OM 360 Degrees Advertising and Entertainment Pvt. Ltd. v. Delhi Metro Rail Corporation Limited

1. By way of present petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereafter, ‘the A&C Act’), the Petitioner has assailed the Award dated 29.09.2017, delivered by the Arbitral Tribunal comprising of a Sole Arbitrator (hereafter, ‘the AT’).

2. The Arbitral proceedings arose in the context of a Contract awarded by the Respondent to the Petitioner/Claimant (hereafter, ‘the Contractor’). The parties entered into a contract for advertising rights inside 5 MRTS Stations of Line-3 Eastern Extension of MRTS Phase-II (Laxmi Nagar Station to Anand Vihar Station) (hereafter, ‘the licensed sites’). Resultantly, a License Agreement dated 20.07.2010 was executed between the parties for an initial period of five years. Clause 29 of the General Terms and Conditions of the License Agreement provided for resolution of disputes through arbitration. Disputes having arisen, arbitral proceedings were initiated and the impugned Award was rendered.

DISPUTES BEFORE THE ARBITRAL TRIBUNAL

3. Contractor filed its Statement of Claims, wherein a total of 7 claims were filed. Vide Claim No.1, Contractor claimed that Bank Guarantee and Security Deposit provided by it, was wrongly forfeited. It thus claimed an amount of Rs.45,83,967/- towards the difference between the amounts forfeited and the amounts due from the Contractor to the Respondent. Claim No.2 was for seeking refund of Rs.54,31,927/- w.r.t the licence fee paid to the Respondent in lieu of 96 days when Contractor had no access to the licensed sites. Vide Claim No.3, Contractor claimed Rs.[1] crores towards loss of revenue on account of failure of Respondent to issue timely permission to work on the licensed sites as well as non-cooperation of Respondent’s and CRPF’s security personnel. Claim No.4 sought compensation/damages to the tune of Rs.22,36,493/- on account of confiscation of its advertisement display material by the Respondent post termination. Vide Claim No.5, Contractor claimed an amount of Rs.[3] lacs towards additional direct cost for miscellaneous and other incidental direct cost. Claim No.6 was for award of interest @ 18% per annum till payment of the claim amount of Rs.2,25,52,387 alongwith pendente lite interest. Lastly, cost of arbitration was also claimed.

4. Per contra, Respondent, apart from filing its Statement of Defence, filed 5 counter claims. Vide Counter Claim No.1, Respondent claimed Rs.1,55,50,268/- towards the balance dues upto 16.10.2012. Vide Counter Claim No.2, a sum of Rs.34,31,914/- was claimed towards balance interest. Vide Counter Claim No.3, an amount of Rs.1,50,40,000/- was claimed towards unauthorised occupancy charges from 23.10.2012 to 24.11.2012. Vide Counter Claim No.4, Respondent claimed interest @ 18% per annum till payment of the claim amount of Rs.3,40,22,182/- alongwith pendente lite interest. Lastly, cost of arbitration was also claimed.

5. By the impugned Award, the AT, while dismissing the claims filed by the Contractor, allowed the Counter Claim Nos.1, 2 and 4.

SUBMISSIONS BEFORE THIS COURT

6. Contractor has raised a preliminary submission that the arbitral proceedings were vitiated inasmuch as the Arbitrator on the date of his appointment was a serving employee of the Respondent. The impugned Award is also assailed on other grounds.

7. Respondent, on the other hand, though does not dispute the aforenoted statement, submits that since the arbitral proceedings were initiated prior to the 2015 Amendment to A&C Act coming into force, thus it was the unamended Act which shall govern the procedure of the arbitral proceedings. While defending the nomination of the AT, it was submitted that merely because the Arbitrator happens to be an employee of the Respondent, that by itself would not render the appointment invalid and unenforceable.

8. Indisputably, the AT was unilaterally nominated by the Director of the Respondent in terms of Clause 29.[1] of the License Agreement.

9. The issue raised here is no longer res integra. Independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which apply to all judicial and quasi-judicial proceedings. The Supreme Court in Ellora Paper Mills Limited v. State of Madhya Pradesh, reported as (2022) 3 SCC 1, while emphasizing on the “neutrality of arbitrator”, noted that Sub-section (5) of Section 12 lays down 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 specified in the Seventh Schedule, he shall be ineligible to be appointed as an arbitrator. It further held that Section 12(5) of the A&C Act, as amended by the 2015 Amendment Act, would be equally applicable to arbitral proceedings initiated prior to the coming into force of Amendment Act, 2015 as well.

10. There is no express waiver in writing by the Contractor waiving its right to the applicability of Sub-section (5) of Section 12. The present case relates to de jure ineligibility of the sole arbitrator. Indisputably, the learned Sole Arbitrator, while entering reference and delivering the Award, was a serving employee of the Respondent. The Supreme Court in Perkins Eastman Architects DPC v. HSCC (India) Ltd. reported as (2020) 20 SCC 760, held as under:-

11. Recently, Supreme Court while dealing with a similar issue in Glock Asia-Pacific Ltd. vs. Union of India (UOI) reported as 2023 SCC OnLine SC 664 held as under: