) Mh.LJ 598

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present relationship or interest with any of the parties. Section 12 thus

provides for grounds of challenge to the appointment of an arbitral

tribunal. Proviso to Sub-section 5 of Section 12 stipulates that

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 as specified in the Seventh

Schedule (which provides for arbitrator's relation with the parties or

counsel) shall be ineligible to be appointed as an arbitrator. The proviso

to sub-section (5), however, carves out an exception to stipulate that the

parties may subsequent to disputes having arisen between them, waive the

applicability of this sub-section by an express agreement in writing. The

fulcrum of the contentions of the parties being based on Section 12, this

provision is required to be extracted, which reads thus:-

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, or 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

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arbitrator.

Explanation 2.--The disclosure shall be made by such person in the form specified in the Sixth Schedule.]

(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.

(3) An arbitrator may be challenged only if--

(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or

(b) he does not possess the qualifications agreed to by the parties.

(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

[(5)Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:

Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.]"

30. The fifth schedule to the Act deals with the grounds which gives rise

to justifiable doubts as to the independence and impartiality of the

arbitrator. The seventh schedule deals with the arbitrators relationship

with the parties or counsel. The relevant extracts of the fifth and seventh

schedules read thus:

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THE FIFTH SCHEDULE (See Section 12(1)(b))

The following grounds give rise to justifiable doubts as to the independence or impartiality of arbitrators:

ARBITRATOR'S RELATIONSHIP WITH THE PARTIES OR COUNSEL

1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.

... ... ... ... .. 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. .. .. ... 12. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.

13. The arbitrator has a significant financial interest in one of the parties or the outcome of the case. .. ... ... ..

PREVIOUS SERVICES FOR ONE OF THE PARTIES OR OTHER INVOLVEMENT IN THE CASE ... .. .. .. 22. The arbitrator has within the past three years been appointed as arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties. ... .. .. ..

RELATIONSHIP BETWEEN ARBITRATOR AND PARTY AND OTHERS INVOLVED IN THE ARBITRATION

.. .. .. 31. The arbitrator had been associated within the past three years with a party or an affiliate of one of the parties in a professional capacity, such as a former employee or partner. ........ OTHER CIRCUMSTANCES ... .. .. .. .. ..... 34. 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, where the affiliate is not directly involved in

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the matters in dispute in the arbitration.

Explanation 1- .. .. . . Explanation 2- The term "affiliate" encompasses all companies in one group of companies including the parent company." ...

"THE SEVENTH SCHEDULE (See section 12(5)) ARBITRATORS RELATIONSHIP WITH THE PARTIES OR COUNSEL

1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.

.. .. ...

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.

... .. .. ..

14. The arbitrator regularly advises the appointing party or an affiliate of the appointing party, and the arbitrator or his or her firm derives a significant financial income therefrom.

15.... .. .. .

16... ... . .

17.. .. .. .

18. .. .. ..

19. ... ...

Explanation 1 .. .. .

Explanation 2 - The term "affiliate" encompasses all companies in one group of companies including the parent company.

Explanation 3 - For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialised pool. If in such fields it is the custom and practice

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for parties frequently, to appoint the same arbitrator in different cases, this is a relevant fact to be take into account while applying the rules set out above."

31. It can be thus clearly seen from the aforesaid provisions of the

Arbitration Act that an arbitrator ought not to have either direct or

indirect or any past or present relationship or interest with any of the

parties which is likely to give rise to justifiable doubts as to his

independence or impartiality. The provisions of the Fifth Schedule amplify

this position in interalia providing that an arbitrator cannot be an

employee of a party to the arbitral proceedings. In other words the

arbitrator's employment cannot have any relation or bearing on the

arbitrator discharging his duties as an adjudicator. The arbitrator ought

not to be in the controlling influence of a party by virtue of being an

employee of an organization.

32. On behalf of the petitioner the "Organizational Structure" of

the respondent is also placed on record, pointing out the control of the

Ministry of Railways on the respondent. The organizational structure is as

under:-

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ORGANIZATION STRUCTURE

MINISTER OF RAILWAYS

MINISTER OF STATE OF RAILWAYS(S) MINISTER OF STATE OF RAILWAYS (G)

RAILWAY BOARD

CHAIRMAN RAILWAY BOARD MEMBER MEMBER MEMBER MEMBER FINANCIAL MEMBER STAFF ENGINEERING TRACTION ROLLING COMMISSIONE TRAFFIC STOCK R

DIRECTOR GENERAL/ SECRETARY DIRECTOR GENERAL/S&T DIRECTOR GENERAL/RHS RPF ESTT. ADMN. DIRECTOR GENERAL/RS DIRECTOR GENERAL/ MATTERS MATTERS

ZONAL RAILWAYS (OPEN LINE) PRODUCTION UNITS OTHER UNITS CPSE/CORP GENERAL MANAGERS GENERAL MANAGERS GENERAL MANAGERS BCL BSCL CENTRAL CHITTARANJAN LOCOMOTIVE CENTRAL ORGANIZATION FOR BWEL EASTERN WORKS RAILWAY ELECTRIFICATION CONCOR EAST CENTRAL DIESEL LOCOMOTIVE WORKS, NF RAILWAY (CONSTRUCTION) DFCCIL EAST COAST VARANASI IRCON METRO** INTEGRAL COACH FACTORY, CAO (R)* IRCTC NORTHERN CHENNAI CENTRAL ORGANIZATION FOR IRFC NORTH CENTRAL RAIL COACH FACTORY, MODERNIZATION OF KMRCL NORTH EASTERN KAPURTHALA WORKSHOP (COFMOW) KRCL NORTHEAST FRONTIER RAIL WHEEL FACTORY, INDIAN RAILWAY MRVC NORTH WESTERN YELAHANKA ORGANIZATION FOR ALTERNATE RCIL SOUTHERN MODERN COACH FACTORY, RAE FUELS (ROAF) RITES SOUTH CENTRAL BARELI RVNL SOUTH EASTERN DIRECTOR GENERAL SOUTH EAST CAO(R)* NATIONAL ACADEMY OF INDIAN Autonomous Bodies/ CENTRAL DIESEL LOCO MODERNIZATION RAILWAYS, VADODARA Authorities SOUTH WESTERN WORKS/PATIALA WESTERN DG & EX-OFFICIO GM CRIS WEST CENTRAL RAIL WHEEL PLANT, BELA RDSO, LUCKNOW RLDA

