Jhajharia Nirman Ltd v. South Western Railways

9. Disputes having arisen between the parties, a “Notice of Dispute” was issued by the petitioner vide communication dated 27.07.2024. In terms of the prescription in the dispute resolution clause, the respondent was requested to appoint a conciliator to resolve the disputes between the parties. The respondent sent a communication dated 09.08.2024 to the petitioner stating as under:- Mar, 2017 as amended time to time shall be followed. However, in case Contractor has to pay to the Authority, then75% of the award amount shall be deducted by the Authority from the running bills or other dues of the Contractor, pending adjudication by Court of Law. 24.3.18 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 & Authority, the jurisdiction shall be of Courts at [Delhi]Only” “SOUTH WESTERN RAILWAY W.148/ ARB/BNC/06/24-25 Office of the Chief Administrative Officer Construction, Cantonment. Millers Road, Bangalore - 560 001 August 9, 2024 M/s. Jhajharia Nirman Ltd. Jhajhari Mansion, Jagmal Block, Bilaspur, Chattisgarh, 495001 Mail Id- Jhajharia_nirman@yahoo.com Sub: Construction of Electrified Double line track between Penukondo Junction (Km. 136.694) to Dharmavaram (Km. 176.600) including Telecommunication &Electrical Works EPC Tender No PKD- DMM-EPC LOA dt. 19/01/2023 Ref: (1) GM/SWR/UBL Letter No. G/ A-29/2023/DAB (E 99771 & GB (ARBT)/ 26/2023 dt. 14/12/2023. (2) This office letter of even number dt. 01/02/2024 ****** As per the provisions in the Contract Agreement. Panels of SAT - Standing Arbitration Tribunal and DAB - Dispute Adjudication Board have been formed by the Competent Authority vide letter dt. 14/12/2023. Copy of the same was forwarded vide this office letter of even number dt. 01/02/2024 to resolve/ address the disputes between the Contractor and Railways, if any. As per the letter dt. 14/12/2023 from GM/SWR/UBL for DAB & SAT - on receipt of Contractor's nominee, the Chief Engineer shall nominate one member from the same panel as Railway nominee for the DAB/SAT for EPC Works and process further as per LOA/Contract Agreement. In view of the above, your nominee from the DAB/SAT Panel may be chosen and forwarded to this office for further necessary action please. Sd/-

B. V. Baraskar

10. The above letter was responded to by the petitioner on 20.08.2024 stating as follows:- “Jhajharia Nirman Limited JNL/PKD-DMM/23-24/DAB&SAT/01 Date: 20.08.2024 To Chief Materials Manager South Western Railway Bangalore Through Authority Engineer (DyCE/IV/BNC) Subject: Nominee from DAB & SAT Panel Ref.:

1. Letter No: W.148/ARB/BNC/DAB dated 01.02.2024.

2. Letter No: W.148/ARB/BNC/06/24-25 dated 09.08.2024. Dear Sir, With reference to the above-mentioned letters, we are hereby nominating the followingmember from the Panel list provided by your office.

1. For DAB Panel (Dispute Adjudication Board) – Shri. BP Khare, RetdGM/DLW/Varanasi

2. For SAT Panel (Standing Arbitration Tribunal) – Shri. Ajay Kumar Lal, RetdPFA&CAO/NR Thanking you in anticipation, For, Jhajharia Nirman Limited Director Copy to:

