Full Text
HIGH COURT OF DELHI
IRCON INTERNATION LTD. ..... Respondent/ Review Petitioner
Through: Mr. Chandan Kumar & Ms. Kirti Atri, Advocates.
Through: None.
JUDGMENT
1. The present Petition under Order XLVII read with Section 151 of the Code of Civil Procedure, 1908 (hereinafter referred to as “CPC, 1908”) has been filed on behalf of the Petitioner/IRCON International Ltd. (Respondent in the main petition) seeking review of the Order dated 02.02.2023 vide which the petition under Section 14 and Section 15 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “Act, 1996”), was allowed.
2. It is submitted that the Petitioner had filed its written arguments on 06.01.2020 as is recorded in the Order dated 27.01.2020. However, while addressing the arguments, the same were not found on record and the written submissions were submitted again in the Court, as reflected in order dated 28.09.2022.
3. The written arguments were premised on two alternate arguments: first being that as the arbitration was invoked prior to 2015, unamended Arbitration and Conciliation Act, 1996 (hereinafter referred to as “Act, 1996”) would apply, which gave petitioner herein the power to reappoint the Arbitrator; and second was that as per the Arbitration Clause if the given procedure was not acceptable to the party, arbitration itself could not be invoked. It is submitted that the second limb of argument has not been addressed in the Order. A prayer, is made that the second limb of argument may also be considered.
4. Submissions heard.
5. At the outset, the petitioner herein has mentioned that the written arguments that were filed by the respondent on 06.01.2020 were not found on record, and hence, the same were again submitted in the Court on 28.09.2022. In the impugned Order dated 02.02.2023, there is a mention of submission of written arguments on behalf of the petitioner in Paragraph-12 and the arguments addressed by the petitioner were duly considered.
6. The second objection in regard to the procedure detailed in the Arbitration Clause was essentially a part of the first argument and has been considered while deciding the Petition under Sections 14 and 15 of the Act, 1996, which is evident from the discussion and the reasons given for allowing the petition.
7. However, in order to clarify the contentions made in the present Review Petition, it is being considered as follows. At the outset, a reference be made to Datar Switchgears Ltd. v. Tata Finance Ltd. (2000) 8 SCC 151, wherein the supremacy of the procedure agreed by the parties was highlighted. The Supreme Court observed that when the parties have entered into a Contract and settled on a procedure, due importance has to be given to the procedure. Even though the rigor of the doctrine of “freedom of contract” has been whittled down by various labour and social welfare legislations, still the court has to respect the terms of the contract entered into by parties and endeavour to give importance and effect to it. When the party has not disputed the arbitration clause, normally he is bound by it and obliged to comply with the procedure laid down under the said clause.
8. The sanctity and supremacy of the Arbitration Clause was emphasised and reaffirmed by the Supreme Court in Municipal Corpn., Jabalpur v. Rajesh Construction Co., (2017) 5 SCC 344, wherein it observed that it is the duty of the Court to construe the Arbitration Agreement in a manner so as to uphold the same, and the manner of appointment should be consistent with the Arbitration Clause that prescribes for the appointment. It was clarified that where the appointment of the Arbitrator is circumscribed by the condition precedent, then the jurisdiction may be exercised to nullify the appointments made in case of failure of procedure or ex-facie contravention of the inherent facet of the Arbitration Clause. However, where the parties have exercised their discretion for the appointment of the Arbitrator, then Section 11 of the Act, 1996 can be invoked for the appointment of the Arbitrator in case of there being consensus between the parties.