"METRO RLY, KOLKATA 'CHIEF ADMINISTRATIVE OFFICER (RAILWAYS)

2 INDIAN RAILWAYS ANNUAL REPORT AND ACCOUNTS 2016-17

33. The petitioner has also placed on record the Indian Railways Annual

Reports and Accounts 2016-2017, which would indicate that the

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respondent is directly under the control of the Ministry of Railways and

apart from its Zonal railways, the Central public sector enterprises like

respondent also forms part of the organizational structure under the

Ministry of Railways. Hence, it can certainly be said that various zonal

railways like Central Railways, Eastern Railways, Northern Railways etc.

are having not only business relationship but also controlling influence on

the respondent. From the General Conditions of the contract it is seen

that the project in question has been entrusted to the respondent by the

Railway Board of Government of India through Northern Railways and in

this regard a contract dated 9 August 2005 is executed between the

respondent and Northern railways. Even the Articles of Association would

go to show that the Government of India controls by all force the

respondent, including appointment of the contractors by the respondent.

It also cannot be overlooked that the shareholding of the Indian Railways

in the share capital of the respondent is 51%. The Indian Railways

therefore, qualifies as a parent entity of the respondent. Thus, certainly

the respondent can be said to be "an affiliate" of the Indian

Railways/Northern Railways within the meaning of "an affiliate" as

described in "Explanation 2" to the Seventh Schedule to the Arbitration

Act. It thus cannot be said that the existing employee of the northern

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railways would not have any relationship with the respondent. It is also

likely that the officers can very well be posted by the Ministry of Railways

on deputation with the respondent in which case such employees under

the Ministry of Railways would also be the employees with the

respondent. Hence, it can be said that an employee of the railways can

also be an employee of the northern railways, central railway or any other

railways who can be appointed as an arbitrator in connection with the

dispute to which the respondent is a party. In this situation it cannot be

said that such an employee/arbitrator would be an independent or an

impartial arbitrator having no relationship with the respondent, and more

particularly in the spirit of the amended provisions of Section 12 read

with Fifth and Seventh schedule as noted above.

34. There is another facet which would have relevance, namely that the

dispute between the parties can arise at any stage of the contract. It need

not be that only when the work under the contract is concluded a

reference to arbitration can be made. This is also clear from the facts of

the present case that the dispute has arisen in an ongoing contract, when

certain bills were raised by the petitioner and which are being disputed by

the respondent. Thus once the dispute arises and the arbitration is

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required to be commenced, Section 21 of the Arbitration Act would get

attracted which provides for commencement of arbitral proceedings.

Section 21 provides that unless otherwise agreed between the parties, the

arbiral proceedings in respect of a particular dispute would commence on

the date on which the request of that dispute being referred to the

arbitrator, is received by the respondent. Section 21 reads thus:-

"21. Commencement of arbitral proceedings:- Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent."

35. Once a request has been made by a party for reference of the

disputes to an an arbitral tribunal, normally only in that event the

respondent to whom such a request is made, would be required to accept

the request and appoint an arbitral tribunal. In case the request is rejected

then the party is entitled to approach the Court under Section 11 of the

Act praying for appointment of arbitral tribunal. Once the parties are

before the Court for appointment of an arbitral tribunal, then certainly all

the parameters falling under Section 12 read with Fifth and Seventh

Schedule would become applicable.

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36. In the present case considering the arbitration clause, the position

in regard to the commencement of the arbitral proceedings is not different

from what Section 21 provides. Clause 55 of the Contract which provides

for constitution of "a standing arbitral tribunal" cannot be taken to be any

agreement otherwise entered between the parties to be taken as an

exception to deviate from the commencement of the arbitral proceedings,

as stipulated by Section 21, namely from the date on which the reqeust for

a dispute to be referred to arbitration, is made. This more particularly

considering the very next clause in the agreement namely Clause 55.5

providing for a reference to arbitration and the manner in which a

reference would be made. On reading of Clause 55.5 it can be concluded

that constitution of a Standing Arbitral Tribunal and reference of the

disputes are independent from each other. Hence, mere constitution of an

arbitral tribunal cannot be presumed to be any commencement of arbitral

proceedings, even within the meaning of Section 21 of the Arbitration Act.

Thus, necessarily the arbitraiton proceedings in the present case would

commence when the petitioner by its letter dated 5 July 2017 addressed to

the respondent, calling upon the respondent to constitute an arbitral

tribunal as per law. Thus, the requirement of law, on the day such a

request was made for the constitution of the arbitral tribunal, would be

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relevant, namely the applicability of Section 12 as amended by the 2015

Amendment Act alongwith the applicability of the provisions of Schedule

V and Schedule VII.

37. In the context of Clause 55.1 of the agreement between the parties,

the concept of a "standing arbitral tribunal" and of a nature as agreed, in

my opinion, cannot have any implicit recognition under the provisions of

the Act and more particularly when the arbitral tribunal comprises of in-

service railway Gazetted Officers to be appointed by the Chairman and

Managing Director of the respondent. It is also quite peculiar that the

choice of the railway officers in-service or retired is also supplied by the

respondent to the contractor (petitioner) who would be compulsorily

required to make a selection of its nominees, only from the names as

provided by the respondent. Thus, the choice of persons as offered is also

completely under the control of the respondent, and the contractor is

being foisted upon such names, from which he is required to select two

names out of which one would be appointed by the Managing Director of

the respondent as the contractor's nominee on the arbitral tribunal. In my

opinion, the arbitration clause certainly finds foul of the requirement of

Section 12 read with the noted provisions of the Fifth and Seventh

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Schedule of the Act. Having come to the above conclusion on

consideration of the provisions of the Arbitration Act, this conclusion in

my opinion is also supported by the decisions which I refer below.