1. Authority (CE/C-II/BNC) for information please.”

11. In view of the emergent situation created on account of the disputes between the parties, particularly on account of the alleged withholding of the RA Bills raised by the petitioner, a communication dated 30.08.2024 was addressed by the petitioner to the Authority Engineer of the respondent stating as under:- “…… As per Article 24 of our contract agreement, Vide clause 24.[1] “All disputes and differences of any kind whatsoever arising out of or in connection with the contract, whether during the progress of the work or after its completion and whether before or after the determination of the contract, shall be referred by the Contractor to the "Authority" through “Notice of Dispute” provided that no such notice shall be served later than 30 days after the date of issue of Completion Certificate by the Authority Engineer. Authority shall, within 30 days after receipt of the Contractor’s “Notice of Dispute”, notify the name of conciliator(s) to the Contractor. In case Authority fails to fix Conciliator within 30 days, Contractor shall be free to approach Dispute Adjudication Board (DAB) for adjudication of Dispute.” It is clear that after request made on 27.07.2024, name of conciliator has not been communicated to us even after 33 days. We would also like to bring to your attention that as per clause 24.2.1“A dispute/s if not settled through conciliation, shall be referred to DAB. The DAB shall consist of a panel of three Retired Railway Officers not below senior administrative grade (SAG). The DAB shall be formed within 90 days of signing of Contract Agreement.” And as per clause 24.2.8“No dispute shall be referred to Standing Arbitral Tribunal unless the same has been referred to DAB for adjudication. However, in case DAB is not formed due to any reason, the disputes can be directly referred to Standing Arbitral Tribunal to adjudicate the dispute.” Referring to clauses 24.2.[1] and 24.2.8, it is clear that the Dispute Adjudication Board (DAB) was supposed to be established within 90 days following the contract agreement, specifically by August 3, 2023. However, for any number of reasons best known to the Authority, this has not occurred. Therefore, according to clause 24.2.8, the contractor has the right to approach the Standing Arbitral Tribunal instead of proceeding with DAB proceedings. In light of this clause, we kindly request the establishment of a SAT Panel, and since the panel of the given 5 members does not fulfill the criteria as laid down by the Hon’ble Supreme Court, we request you to provide us a broader panel in terms of the said law or we can proceed to appoint our nominee, so as to proceed urgently with the constitution of the 3 Member Arbitral Tribunal. We would also like to highlight, as per clause 24.3.12

12. No response to the said communication was sent by the respondent to “The obligation of the Authority and the Contactor shall not be altered by reasons of arbitration being conducted during the progress of work. Neither party shall be suspended the work on account of arbitration and payments to the contractor shall continue to be made in terms of the contract and /or as awarded (except when Award is challenged in the Court in which case the payments would be as per the court's orders).” In accordance with clause 24.3.12, it is clear that payments are required to be disbursed to the contractor during the Tribunal proceedings. Therefore, we kindly ask that you notify the Accounts department of BNC/SWR, enabling us to submit our invoices and facilitate the release of payment. Given that the project is currently in a critical phase and our payments have been suspended due to your unilateral decision, we are finding it increasingly challenging to maintain operations. We kindly request your prompt action in appointing the Arbitral Tribunal for early effective adjudication of the dispute and also furthermore advising AFA/BNC on the release of payments for the invoices that will be submitted. Pl note for full disclosure, we have filed proceedings before the Hon’ble Delhi High Court as well, which your good self is well aware and duly represented.” the petitioner.

13. In the above backdrop, the present petition has been filed by the petitioner seeking appointment of a sole arbitrator to adjudicate the disputes between the parties.

14. Mr. Anurag Ahluwalia, learned standing counsel for the respondent has sought to oppose the present petition on the following grounds:i. It is submitted that the present petition is not maintainable inasmuch as the petitioner has filed the same without taking the mandatory prerequisites prior to invocation of the arbitration i.e. reference of the matter to Conciliator and thereafter to the Dispute Adjudication Board (DAB) to resolve the disputes. ii. It is also submitted that constitution of the arbitral tribunal has to be in accord with the prescription of the Contract and it is not permitted to deviate therefrom. In this regard, he relies upon the judgment of the Supreme Court in the case of Central Organization for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) a Joint Venture Company (2020) 14 SCC 712.

15. Having considered the rival contention of the respective counsel, I find no impediment in constituting an arbitral tribunal to adjudicate the disputes between the parties.

16. As regards, the first objection that the petitioner be compelled to participate in conciliation and in proceedings before DAB before referring the dispute to arbitration, it is notable that the petitioner requested for appointment of a conciliator vide letter dated 27.07.2024, in terms of the relevant provisions in the Contract. The concerned Authority of the respondent was obliged to notify the petitioner of the name of the conciliator within 30 days. The same was admittedly not done, although the Conciliator is stated to have been nominated belatedly after the disputes between the parties had escalated further to a significant extent.

17. Further, the constitution of the DAB in the present case was belated and not within the timeframe stipulated in the Contract Agreement. In terms of the Contract, the DAB was to be formed within the 90 days of signing of the contract agreement. Admittedly, the same was not done.

18. In numerous judicial precedents, this Court has taken the view that any pre-condition in an arbitration agreement obliging one of the contracting parties to either exhaust the pre-arbitral amicable resolution avenues or to take recourse to Conciliation are directory and not mandatory.