9. The argument hinges on the Arbitration Clause 40 of the Contract Agreement dated 15.05.2007 which provides for the appointment of the Arbitrator by the MD/Director, IRCON from the panel of Arbitrators to be approved by the Northern Railways. It reads as under: “Special Conditions of Contract:
40.0
ARBITRATION AND LAWS ARBITRATION: Except where otherwise provided for in the contract, all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right matter or thing whatsoever in any way arising out of or relating to the contract, design, drawings, specifications, estimates, instructions, orders of the same whether arising during the progress of the work or after the completion or abandonment thereof, shall be referred to arbitrator to be appointed by the MDI Director, IRCON from a panel of arbitrators to be approved by the Northern Railway. If the arbitrator to whom the matter originally referred, is transferred or vacates his office or being unable to act for any reason as aforesaid at the time of such transfer, vacation of office or inability to act, the MD/Director, IRCON shall appoint another person to act as the arbitrator in accordance with the terms of the contract. It is also a term of this aforesaid should act as arbitrator and if for any reason, it is not possible, the matter is not to be referred to arbitration at all. Subject as aforesaid to the provision of the Arbitration Act, 1996, or any statutory modifications or re-enactment thereof and the rules made there under and for the time being in force shall apply to the Arbitration proceedings under this clause. It is a term of the contract that the party invoking arbitration shall specify the dispute or disputes to be referred to arbitration under this clause together with this clause. The arbitrator may, from time to time, with consent of the parties, enlarge the time for making and publishing the award. The work under the contract shall, if reasonably possible, continue during the arbitration proceedings and payment due or payable to the contractor shall not be held on account of such proceedings. ………”
10. Ld. Counsel on behalf of the petitioner has greatly relied upon Newton Engg. and Chemicals Ltd. v. Indian Oil Corpn. Ltd. (2013) 4 SCC 44, to contend that once the named arbitrator in the arbitration clause is held to be disqualified by law, the arbitration Clause itself is rendered nugatory and the disputes cannot be referred arbitration.
11. In Newton Engg. and Chemicals Ltd. (supra) the Arbitration Clause provided that all the disputes and differences that may arise between the parties shall be referred by any aggrieved party to the contract to the sole arbitration of ED (NR) of the respondent Corporation. If ED (NR) was unable or unwilling to act as the Sole Arbitrator, the matter shall be referred to the sole arbitration of some other person designated by such ED (NR) in his place who is willing to act as the Sole Arbitrator. It further provided that any person other than ED (NR) or the person designated by the ED (NR) should not act as an Arbitrator. In the context of this Arbitration Clause, the Apex Court observed that the procedure agreed by the parties was that the Arbitration would be held only by the ED (NR) or his nominee or else, there shall be no Arbitration. Since the Office of the ED (NR) ceased to exist in the Corporation and there was no agreed decision between the parties, it was held that the Arbitration Clause itself did not survive and had to be treated as having worked its course. In the circumstances, it was not for either of the parties to unilaterally appoint an Arbitrator for resolution of disputes and Section 11 of the Act, 1996 would not have any applicability.
12. In the facts of the case of Newton (supra), the Arbitration clause itself not being capable of being invoked due to there being no arbitrator who could be appointed in terms of the Arbitration Clause and it was found that consequently the Arbitration Clause itself had become inoperative due to nullification of condition precedent as held by the Apex Court in the case of Rajesh Construction Co. (supra).
13. The case of Newton (supra) was decided on its own peculiar facts as has also been explained by the Supreme Court in Deep Trading Co. v. Indian Oil Corpn. (2013) 4 SCC 35. A reference to the same has also been made in the case of TRF Ltd. (supra) by the Apex Court; in both the decisions, Newton (supra) was held to be decided on its own facts.
14. In TRF Ltd. v. Energo Engg. Projects Ltd. (2017) 8 SCC 377, the Supreme Court discussed three different situations which may arise in regard to the Arbitration. The first relates to non-failure of the procedure and the authority of the owner to appoint the Arbitrator; the second relates to non-survival of the Arbitration clause; and the third pertains to forfeiture of the right of the party to appoint the Sole Arbitrator because of the failure to act in accordance with the procedure agreed upon by the parties in the Arbitration Clause. It was further observed that in the first and the third case, there is no stipulation that there would be no one else who can arbitrate, while in the second case, such a stipulation is postulated.