38. In Voestalpine Schienen GMBH (supra) the issue which fell for

consideration of the Supreme Court was whether the arbitral tribunal in

the said case as constituted by the respondent-Metro Rail Corporation

Ltd., was in violation of the provisions of Section 12 of the Act, as it was

contended on behalf of the petitioner that the arbitral panel being

constituted of serving and retired engineers of the Government

Department and from the public sector undertakings, defied the neutrality

aspect as they had direct or indirect access or privity to the respondent. In

the said case Clause 9.2(A) of the Special Conditions of the Contract

interalia stipulated that the respondent therein shall forward names of five

persons from the panel maintained by the respondent and the petitioner

will have to chose his nominee arbitrator from the said panel which was

quite similar as in the present case. The respondent therein, in fact had

furnished names of five persons to the petitioner with a request to

nominate its arbitrator from the said panel. However, this was not

acceptable to the petitioner who contended that the panel prepared by the

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respondent consisting of serving or retired engineers either of the

respondent or of the Government Department or public sector

undertakings would not qualify as independent arbitrators. It was the

petitioner's contention that such constitution would lose its validity as it

would be contrary to the provisions of Section 12. However, in the facts of

the case as noted by the Court in paragraph 27 of the report, as the

respondent had thereafter forwarded a list of about 31 persons and had

given a free and wide choice to the petitioner to nominate its arbitrator

and such panel consisted of the persons who were not employees or ex-

employees or in any way related to the respondent, and that as the

persons who were to be ultimately picked up as arbitrators would have to

disclose their interest in terms of the provisions of Section 12 of the Act,

the Supreme Court did not find it to be a fit case to exercise jurisdiction

and appoint an arbitral tribunal. However, what is relevant in the context

of the present case are the observations of the Supreme Court in

paragraphs 28, 29 and 30 whereby the Court criticised such a procedure

as provided for in the contract in Clause 9.2 and the adverse consequence

as entailed by such a clause. The Supreme Court in paragraphs 28,29 and

30 observed thus:

"28. Before we part with, we deem it necessary to make certain comments on the procedure contained in the arbitration

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agreement for constituting the arbitral tribunal. Even when there are number of persons empaneled, discretion is with the DMRC to pick five persons therefrom and forward their names to the other side which is to select one of these five persons as its nominee (Though in this case, it is now done away with). Not only this, the DMRC is also to nominate its arbitrator from the said list. Above all, the two arbitrators have also limited choice of picking upon the third arbitrator from the very same list, i.e., from remaining three persons. This procedure has two adverse consequences. In the first place, the choice given to the opposite party is limited as it has to choose one out of the five names that are forwarded by the other side. There is no free choice to nominate a person out of the entire panel prepared by the DMRC. Secondly, with the discretion given to the DMRC to choose five persons, a room for suspicion is created in the mind of the other side that the DMRC may have picked up its own favourites. Such a situation has to be countenanced. We are, therefore, of the opinion that Sub-clauses (b) & (c) of Clause 9.2 of SCC need to be deleted and instead choice should be given to the parties to nominate any person from the entire panel of arbitrators. Likewise, the two arbitrators nominated by the parties should be given full freedom to choose third arbitrator from the whole panel. 29. Some comments are also needed on the Clause 9.2(a) of the GCC/SCC, as per which the DMRC prepares the panel of 'serving or retired engineers of government departments or public sector undertakings'. It is not understood as to why the panel has to be limited to the aforesaid category of persons. Keeping in view the spirit of the amended provision and in order to instill confidence in the mind of the other party, it is imperative that panel should be broad based. Apart from serving or retired engineers of government departments and public sector undertakings, engineers of prominence and high repute from private sector should also be included. Likewise panel should comprise of persons with legal background like judges and lawyers of repute as it is not necessary that all disputes that arise, would be of technical nature. There can be disputes involving purely or substantially legal issues, that too, complicated in nature. Likewise, some disputes may have the dimension of accountancy etc. Therefore, it would also be appropriate to include persons from this field as well. 30. Time has come to send positive signals to the international business community, in order to create healthy arbitration environment and conducive arbitration culture in this country. Further, as highlighted by the Law Commission also in its report, duty becomes more onerous in Government contracts, where one of the parties to dispute is the Government or public sector

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undertaking itself and the authority to appoint the arbitrator rests with it. In the instant case also, though choice is given by DMRC to the opposite party but it is limited to choose an arbitrator from the panel prepared by the DMRC. It, therefore, becomes imperative to have a much broad based panel, so that there is no misapprehension that principle of impartiality and independence would be discarded at any stage of the proceedings, specially at the stage of constitution of the arbitral tribunal. We, therefore, direct that DMRC shall prepare a broad based panel on the aforesaid lines, within a period of two months from today."

39. In Afcons Infrastructure Ltd. Vs Ircon International Ltd. 12, the

learned Single Judge of the Delhi High Court has taken a similar view also

referring to the decision of the Supreme Court in Voestalpine Schienen

GMBH (supra). The arbitration clause in the said case was similar as in

the present case. The learned Single Judge held the arbitration clause to

be invalid in view of the provisions of Section 12 of the Act and directed

the respondent to prepare broad based panel. The learned Single Judge

made the following observations in paragraphs 21, 22, and 23:-

21. With reference to a similar clause, the Supreme Court in Voestalpine Schienen GMBH(supra) has directed that the panel has to be broadbased. The rationale given by the Supreme Court is that if a restricted panel is proposed, then the choice given to the opposite party is very limited, resulting in there being no free choice to nominate a person and it also gives room for suspicion in the mind of the other side. Such a situation has been countenanced by the Supreme Court. Accordingly, the Supreme Court directed that apart from serving or retired Engineers of Government Departments and Public Sector Undertakings, Engineers of prominence and high repute from private sector should also be included. It directed that a panel should comprise of persons with legal background like Judges and Lawyers of repute as it is not necessary that all disputes that arise, would be of technical nature. There could be disputes involving purely or substantially legal issues, that too, complicated in nature and some disputes may have the

12 2017 SCC OnLine Del 10049

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dimension of accountancy etc. It is, in these circumstances, that the Supreme Court directed the respondent in the said case to broadbase the panel and to be restricted not only to retired Engineers or Officers. Another reason given by the Supreme Court is that in case there is a broadbased panel, then there would be no misapprehension that impartiality or independence would be discarded at any stage of the proceedings. In those circumstances, the Supreme Court directed Delhi Metro Rail Corporation to prepare a broadbased panel on the principles, as laid down therein. 22. Similarly, in the present case, it would be expedient to direct the respondent to boradbase their panel on the same lines as directed by the Supreme Court in Voestalpine Schienen GMBH (supra) as expeditiously as possible preferably within a period of three weeks from today. 23. The direction to expedite the process of preparing a broadbased panel has been issued so that the two Arbitrators, who have been nominated, would have broadbased panel to choose the third Arbitrator from.

40. Again in Bernard Ingenieure ZT - GMBH Vs. Ircon International Ltd.

(supra) considering a similar arbitration agreement and as the broad base

panel was not prepared by the respondent, the learned Single Judge of the

Delhi High Court made the following observations:-

11. The above judgment was passed by the Supreme Court as far back, as 10 February, 2017. More than a year has passed, however, even now the th

so-called broad based panel of the respondent still does not contain names of Engineers of prominence and high repute from private sector, persons with legal background like judges and lawyers of repute, people having knowledge and expertise in accountancy etc. The panel of Arbitrators now framed by the respondent is, therefore, in my opinion, still not in conformity with the judgment of the Supreme Court in Voestalpune Schienen GMBH (supra) and, therefore, in my opinion, the respondent has failed to act in accordance with the procedure prescribed under the arbitration agreement between the parties. It is again emphasised that even the Supreme Court in the above judgment had suggested, if not directed, that a clause in the arbitration agreement restricting the right of the contracting party to appoint/nominate his own Arbitrator should be deleted.

41. In NCCL-Premco(JV) Vs. Rail Vikas Nigam Ltd. (supra), a similar

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view was taken by the learned Single Judge of the Delhi High Court

referring to the decision in the Supreme Court in Voestalpine Schienen

GmbH Vs. Delhi Metro Rail Corporation Ltd. (supra). The Court in

paragraphs 10 to 14 has observed thus:-

10. I have considered the submissions made by the counsels for the parties. As noted above, this Court in Larsen & Arb. P. No.627/2018 Page 5 Toubro Ltd. (supra) in similarly situated facts had held that mere forwarding of a list of five persons (in that case) would be a failure of the respondent to discharge its obligations that have been cast upon it under the Arbitration Agreement read with Section 12 of the Amended Act as also the Judgment of the Supreme Court in Voestalpine Schienen(supra). 11. As in spite of the judgment of the Supreme Court in Voestalpine Schienen(supra) and of this Court in Larsen & Toubro Ltd. (supra), the respondent insisted on giving only a limited number of names from its panel of Arbitrators to the petitioner for choosing its nominee Arbitrator, the same clearly amounts to a failure on part of the respondent to act in accordance with the Arbitration Agreement read with Section 12 of the Amended Act. 12. Even the panel of Arbitrators that has been framed by the respondent and has been offered by it to the petitioner alongwith its reply to the present petition, in my opinion, does not conform to the Judgment of the Supreme Court in Voestalpine Schienen(supra) inasmuch as it still does not include Engineers of prominence and high repute from private sector, persons with legal background like Judges and lawyers of repute or people having knowledge in accountancy, i.e. Chartered Accountant, etc. The panel is still predominantly of former employees with the Railways and Public Sector Companies connected thereto. 13. Be that as it may, as the respondent had failed to Arb. P. No.627/2018 Page 6 discharge its obligations in terms of the Arbitration Agreement read with Section 12 of the Act, the appointment of the nominee Arbitrator of the petitioner is confirmed. 14. I appoint Mr.B.K.Makhija, Former Director-Projects, RITES as the nominee Arbitrator for the respondent."

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42. Apart from the above decisions, of the Delhi High Court, a learned

Single Judge of this Court (K.R.Shriram, J.) in " Afcons Infrastructure Ltd.

Vs. Konkan Railway Corporation " (supra) in the case of the present

respondent in a similar situation, considering an identical agreement, as

entered by the respondent with the applicant-Afcons Infrastructure Ltd.,

has come to a clear conclusion that the respondent KRCL would fall under

the common control of the Indian Railways as per the organizational

structure. It was also held that considering the law laid down by the

Supreme Court in Voestalpine (supra) it was incumbent for the respondent

to prepare a broad based panel. The learned Single Judge has made the

following observations in paragraphs 20,22,24,25, 26 and 27:-

20. Therefore, even if the panel of 31 names recommended by respondent does not contain anyone who are employees of KRCL or ex-employees of KRCL (respondent) still all of them would fall under the common control of the Railway Board-Indian Railways, as per the organization structure given above. 22. Voestalpine (supra) was delivered by the Apex Court way back on 10.2.2017. More than 20 months have passed since then. I can understand the contract was entered into before this decision in Voestalpine. But nothing prevented respondent to take the cue from Voestalpine and talk to applicant to revise clause 55. Not only respondent has not taken that initiative (they may or they may not)but even now the so-called broad based panel of respondent are only having names of those who were either connected with railways or PSU. It does not contain names of engineers of prominence and high repute from private sector. They should also be included. Like wise panel should comprise of persons with legal background like Judge sand lawyers, people having knowledge and expertise in accountancy etc. The panel of arbitrators maintained by respondent is, therefore,in my opinion, not in conformity with the judgment of the Supreme Court of India in

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Voestalpine (supra). Not only the panel recommended is not in conformity with Voestalpine (supra), even the procedure of appointment of arbitrator as prescribed in clause-55 is totally wrong. I cannot accept that one of the party to the agreement will recommend four names from the panel, thereby limiting their choice, which means there is no free choice, and the other party has to select and forward two names from those four names to Managing Director of the other party to decide who will be the first party's arbitrator. Further, with the discretion given to KRCL to choose more than 3 names, a room of suspicion is created in the mind of other side that KRCL may have picked up its own favorites. Such a situation has to be countenanced. This procedure, therefore, certainly falls foul of the requirement of neutrality of arbitrators. I also agree with Mr. Engineer that the part in the arbitration clause which empowers the Chairman and Managing Director of respondent to even appoint the presiding arbitrator is violative of section 11(3) of the Act. The two arbitrators appointed by the parties shall decide who shall be the presiding arbitrator. 24. In the circumstances, I would expect respondent to rework on clause 55 and discuss with applicant to amend that clause or prepare a broad based panel of arbitrators consisting of engineers of prominence and high repute from private sector, persons with legal background like Judges and lawyers, people having knowledge and expertise in accountancy etc. Respondent shall, while deciding the broad based panel, keep in mind the true spirit and intent of the word "broadbased panel". I would suggest broadbased would mean at least eight to ten names under each category. 25. Respondent shall also not decide who will be the arbitrator to be appointed by applicant. Respondent, once it prepares the broadbased panel of arbitrators, shall only forward those names to applicant and it will be open for applicant, i.e., the applicant will have a free choice, to decide who shall be its nominated arbitrator. It will be open to respondent to decide who will be its arbitrator and the two arbitrators shall appoint the presiding arbitrator and the trio shall form the arbitral panel. 26. Respondent shall furnish a broad based list of panel of arbitrators to applicant within two months from today. Applicant will respond with the name of its arbitrator within four weeks of receiving the list. Respondent thereafter shall nominate its arbitrator within 14 days and the two arbitrators shall nominate the third and presiding arbitrator. 27. If, after appointment, applicant still feels that the arbitrator appointed by respondent or the presiding arbitrator appointed could be disqualified, it is open to applicant to approach this court

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for appropriate orders. All rights and contentions of the parties are kept open in this regard."

43. Apart from the above clear position in law as being consistently

accepted, this Court cannot overlook that in the present case the

Managing Director has the ultimate say in appointing the arbitral tribunal

even if the arbitration agreement is now required to be given effect to on a

fresh invocation. In TRF Ltd vs. Energo Engineering Projects Ltd. 13, the

three Judges Bench of the Supreme Court was considering whether the

appointment of an arbitrator made by the Managing Director of the

respondent therein was valid one. The agreement was entered into prior

to the 2015 Amendment Act was brought into force on 23 October 2015.

The contention of the appellant was that by virtue of the provisions of the

Amendment Act by insertion of the Fifth and Seventh Schedule of the Act,

the Managing Director of the respondent had a direct interest in the

dispute and as such could not act as an arbitrator. The submission was also

that a person who himself was disqualified is also not entitled to nominate

any other person to act as an arbitrator. The Supreme Court held that the

Managing Director in such a situation would not have any authority to

nominate any other person to act as an arbitrator.

13 (2017)8 SCC 377

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44. In Bharat Broadband Network Ltd. Vs. United Telecoms Ltd. 14

(supra) an issue arising under Section 12 of the Arbitration Act fell for

consideration of the Supreme Court, in the context of the arbitration

agreement between the parties, which was contained in clause 20 of the

agreement in question, which provided for sole arbitration of the CMD of

the appellant or any other person at the discretion of the CMD. This was a

case wherein, in pursuance of the tender dated 5 August 2013, a purchase

order came to be issued in favour of the respondent on 30 September

2014. The dispute had arisen between the parties on 3 January 2017. On

17 January 2017 the CMD nominated the sole arbitrator. The Court

referring to the decision in TRF Ltd. (supra) held that Section 12(5) has

brought about a situation of de jure inability of the arbitrator in the event

the requirements of Section 12 read with Fifth and Seventh Schedule are

not satisfied. It was held that under the said provisions 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. It was held that Section 12(5) then clearly declares that such

person is "ineligible" to be appointed as arbitrator, except when the parties

14 2019 SCC OnLine SC 547

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otherwise agree in a manner provided under the proviso to sub-section (5)

of Section 12. The Supreme Court has clearly held that when the

arbitrator is ineligible to be appointed as an arbitrator, there is no question

of challenge to such arbitrator. It is held that in a case which falls under

Section 12(5), Section 14(1)(a) of the Arbitration Act gets attracted and

the arbitrator becomes as a matter of law - de jure , unable to perform his

functions under Section 12(5), being ineligible to be appointed as an

arbitrator. The observations in this regard as made in paragraphs 14, 15,

17 and 18, 20 are relevant which read thus:-

14. From a conspectus of the above decisions, it is clear that Section 12(1), as substituted by the Arbitration and Conciliation (Amendment) Act, 2015 ["Amendment Act, 2015"], makes it clear that when a person is approached in connection with his possible appointment as an arbitrator, it is his duty to disclose in writing any circumstances which are likely to give rise to justifiable doubts as to his independence or impartiality. The disclosure is to be made in the form specified in the Sixth Schedule, and the grounds stated in the Fifth Schedule are to serve as a guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Once this is done, the appointment of the arbitrator may be challenged on the ground that justifiable doubts have arisen under sub-section (3) of Section 12 subject to the caveat entered by sub- section (4) of Section 12. The challenge procedure is then set out in Section 13, together with the time limit laid down in Section 13(2). What is important to note is that the arbitral tribunal must first decide on the said challenge, and if it is not successful, the tribunal shall continue the proceedings and make an award. It is only post award that the party challenging the appointment of an arbitrator may make an application for setting aside such an award in accordance with Section 34 of the Act. 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

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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. 17. Thus, it will be seen that party autonomy is to be respected only in certain exceptional situations which could be situations which arise in family arbitrations or other arbitrations where a person subjectively commands blind faith and trust of the parties to the dispute, despite the existence of objective justifiable doubts regarding his independence and impartiality. 18. The scheme of Sections 12, 13, and 14, therefore, is that where an arbitrator makes a disclosure in writing which is likely to give justifiable doubts as to his independence or impartiality, the appointment of such arbitrator may be challenged under Sections 12(1) to 12(4) read with Section 13. However, where such person becomes "ineligible" to be appointed as an arbitrator, there is no question of challenge to such arbitrator, before such arbitrator. In such a case, i.e., a case which falls under Section 12(5), Section 14(1)(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a matter of law (i.e., de jure), unable to perform his functions under Section 12(5), being ineligible to be appointed as an arbitrator. This being so, his mandate automatically terminates, and he shall then be substituted by another arbitrator under Section 14(1) itself. It is only if a controversy occurs concerning whether he has become de jure unable to perform his functions as such, that a party has to apply to the Court to decide on the termination of the mandate, unless otherwise agreed by the parties. Thus, in all Section 12(5) cases, there is no challenge procedure to be availed of. If an arbitrator continues as such, being

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de jure unable to perform his functions, as he falls within any of the categories mentioned in Section 12(5), read with the Seventh Schedule, a party may apply to the Court, which will then decide on whether his mandate has terminated. Questions which may typically arise under Section 14 may be as to whether such person falls within any of the categories mentioned in the Seventh Schedule, or whether there is a waiver as provided in the proviso to Section 12(5) of the Act. As a matter of law, it is important to note that the proviso to Section 12(5) must be contrasted with Section 4 of the Act. Section 4 deals with cases of deemed waiver by conduct; whereas the proviso to Section 12(5) deals with waiver by express agreement in writing between the parties only if made subsequent to disputes having arisen between them. 20. 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."

