Full Text
HIGH COURT OF DELHI
JUDGMENT
STEELMAN TELECOM LIMITED ..... Petitioner
Through: Mr. Aniruddha Bhattacharya and Mr. Aditya S. Pandey, Advs.
Through: Mr. Sudhir Nandrajog, Sr. Adv. along with Mr. Azmat H. Amanullah andMr. Hardik Choudhary, Advs.
1. The present petition under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “A&C Act”) seeks appointment of a sole arbitrator to adjudicate the dispute between the parties.
2. The disputes between the parties have arisen with respect to the work executed by the petitioner in furtherance of tender bearing No. ERTCC/ C&MIl7-18/I-75/T-139/AMC_LMC/Pkg-C dated 23.02.2018 floated by the respondent and awarded to the petitioner for the “AMC of Bhubaneshwar and Cuttack Intracity and Talcher-Bhubaneswar Intercity OFC Network and LMC in various cities of Odisha for a period of three years”.
3. Initially, a purchase order dated 12.10.2018 was issued by the respondent upon the petitioner. Clause 14 of the aforesaid purchase order incorporates the arbitration agreement, which is in the following terms:- ―14.0 ARBITRATION All disputes or differences in respect of which the decision, if any, of the Project Manager and/or the Head of the Implementing Authority has not become final or binding as aforesaid shall be settled by arbitration in the manner provided herein below: The arbitration shall be conducted by a sole arbitrator in case the amount of claim is less than Rs. 25 crore and by three member arbitral tribunal in case the amount of claim is greater than Rs. 25 Crore. Sole Arbitration The sole Arbitrator shall be chosen from a panel of empanelled Arbitrators maintained by POWERGRID. The same shall comprise of retired Judges and retired Senior executives of PSUs other than POWERGRID. Further, the choice of sole Arbitrator shall be governed by the amount of claim in the following manner:
┌───────────────────────────────────────────────────────────────────────────────────────────────────┐ │ Sl. Claim Amount Work Experience/Qualifications │ │ No. │ │ 1. <Rs. 10 Crore Sole Arbitrator-Retired Senior │ │ Executives of PSUs other than │ │ POWERGRID/Retired Distt │ │ Judges/High Court Judges. │ └───────────────────────────────────────────────────────────────────────────────────────────────────┘
29. Some comments are also needed on Clause 9.2(a) of GCC/SCC, as per which 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 instil confidence in the mind of the other party, it is imperative that panel should be broadbased. 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 the dispute is the Government or public sector 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 DMRC. It, therefore, becomes imperative to have a much broadbased 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 broadbased panel on the aforesaid lines, within a period of two months from today.‖
21. The necessity of a truly broadbased panel has also been emphasized in the judgments of this Court in BVSR-KVR (Joint Ventures) Vs. Rail Vikas Nigam Ltd.9, M/s Singh Associates Vs. Union of India10, Gangotri Enterprises Ltd. Vs. General Manager Northern Railways11 and L&T Hydrocarbon Engineering Limited Vs. Indian Oil Corporation Limited12.
22. In Margo Networks (P) Ltd. Vs. Railtel Corpn. of India Ltd13, it has been held that in the light of the specific issues dwelt upon in Central Organisation (supra), the same does not derogate from the principles laid down in Perkins (supra). As noticed hereinabove, in Central Organisation (supra) the Supreme Court upheld the validity of an appointment procedure which involves appointment of arbitrator/s out of a panel prepared by one of the contracting parties. However, as held in Margo (supra), the Supreme Court in Central Organisation (supra) did not specifically go into the issue as to whether the particular panel in that case was truly broad based, in consonance with Voestalpine (supra); and/ or the circumstances in which a panel based appointment procedure can be said to achieve genuine “counterbalancing” as contemplated in Perkins (supra). In Margo (supra) it has been held as under:- ―26. CORE does not in any manner overrule Voestalpine (supra) or narrow down the scope thereof, although it does not deal specifically with the issue as to whether the panel afforded by the Railways in that case was in conformance with the principles laid down
2023 SCC OnLine Del 3906 in Voestalpine (supra). xxx xxx xxx
35. Thus, in an appointment procedure involving appointment from a panel made by one of the contracting parties, it is mandatory for the panel to be sufficiently broad based, in conformity with the principle laid down in Voestalpine (supra), failing which, it would be incumbent on the Court, while exercising jurisdiction under Section 11, to constitute an independent and impartial Arbitral Tribunal as mandated in TRF (supra) and Perkins (supra). The judgment of the Supreme Court in CORE does not alter the position in this regard.