15. In TRF Ltd. (supra), it has been explained that while a condition precedent for Invocation of Arbitration was provided under Newton Engg. and Chemicals Ltd. (supra), in the case at hand, no such condition precedent existed and only a condition was stipulated in the Arbitration Clause under consideration and thereby the jurisdiction of the court for appointment of the Arbitrator under Section 11(6) or Section 11(8) was not ousted. The only challenge was in regard to the Arbitration by MD or a nominee appointed by the MD and it was held that in view of Section 12 of the Act, 1996 and the amended Arbitration Act, such appointment of MD or a nominee of the MD, was not sustainable.
16. This aspect has already been considered in detail in the Impugned Order dated 02.02.2023.
17. Now again, Arbitration Clause 40 of the Contract Agreement may be referred to. It not only provided for appointment of the Arbitrator but the Clause itself specified that it was “subject as aforesaid to the provisions of the Arbitration Act, 1996, or any statutory modifications or re-enactment thereof and the rules made there under and for the time being in force shall apply to the arbitration proceedings under this clause”. The Arbitration Clause itself contemplated the application of any subsequent amendments that may be brought in the Act, 1996 and the parties expressly bound themselves to the amended provisions. In the light of express stipulation of applicability of amended provisions situation, there was no clause prohibiting appointment of the Arbitrator other than who was agreed to by the parties. There are two aspects provided in Clause 40, which are Invocation of the Arbitration and appointment of Arbitrator. There being no condition precedent to the Invocation of Arbitration as in the case of Newton Engg. and Chemicals Ltd. (supra), the objection taken by the petitioner in regard to change/appointment of Arbitrator, is not tenable.
18. The petitioner relied on United India Insurance Limited and anr vs Hyundai Engineering and Construction Company Limited and ors, (2018) 17 SCC 607 wherein the apex court dealt with an arbitration clause which excluded certain disputes from the purview of the said clause. However, this case is distinguishable as the dispute therein was held to be nonarbitrable as the nature of the dispute fell outside the restricted scope of the arbitration clause. Similarly, the holding in Oriental Insurance Company Limited vs Narbheram Power and Steel Private Limited, (2018) 6 SCC 534, is of no aid to the case of the petitioner.
19. It may be noted that the Arbitration had been duly invoked and was in progress when the Petition under Sections 14 and 15 of the Act, 1996 was moved by the petitioner on the ground that the Ld. Arbitrator had not proceeded with the matter since October, 2013. The invocation of Arbitration was in accordance with the procedure as envisaged by the parties under Clause 40 of the Contract Agreement and the same has been considered in the Impugned Judgement dated 02.02.2023.
20. Further, wherever the circumstances justify, the Court is not prevented from intervening to give effect to the arbitration clause as concluded by the Apex Court in the case of Walter Bau AG v. Municipal Corpn. of Greater Mumbai (2015) 3 SCC 800, wherein a reference was made to Pricol Ltd. v. Johnson Controls Enterprise Ltd. (2015) 4 SCC 177, and it was observed that “unless the appointment of the Arbitrator is ex-facie valid and such appointment satisfies the court exercising jurisdiction under Section 11(6) of the Act, 1996, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) of the Act, 1996 cannot be countenanced in law.” Also, the present situation does not fall in second category as predicated in TRF Ltd. (supra).
21. In the instant case, the petition was filed under Section 14 and 15 of the Act, 1996 which provides for the termination of mandate and substitution of the Arbitrator in the circumstances specified therein, one such circumstance being, the arbitrator becoming de jure unable to perform his functions as in the present case. The substitution was accordingly allowed by the impugned order.
22. Accordingly, there is no ground for review of the Impugned Judgement dated 02.02.2023 and the present Review Petition is dismissed in the above terms.
23. The pending application, if any, is also dismissed.
JUDGE MARCH 15, 2023 S.Sharma