45. In a recent decision of the Supreme Court in Perkins Eastman

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Architects DPC & Anr. Vs. HSCC (India) Ltd. 15 the issue which fell for

consideration of the Supreme Court was whether as per Clause 24.1(ii) of

the agreement between the parties, which provided that the disputes or

differences shall be referred for adjudication through arbitration by a sole

arbitrator appointed by the CMD-HSCC within thirty days from the receipt

of request from the Design Consultant, can be held to be valid considering

the provisions of Section 12 of the Arbitration Act and the decisions

rendered in that regard. The Supreme Court referring to the decision in

TRF Ltd vs. Energo Engineering Projects Ltd. (supra) observed that in the

category of cases where 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, the element of invalidity

which can be attributed in the category of cases where the Managing

Director was found to be incompetent, as he would have interest in the

outcome or result of the dispute, the same element of invalidity, would

always arise and spring, even in the category of the cases where the

Managing Director is called upon to nominate an arbitral tribunal. The

observations in this regard in paragraphs 15 and 16 are required to be

noted which reads thus:-

15 Arbitration Application no.32 of 2019 dated 26/11/2019

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"15. It was thus held that as the Managing Director became ineligible by operation of law to act as an arbitrator, he could not nominate another person to act as an arbitrator and that once the identity of the Managing Director as the sole arbitrator was lost, the power to nominate someone else as an arbitrator was also obliterated. The relevant Clause in said case had nominated the Managing Director himself to be the sole arbitrator and also empowered said Managing Director to nominate another person to act as an arbitrator. The Managing Director thus had two capacities under said Clause, the first as an arbitrator and the second as an appointing authority. In the present case we are concerned with only one capacity of the Chairman and Managing Director and that is as an appointing authority. We thus have two categories of cases. The first, similar to the one dealt with in TRF Limited 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, the Managing Director was found incompetent, it was because of the interest that he would be said to be having in the outcome or 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, similar 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 Limited, 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.

16. But, in our view that has to be the logical deduction from TRF Limited. Paragraph 50 of the decision shows that this Court was concerned with the issue, "whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an Arbitrator" The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot

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and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter balanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) and recognised by the decision of this Court in TRF Limited."

Thus applying the above principles of law, Clause 55.1 of the

agreement providing for an arbitral tribunal to be constituted by the

Chairman and Managing Director is rendered wholly illegal and of no

consequence.

46. In so far as the contention as urged on behalf of the respondent that

if the case of the petitinoer is accepted, the Court would be accepting the

restrospective application of Section 12 as amended by the 2015

Amendment Act. This contention of the respondent cannot be accepted for

two reasons. Firstly, as noted above it cannot be overlooked that in the

present case commencment of the arbitral proceedings can only be in a

manner as recognized under Section 21 of the Act, that is when the

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dispute would arise, a party to a contract would urge the opposite party to

refer the dispute to arbitral tribunal. In the present case the

commencement of the arbitral proceedings has taken place after the 2015

Amendment Act was brought into force namely by the petitioner's letter

dated 5 July 2017. It is in the context of this letter and in fulfilling the

requirement of law as it stood on the day when the petitioner sought

reference of the disputes to arbitration, the arbitral tribunal would be

required to be constituted. For this purpose the standing arbitral tribunal

constituted prior to coming into force of the Act certainly would not clear

the test of law, when the commencement itself has taken place after the

2015 Amendment Act has come into force. Thus, there is no question of

any retrospective application of the 2015 Amendment Act. The only

conclusion which can be drawn is that the Standing Arbitral Tribunal, in

this situation constituted prior to the dispute in question having been

arisen, by operation of law is rendered invalid and wiped out applying the

principles of law as laid down by the Supreme Court in Bharat Broadband

Network Ltd. Vs. United Telecoms Ltd. (supra) and Perkins Eastman

Architects DPC & Anr. Vs. HSCC (India) Ltd. (supra).

47. Now I refer to some of the decisions as relied on behalf of the

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respondent.

In Aravali Power Company Pvt.Ltd. Vs. Era Infra Engineering Ltd.

(2017)15 SCC 32, the appellant had appointed its Chief Executive Officer

as a sole arbitrator in terms of the arbitration clause, while rejecting the

demand of the respondent to appoint an independent arbitrator. The

invocation of the arbitration was made by the respondent by a letter dated

29 July 2015 (prior to the 2015 Amendment Act coming into force). The

arbitrator was appointed on 19 August 2015 which was also prior to

coming into force of the 2015 Amendment Act. The respondent initially

participated in the arbitral proceedings without raising any objection.

After coming into force of the 2015 Amendment Act, for the first time on

12 January 2016, the respondent raised an objection referring to the

provisions of Section 12 of the Arbitration Act that the arbitrator as

appointed by the respondent would not be an independent and impartial

arbitrator. The objection being rejected by the arbitral tribunal, the

respondent approached the High Court under Section 11(6) praying that

an impartial and neutral arbitrator be appointed. The High Court allowed

the application. In a challenge to the said order, the Supreme Court held

that there was nothing on record which could give rise to justifiable

doubts about impartiality of the named arbitrator. It was held that no

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challenge was raised by the respondent within time and in terms of the

procedure prescribed and in fact the respondent had participated the

arbitral proceedings. It was held that in these circumstances, the High

Court ought not to have interfered in the process and the progress of the

arbitration. I am afraid as to how this decision would in any manner

forward the case of the respondent, when in the present case, the

petitioner had intended reference of the disputes to arbitration after

coming into force the 2015 Amendment Act. In this situation an arbitral

tribunal satisfying the provisions of law and the law as laid down in the

decisions as noted above, can only be held to be a valid arbitral tribunal.