37. This brings us to the next issue that arises in the context of the arbitration clause in the present case, viz. whether ―counter balancing‖ is achieved in a situation where one of the parties has a right to choose an arbitrator from a panel whereas 2/3rd of the members of the arbitral tribunal are appointed by the other party.
38. In TRF Limited (supra), it was observed by the Supreme Court as under:— ―50………..At the cost of repetition, we may state that when there are two parties, one may nominate an arbitrator and the other may appoint another. That is altogether a different situation. If there is a clause requiring the parties to nominate their respective arbitrator, their authority to nominate cannot be questioned. What really in that circumstances can be called in question is the procedural compliance and the eligibility of their arbitrator depending upon the norms provided under the Act and the Schedules appended thereto. ………….‖
39. Also in Perkins (supra), the Supreme Court observed as under:— ―21…………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…
40. In the light of the aforesaid observations in TRF (supra) and Perkins (supra), it was observed by the Supreme Court in CORE as under: ―37………Thus, the right of the General Manager in formation of the Arbitral Tribunal is counterbalanced by the respondent's power to choose any two from out of the four names and the General Manager shall appoint at least one out of them as the Contractor's nominee.
38. ……….Thus, the power of the General Manager to nominate the arbitrator is counter balanced by the power of the respondent to select any of the two nominees from out of the four names suggested from the panel of the retired officers. In view of the modified clauses 64(3)(a)(ii) and 64(3)(b) of GCC, it cannot therefore be said that the General Manager has become ineligible to act as (sic nominate) the arbitrator. We do not find any merit in the contrary contention of the respondent. The decision in TRF Ltd. is not applicable to the present case.‖
41. The fulcrum of CORE is that the right of one of the parties to prescribe a panel of persons from which the parties would appoint their nominee arbitrators is counter balanced by the power of other contracting party to choose therefrom. However, whether counter balancing can be achieved in a situation where one of the contracting parties has a right to appoint the remaining 2/3rd of the members of the arbitral tribunal, was not specifically considered in CORE. The said issue came to be considered by a coordinate bench of this Court in CMM Infraprojects Ltd. v. IRCON International Ltd wherein it was, inter-alia, held as under:— ―21. The other anomaly which merits consideration is that the Managing Director of the Respondent, who has a direct interest in the outcome of the case, is directly appointing 2/3rd of the members of the Arbitral Tribunal. And also plays a role in the appointment of the 3rd arbitrator i.e., the contractor's nominee. This is against the spirit of the judgment in Perkins Eastman (supra). This argument was perhaps not raised in CORE (supra).