19. In this regard, reference may be made to Oasis Projects Ltd. v. National Highway & Infrastructure Development Corporation Limited(2023) 1 HCC (Del) 525, wherein the Court has observed as under:

20. In Kunwar Narayana v. Ozone Overseas Pvt. Ltd 2021:DHC:496, the Court has made the following observations:

21. This Court in Subhash Infraengineers (P) Ltd. v. NTPC Ltd. 2023 SCC OnLine Del 2177 has held as under:—

any stage as provided under the Arbitration and Conciliation Act, 1996.” ***

28. In the present case, the clause/pre arbitral mechanism contemplates mutual consultation followed by conciliation. As noticed in Abhi Engg. and Oasis Projects, conciliation is a voluntary process and once a party has opted out of conciliation, it cannot be said that the said party cannot take recourse to dispute resolution through arbitration.”

22. Also, given that the disputes between the parties require urgent adjudication, it would be wholly untenable to compel the parties to go through the motions of conciliation / DAB proceedings before referring the disputes to arbitration. This Court in Pele Khezhie v. National Highways and Infrastructure Development Corporation Limited 2023 SCC OnLine Del 5320, while relying upon the aforementioned judgments has made the following observations:

12. In the present case, grave urgency has been expressed by the petitioner in seeking reference of the disputes to the arbitration inasmuch the respondent has issued a notice of intention to terminate the contract. In the circumstances, in view of the urgent adjudication sought by the petitioner, it would be unwarranted to relegate the petitioner to conciliation. As held in Oasis Projects (supra) and Subhash Infraengineers (supra), Section 77 of the A&C Act itself contemplates that notwithstanding any conciliation proceedings, it is open to a party to initiate arbitration proceedings where such proceedings are necessary for preserving its rights.

23. As such, this Court finds no merit in the first objection raised by the learned counsel for the respondent.

13. As such, there is no merit in the contentions raised by learned counsel for the respondent that it is not open to the petitioner to seek arbitration till the conciliation process, contemplated in Article 26.[2] (supra) is exhausted.” (Emphasis supplied)

24. Even as regards the second objection, it is notable that this Court has had occasion to consider the arbitration agreement involving an appointment procedure similar to the one prescribed in the present case.The arbitration Clause in the present matter stipulates that the Arbitral Tribunal will consist of three retired railway officers of at least Senior Administrative Grade (SAG)and the Authority will maintain a panel of at least five arbitrators. The panel will be sent to the contractor, who must choose one arbitrator as their nominee within two weeks. The Authority will then appoint the contractor’s nominee and another from the same panel as its own nominee. These two arbitrators will jointly select a presiding arbitrator from the same panel. Further, it is provided that the contractor does not select a nominee within the given two weeks, the Authority will give an additional two weeks. If the contractor still fails to nominate, the Authority will appoint two arbitrators from the panel, and they will jointly select the presiding arbitrator.

25. It has been held in a catena of judgments that the above mentioned appointment procedure does not meet with the requirement of law. In Margo Networks Pvt. Ltd. & Anr. v. Railtel Corporation of India Ltd., 2023:DHC:4596, it was held as under:

(i) In the context of appointment procedure contemplating appointment out of panel of arbitrators maintained by one of the contracting parties, it is mandatory that the panel should be sufficiently broad-based, failing which the appointment procedure does not meet with the requirements of law. Referring Voestalpine Schienen Gmbh vs. Delhi Metro Rail Corporation Ltd, (2017) 4 SCC 665, it was held that an arbitrator panel must be broad-based, and not restrictive. This requirement was found to be not fulfilled where the panel comprised solely of ex-employees of a party.

(ii) A valid appointment procedure must be balanced and not confer excessive say or authority on one of the parties to the arbitration, as regards constitution of the arbitral tribunal. An appointment procedure which contemplates that one party appoints two out of three members of the arbitral tribunal, the appointment procedure contravenes this requirement.

26. The relevant observations made by this Court in Margo Networks Pvt. Ltd. (supra)are as follows -

27. The observations made in Margo Networks Pvt. Ltd. (Supra) have been further referred by this Court in Taleda Square Private Limited v. Rail Land Development Authority2023 SCC OnLine Del 6321, Kalyan Toll Infrastructure Ltd v. Union of India and Others 2024 SCC OnLine Del 1525and Techno Compact Builders through Mr. Zulfiquar Ali, Sole Proprietor v. RAILTEL Corporation of India Limited, 2024 SCC OnLine Del 2166.