48. In SP Singla Constructions Pvt. Ltd. Vs. State of Himachal Pradesh &

Anr.16 the Supreme Court was concerned with the arbitration proceedings

which had commenced on 18 October 2013 which was much prior to the

commencement of the amended provisions of Section 12 of the Arbitration

Act as amended by the 2015 Arbitration Amendment Act. The

appointment of the arbitrator was made on 30 October 2013 and the

arbitrator entered a reference on 11 November 2013. The appellant

therein had approached the High Court in a petition filed under Section

16 Civil Appeal nos.11824-11825 of 2018, decided on 4/12/2018

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11(6) of the Arbitration Act praying for an appointment of an independent

arbitrator. The High Court rejected the petition on the ground that the

appointment of the arbitrator could not be challenged by way of an

application under Section 11(6) of the Arbitration Act, referring to the

decision of the Supreme Court in Antrix Corporation Ltd. Vs. Devas

Multimedia Pvt.Ltd.17. The appellant being aggrieved by the order passed

by the High Court approached the Supreme Court, contending that it was

not permissible, after coming into force the 2015 Amendment Act, for the

respondent to appoint its officer as an arbitrator. It is in this context the

Supreme Court considering the arbitration agreement between the parties

as contained in Clause 65 of the General Conditions of the Contract, held

that it was not permissible for the appellant therein, to approach the High

Court under Section 11(6) of the Act when the parties were already before

the arbitral tribunal. It was held that considering the provisions of Section

26 of the 2015 Amendment Act, the provisions of the amended Act were

not to apply to the arbitral proceedings commenced in accordance with

Section 21 of the Principal Act before the commencement of the amended

Act, unless the parties otherwise agreed, and as in the said case the

arbitration proceedings had commenced way back in 2014 much prior to

17 (2014)11 SCC 560

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commencement of the Amended Act, hence the provisions of the Amended

Act could not be invoked.

In my opinion the facts of the present case are completely distinct.

This decision would not in any manner help the respondent and more

particularly when the arbitral proceedings in the present case have

commenced after coming into force 2015 Amendment Act.

49. In Rajasthan Small Industries Corporation Ltd. Vs. Ganesh

Containers Movers Syndicate 2019 SCC OnLine SC 65, the principal

agreement between the parties was dated 28 January 2000. A dispute had

arisen between the parties regarding imposition of transit penalty by the

appellant upon the respondent interalia for delay in transportation of

containers. The terms of the contract, Clause 4.20.1 of Schedule-4

(General Conditions) provided for arbitration by the Managing Director

himself or his or her nominee for the sole arbitration. The respondent

requested for appointment of an arbitrator in terms of the said clause. The

appellant therein appointed I.C.Shrivastava, IAS (Retd) as sole arbitrator

on 21 February 2005 (prior to coming into force the 2015 Amendment

Act). Since the progress of the sole arbitrator was not satisfactory, the sole

arbitrator was removed on 26 March 2009, and in his place Chairman-

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cum-Managing Director of the appellant-Corporation was appointed to act

as sole arbitrator by consent of both the parties. For one reason or other

the arbitral proceedings could not be concluded. On 16 March 2010 the

respondent raised its doubt regarding impartiality of newly appointed sole

arbitrator. The sole arbitrator passed an order on this application of the

respondent on 6 April 2010 that the arbitration agreement provided for

arbitration by the Chairman cum Managing Director of the Corporation or

his nominee and only at the request of both the parties the Chairman cum

Managing Director has taken up the arbitration to resolve the disputes

between the parties. The disputes proceeded and on 7 February 2013 the

respondent sent legal notice to the petitioner stating that despite number

of requests, the sole arbitrator has not passed an award and hence called

upon the appellant to pay an amount of Rs.3,90,81,602/-. This was

responded by the appellant stating that since the Chairman-cum-Managing

Director has been transferred, award could not be passed and there is no

question of payment to the respondent. In these circumstances, two years

thereafter on 13 May 2015 the respondent filed an application under

Section 11(6) and Section 15 of the Arbitration Act before the High Court

seeking appointment of an independent arbitrator for adjudication of the

disputes between the parties. On 18 December 2015 it was brought to the

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notice of the arbitrator that an arbitration application has been filed

before the High Court. On 5 January 2016 the Arbitral Tribunal adjourned

the proceedings to 13 January 2016 as a last opportunity for hearing the

parties. On 13 January 2016 the arbitrator rejected the application of the

respondent contractor and the request to adjourn the proceedings till the

decision of the High Court, and held that arbitral proceedings would be

finalized on the basis of available facts and adjourned the arbitral

proceedings to 21 January 2016. On 21 January 2016 the arbitrator

passed an ex-parte award. The High Court by its judgment and order

dated 22 April 2016 allowed the application filed by the respondent and

appointed Mr.J.P.Bansal, Retired District Judge as sole arbitrator to resolve

the disputes between the parties. This order of the High Court was the

subject matter of challenge before the Supreme Court in the said case. It is

in this context the following questions fell for consideration as noted in

paragraph 10 of the decision:-

(i) In the light of the proceedings before the sole arbitrator on various dates and when the proceedings before the arbitrator was pending, whether the respondent was right in filing arbitration petition approaching the High Court under Section 11 and Section 15 of the Arbitration Act, 1996 for appointment of a substitute arbitrator?

(ii) When by virtue of arbitration agreement Clause 4.20.1 of Schedule-4 (General Conditions), parties have agreed that the dispute, differences between the parties to be resolved by the

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Managing Director or his nominee, whether the High Court was right in deviating from the terms of the agreement between the parties and appointing an independent Arbitrator? (iii) Whether by virtue of Section 12 of the Arbitration and Conciliation (Amendment) Act, 2015, the Chairman- cum-Managing Director has become ineligible to act as the arbitrator? (iv) Whether the High Court was right in terminating the mandate of the arbitrator whom the parties have agreed and appointing substitute arbitrator on the ground that there was delay in passing the award?

In the facts of the case, the Court held that the respondent had no

material to show that the arbitrator had not acted independently or

impartially. It was also held that the respondent had participated in the

proceedings before the arbitral tribunal for quite some time and had

expressed its faith in the sole arbitrator and the respondent was not

justified in challenging the appointment of the Managing Director of the

appellant. The Supreme Court also held that Section 12 of the Amended

Act was not applicable in the facts of the case as the arbitral proceedings

has commenced prior to the commencement of the 2015 Amendment Act.

Having noted the context in which the above decision was rendered, I do

not see how the same would assist the respondent in the facts of the

present case.