22. In cases where the arbitration clause provides a genuine counterbalancing of power of appointment between the two parties i.e., when one party appoints its nominee and the other party does the same and the two nominees together decide the presiding arbitrator the Court would not find any imbalance impinging upon the concept of party autonomy. This was the sentiment expressed by the Supreme Court in TRF Limited v. Energo Engineering Projects Limited, particularly para 50 which reads as under:— ―50………………..We are singularly concerned with the issue, whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator. At the cost of repetition, we may state that when there are two parties, one may nominate an arbitrator and the other may appoint another. That is altogether a different situation. If there is a clause requiring the parties to nominate their respective arbitrator, their authority to nominate cannot be questioned. What really in that circumstance can be called in question is the procedural compliance and the eligibility of their arbitrator depending upon the norms provided under the Act and the Schedules appended thereto.‖ The said view was also endorsed in Perkins Eastman (supra) [para 21] to the following effect: ―21. 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 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.‖ The clause in the present case does not provide for any effective counter balancing. The process starts with selection of a panel by the Respondent and this restricts the element of choice that the contractor may exercise in choosing its nominee. Nonetheless, it allows the Respondent to ultimately choose the contractor's nominee from the two names suggested by the contractor. However, the clause also entitles the Respondent to choose the balance two arbitrators from the panel or even outside. This undeniably indicates that the scales are tipped in favour of the Respondent when it comes to the appointment process. In effect, 2/3rd strength of the Arbitral Tribunal is nominated by the Respondent. This leads to the inexorable conclusion that the clause in its current state may not be workable. Thus, the reliance of the Respondent upon the judgment in CORE (supra) is misplaced.‖
43. The above observations also squarely apply in connection with the arbitration agreement that falls for consideration in the present case. Thus, the appointment procedure contained in Clause 3.37 of the RFP fails to pass muster for this reason as well. The ―counter balancing‖ as contemplated in Perkins (supra) cannot be said to have been achieved in a situation where one of the parties has a right to choose an arbitrator from a panel and where the remaining (2 out of 3) arbitrators are appointed by the other party.‖
23. In the present case, the panel of the arbitrators prepared by the respondent comprises of former Supreme Court Judges, Former Judges of various High Courts and District Courts, Engineers, Financial Experts, Civil Servants. The same can be said to be broadbased and meets with the requirement laid down by the Supreme Court in Voestalpine (supra).
24. The only remaining question is whether the appointment procedure in question achieves counterbalancing as contemplated in Perkins (supra). Per se, there is no difficulty with an appointment procedure under which one of the parties draws up a “broadbased” panel and the other contracting party has the right to choose any person from that broadbased panel to act as a Sole Arbitrator. However, the equilibrium is disturbed where the party drawing up the panel is given a further right to accord its “confirmation” as to the choice exercised by the other contracting party.
25. It was sought to be contended on behalf of the respondent that the confirmation envisaged under the appointment procedure is a mere formality and therefore should not be construed as disturbing the balance/equilibrium in the appointment procedure. I am unable to accept this contention. Had this been so, there was no reason to incorporate the provision for “confirmation” in the appointment procedure. It may be noted that in Voestalpine (supra), the Supreme Court frowned upon a panel based appointment procedure which “created room for suspicion”. Further, in Margo (supra) and CMM Infraprojects Ltd. Vs.
IRCON International Ltd14, Pankaj Mittal Vs. Union of India15 and Pankaj Mittal Vs. Union of India16, this Court has disapproved of appointment procedure/s giving greater say to one of the contracting parties. In CMM (supra), the Court specifically disapproved of an appointment procedure under which “the scales are tipped in favour of the respondent‖. In the present case, the tipping of scales in favour of the respondent is subtle, but clearly discernible.
26. In the circumstances, it is incumbent on this Court to appoint an independent Sole Arbitrator to adjudicate the disputes between the parties.
27. Accordingly, Mr. Justice (Retd.) Najmi Waziri, Former Judge of Delhi High Court, (Mob. No. - 9810097311) is appointed as the Sole Arbitrator to adjudicate the disputes between the parties.
28. The respondent shall be entitled to raise preliminary objections as regards arbitrability/maintainability of the claims which shall be decided by the arbitrator, in accordance with law.
29. 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; and in the event there is any 2021:DHC:2578 Order dated 16.12.2021 passed by this Court in ARB.P. 607/2021 Order dated 11.07.2023 passed by this Court in ARB.P. 130/2023 impediment to the appointment on that count, the parties are given liberty to file an appropriate application in this court.
30. 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.
31. Parties shall share the arbitrator’s fee and arbitral costs, equally.
32. 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.
33. Needless to say, nothing in this order shall be construed as an expression of this court on the merits of the case.
34. The present petition stands disposed of accordingly in the aforesaid terms.
AUGUST 14, 2023 SACHIN DATTA, J.