28. Consequently, in terms of the said judgment in Margo Networks Pvt. Ltd. (Supra) and other judgments of the Co-ordinate Bench of this Court, it is incumbent on this Court to appoint an independent arbitral tribunal to adjudicate the disputes between the parties. In this regard, reference may be made to S.N. Naik & Brothers v. Union of India 2024 SCC OnLine Bom 995, wherein, it has been observed as under:-

the view taken by the Delhi High Court in the below discussed judgments. xxx xxx xxx

23. I am in respectful agreement with the view expressed by the Delhi High Court in the case of Gangotri (supra) and Ganesh Engineering (supra) that the judgment of CORE (supra) of the Hon’ble Supreme Court does not deal with the issue, whether the arbitral panel appointed is broad based in confirmity with voelstapine (supra) and whether the counter balancing is achieved as laid down in Perkins (supra). Coming to the facts of the present case, 2/3 arbitral panel is appointed by the respondent so also for the 3rd member of the arbitral tribunal 4 names are suggested by the respondent from which the petitioner is required to choose 2 names and from the 2 names chosen by the petitioner, the respondent will appoint one. Thus, the respondent has a complete say in the appointment of the tribunal.

24. Having considered the law on the subject the question as raised at para 8(1) can be answered as under:- Clause 64(3)(b)(ii) of the General Conditions of Contract provides for unilateral appointment of arbitral tribunal at the hands of one of the parties and, thus, is in violation of the principles laid down in Voestalpine (supra), TRF (supra) and Perkins (supra) and also in violation of the law laid down in the case of Lombard (supra) and the said clause is ex-faice invalid and the tribunal constituted thereunder is non-est and void ab initio. xxx xxx xxx

29. In view of this, in exercise of the powers under section 11(6) of the Arbitration Act, I appoints Hon’ble Shri Naresh H. Patil (Retired Chief Justice, Bombay High Court) as sole arbitrator in the matter to decide the disputes arising between the parties in terms of agreement dated 23.09.2019

29. Also, a Coordinate Bench of this Court in M/S Twenty-Four Secure Services Pvt. Ltd. v. M/S Competent Automobiles Company Limited 2024/DHC/4601,observed as under:-. The sole arbitrator’s fees shall be governed by the Bombay High Court (Fee Payable to Arbitrators) Rules, 2018.”

Arbitrator in distinction to the Arbitration Agreement which provided for the Tribunal of three members. The Apex Court upheld the order of this Court appointing a Sole Arbitrator by observing that the appointment of the Sole Arbitrator was valid.

23. In view of the submissions made as well as Clause 7 of the Services Agreement dated 16.08.2021 which provides for arbitration and the petitioner has raised the arbitrable disputes and without prejudice to the rights and contentions of the parties, the present petition is allowed…...”

30. Accordingly, this Court finds no impediment in appointing a sole arbitrator to adjudicate the disputes between the parties.

31. Accordingly, Mr. Justice (Retd.) Pradeep Nandrajog, Former Chief Justice, Bombay High Court (Mobile No.:9818000130), is appointed as the Sole Arbitrator to adjudicate the disputes between the parties.

32. The respondent shall be entitled to raise preliminary objections as regards jurisdiction/arbitrability, which shall be decided by the learned arbitrator, in accordance with law.

33. The learned Sole Arbitrator may proceed with the arbitration proceedings subject to furnishing to the parties requisite disclosures as required under Section 12 of the A&C Act.

34. The learned Sole Arbitrator shall be entitled to fee in accordance with Fourth Schedule to the A&C Act; or as may otherwise be agreed to between the parties and the learned Sole Arbitrator.

35. The parties shall share the arbitrator’s fee and arbitral costs, equally.

36. All rights and contentions of the parties in relation to the claims/counter-claims are kept open, to be decided by the learned Arbitrator on their merits, in accordance with law.

37. Needless to say, nothing in this order shall be construed as an expression of this court on the merits of the case.

38. The present petition stands disposed of in the above terms.

39. This is a petition under Section 9 of the A&C Act seeking urgent interim orders. O.M.P.(I) (COMM.) 280/2024

40. It is averred in the petition that an emergent situation has been created on account of actions of the respondents in imposing unreasonable penalty on the petitioner and withholding excessive amounts from the RA Bills raised by the respondents.

41. It is submitted by the learned senior counsel for the petitioner that the same is having a crippling impact on the petitioner and on the work in question, necessitating urgent interim orders.

42. Since a learned sole arbitrator has been appointed to adjudicate the disputes between the parties, it would be apposite if the present petition under Section 9 of the A&C Act is treated as an application under Section 17 of the A&C Act and accordingly dealt with by the learned sole Arbitrator. It is directed accordingly.

43. In view of the urgency emphasized by the learned senior counsel, the petitioner shall be at liberty to request the learned sole Arbitrator for expeditious consideration thereof.

44. The present petition is disposed of with the aforesaid directions. The pending applications are also disposed of.

SACHIN DATTA, J OCTOBER 7, 2024 r, sv