50. There are other decisions as cited on behalf of the respondent which

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are much prior to coming into force of the Amended Act which I do not

find to have any relevance after the 2015 Amendment Act was brought

into force.

51. Now coming to the case at hand, applying the provisions of Section

12 of the Arbitration Act read with the relevant items in the Fifth and the

Seventh Schedules as noted above and principles of law as laid down in

the decisions of the Supreme Court in Voestalpine Schienen GmbH Vs.

Delhi Metro Rail Corporation Ltd. (supra), TRF Ltd vs. Energo Engineering

Projects Ltd. (supra); Bharat Broadband Network Ltd. Vs. United Telecoms

Ltd. (supra) and Perkins Eastman Architects DPC & Anr. Vs. HSCC (India)

Ltd. (supra), to the facts of the present case, it is quite clear that the

contract between the parties in the present case was executed on 24

September 2014. Clause 55 of the Special Conditions of the Contract is the

arbitration agreement between the parties providing for a standing

arbitral tribunal which provides that an arbitral tribunal should consist of

panel of three Gazetted Railway Officers not below JA Grade and a retired

Railway Officer, retied not below the rank of SAG officer, as the

arbitrators. The clause provides that the arbitral tribunal shall be formed

within three months from the date of the execution of the contract and for

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which purpose the respondent will send a panel of more than three names

of Gazetted Railway Officers of one or more departments of the railways

which may also include the name/s of retired railway officers, to the

contractor from the panel approved by Northern Railway and within two

weeks from the receipt of the list, the Contractor shall intimate in writing

two names from the said list to the Chairman and Managing Director of

the respondent. On such receipt of the nomination, the Chairman and

Managing Director has to appoint at least one out of them as the

petitioner's (contractor) nominee and will simultaneously appoint the

balance number of arbitrators from the panel approved by Northern

Railways duly indicating the presiding Arbitrator from amongst the three

arbitrators so appointed and one out of them would be from the accounts

department.

52. It is thus clear that not only the nominee arbitrator for the

petitioner would be from the panel of serving railway officer but also the

nominee arbitrator for the respondent and the presiding arbitrator is to be

appointed by the Chairman and Managing Director of the respondent.

The invocation of the arbitration in the present case as noted above was

when the petitioner by its letter dated 5 July 2017 raised disputes on non

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payment of the amounts by the respondent and invoked arbitration,

however, in accordance with the law laid down by the Supreme Court in

Voestalpine Schienen GmbH Vs. Delhi Metro Rail Corporation Ltd. (supra)

which was by the petitioner's letter dated 5 July 2017 and as no steps

were taken, the petitioner has approached this Court invoking Section

11(6) and making grievance on appointment of standing arbitral tribunal

also has invoked Sections 14(2) and 15(2) of the Arbitration Act. It can

therefore be clearly seen that commencement of the arbitral proceedings

in the present case is well after commencement of 2015 Amendment Act.

Considering the clear provision of Section 21 of the Arbitration Act, it

would be required to be held that the arbitration proceedings have

commenced when the request of the petitioner made on 5 July 2017 refer

the disputes for arbitration by constituting an arbitral tribunal as per the

law prevailing on the date of the invocaton. Thus, there can be no manner

of doubt that the provisions of Section 12 as amended by the 2015

Amendment Act read with the Fifth and Seventh Schedule squarely have

become applicable in the facts of the present case and a neutral, impartial

and an independent arbitral tribunal was required to be constituted. The

request of the petitioner to constitute such arbitral tribunal was not

accepted by the respondent on the ground that the standing tribunal

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already existed. The respondent was not correct in foisting upon the

standing arbitral tribunal on the petitioner, in view of the clear

requirement of the provisions of Section 12 read with Fifth and Seventh

Schedule as noted above.

53. The standing arbitral tribunal as constituted by the respondent in

the present case had lost its validity and would stand wiped out,

considering the clear position in law as laid down by the Supreme Court

in the decisions in Voestalpine Schienen GmbH Vs. Delhi Metro Rail

Corporation Ltd. (supra), TRF Ltd vs. Energo Engineering Projects Ltd.

(supra); Bharat Broadband Network Ltd. Vs. United Telecoms Ltd. (supra)

and Perkins Eastman Architects DPC & Anr. Vs. HSCC (India) Ltd. (supra).

54. In my opinion, the respondent had no authority to reject the request

of the petitioner to have an appointment of an independent and neutral

arbitral tribunal and more particularly when the standing arbitral tribunal

as constituted by the respondent, by operation of law had become invalid

as clearly held by the Supreme Court in Bharat Broadband Network Ltd.

Vs. United Telecoms Ltd. (supra) and Perkins Eastman Architects DPC &

Anr. Vs. HSCC (India) Ltd. (supra). The inevitable consequence would be

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that an independent arbitral tribunal is required to be constituted and the

respondent having failed to do so, this Court necessarily would have to

exercise jurisdiction under Section 11(6) read with Sections 14 and 15 of

the Arbitration Act.

55. In the above circumstances, the petitions need to succeed. They are

accordingly allowed by the following order:-

ORDER

(i) Mr.Justice M.S.Sanklecha, Former Judge of this Court, is appointed

as a nominee arbitrator on behalf of the petitioner.

(ii) The respondent is directed to appoint its independent nominee

arbitrator within two weeks from today.

(iii) The nominee arbitrators of both the parties shall appoint a Presiding

Arbitrator before entering a reference, in accordance with the provisions

of the Arbitration Act.

(iv) The learned prospective arbitrators, before entering a reference,

shall make a statement of disclosure as per the requirement of Section

11(8) read with Section 12(1) of the Arbitration and Conciliation

Act,1996, and forward the same to the Prothonotary and Senior Master of

this Court to be placed on record of the applications, with a copy to be

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forwarded to both the parties.

(v) The fees payable to the arbitral tribunal shall be governed by the

provisions prescribed under the Bombay High Court (Fees Payable to

Arbitrators) Rules,2018.

(vi) All contentions of the parties are expressly kept open.

(vii) The petitions are disposed of in the above terms.

(viii) A copy of this order be forwarded to the learned Arbitrator on the

following e-mail address:-

"manojssanklecha@gmail.com"

(G.S.Kulkarni, J.)

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