Full Text
HIGH COURT OF DELHI
Date of Decision: 08th February, 2023
UNION OF INDIA
Integrated HQ MOD (Army)
Directorate General of Ordnance Services MGO's Branch (CP CELL), OS-P1, Procurement Sector, Room No. 105, D-11 Wing, Sena Bhawan, New Delhi - 110011 ..... Petitioner
Through: Mr. Ruchir Mishra, Mr. Mukesh Tiwari, Ms. Mansi Verma, Advocates.
Through: Mr. Ashish Khorana, Advocate.
J U D G E M E N T
NEENA BANSAL KRISHNA, J.
JUDGMENT
1. The present petition under Section 14 of the Arbitration & Conciliation (Amended) Act, 2015 has been filed for termination of mandate of the Arbitral Tribunal.
2. The petitioner herein (who is the respondent in the arbitration proceedings) is the Ordnance Department (Indian Army) under the Ministry of Defence, Government of India. A Supply Order dated 30.05.2014 for procurement of Paint Qty. 42,180 amounting to ₹1,06,19,923.49 was placed upon respondent No.1. However, respondent No.1 failed to submit the advance sample within time in terms of the Contract, leading to huge losses to the petitioner which was compelled to cancel the Supply Order. The Bank Guarantee of ₹10,61,992/- submitted by respondent No.1, was forfeited. The Respondent No.1 challenged the forfeiture by way of Writ Petition before the High Court of Allahabad. However, vide Order dated 11.05.2017 the Writ Petition was dismissed with a liberty to the parties to invoke arbitration proceedings in terms of Arbitration Clause 3 contained in the Agreement between the parties.
3. The petitioner was supposed to choose the name of Arbitrator from the Panel of Arbitrators to work as Arbitrator on payment of fees decided by the Department. The name of Shri B.L. Chaudhary who was not on the Panel of Arbitrators, was chosen with the consent of both the parties. The learned Sole Arbitrator was Ex-Joint Secretary and Legal Advisor in Ministry of Law and Justice and had been holding various positions in Government of India and was last working as Advisor (Legal) in Ministry of Environment, Forest & Climate Change, Government of India.
4. The learned Arbitrator initiated arbitration proceedings by sending a Notice of hearing dated 17.10.2017 and conducted first hearing on 15.11.2017. Without clarifying or deciding the fee, the petitioner being a Government department was following its Department’s Schedule which prescribed the Arbitrator’s fees of ₹5,000/- per hearing subject to a maximum ceiling of ₹75,000/- to be shared equally between the parties. The Arbitrator was informed about the applicable Fee Schedule vide letter dated 05.12.2017. The amount of claim raised by Respondent No.1 was to the tune of ₹1,02,75,100/-. A counter-claim was filed by the petitioner to the tune of ₹17,99,80,575/-. After the filing of counter-claim, the Arbitrator vide Order dated 23.07.2018, raised a demand of ₹1,00,000/- as arbitrator’s fee subject to adjustment in the final bill. It is claimed that the learned Arbitrator without deciding the dispute of fee, continued the arbitration proceedings and also raised demands for the fee in accordance with Fourth Schedule of the Arbitration (Amendment) Act, 2015. The petitioner protested orally and was assured by the Tribunal that it need not worry and the matter would be amicably sorted out.
5. The amount of fee to be paid to the Arbitral Tribunal remained undecided and the petitioner was under the impression that the fee shall be payable as per fee structure of the Department.
6. It is claimed that the learned Arbitrator started impressing upon the Conducting Officer of the petitioner to help him get the maximum amount as his fee to which the Conducting Officer replied that it was not within his jurisdiction. Annoyed with the response of the Conducting Officer, the Arbitral Tribunal made false and frivolous complaints against him to the Director General of Ordnance Department, Ministry of Defence vide his letter dated 21.05.2018 alleging that the Conducting Officer did not remain present during the arbitral proceedings.
7. It is further asserted that the learned Tribunal failed to complete the proceedings within the stipulated period of one year. It orally impressed upon the Conducting Officer to give his consent for extension of time under Section 29A of the Act, to which the petitioner did not agree. Petitioner felt that the learned Arbitrator was acting in a biased manner and was favouring the respondent/ claimant. The learned Arbitrator annoyed with the conduct of the Conducting Officer, made another complaint dated 01.11.2018 to the Director General of Ordnance Department levelling baseless and false allegations that the Conducting Officer may have misguided the Superiors in getting further extension of six months for the arbitrator by concealing factual position in the matter. Not only this, the Sole Arbitrator approached and persuaded the officials in the Ministry to get favourable Order since a number of his colleagues who were his junior were still serving in the Ministry.
8. It is asserted that the respondent had approached the Court for extension of time under Section 29A of the Act, wherein similar objections in regard to the fee was taken. This Court vide Order dated 15.02.2019, observed that the complaint of fee or of the Tribunal being biased, was beyond the ambit of Section 29A. While granting of extension of six months it observed that the parties were at liberty to make appropriate application or initiate appropriate proceedings in accordance with law.
9. It is submitted that the learned Sole Arbitrator failed to decide the final fee in the case and kept on objecting to the proposal of payment of fee according to the Schedule of the petitioner and insisted on payment as per the Fourth Schedule of the Act. The petitioner moved an application dated 07.03.2019 praying for termination of the arbitration proceedings as the issue of fee was not resolved and the Arbitrator himself had become an interested party to recover hefty amount in the form of exorbitant fee and was in illegal settlement and in collusion with the claimant. The Tribunal rejected this application vide Order dated 07.03.2019 which was communicated to the petitioner vide email dated 13.03.2019 by recording incorrect findings.
10. It is further asserted that the learned Arbitrator did not discuss about the cross-examination of the witness on the date of hearing but merely issued Notice on the application. On an objection being taken about no reply being filed by the claimant, it was informed that the reply has already been sent via email on 14.03.2019. Further, without fixing a date for crossexamination or for disposal of the application, learned Arbitrator insisted on 25.03.2019 for cross-examination of the claimant’s witness be conducted or else cost shall be imposed. The petitioner’s counsel under protest commenced the cross-examination. The petitioner’s counsel sought exhibiting of the documents as per procedure, but the Arbitrator observed that there was no requirement of exhibiting the same. During the crossexamination, the petitioner requested the Arbitrator to show the original documents to the witness, but at that stage it was eventually revealed that the learned Arbitrator did not have the case file but was conducting the proceedings in the absence thereof. Perplexed and finding no other way, the learned Arbitrator adjourned the case by observing that the complete arbitration record was not available. It was factually incorrect as in fact the entire file was not available with the Arbitrator and he had come only with few applications which were pending disposal.
11. It is further asserted that the application of the petitioner under Section 14, 15 and 32 of the Act along with the additional and subsequent facts dated 20.03.2019 was dismissed and the matter was adjourned further for cross-examination. It has been wrongly observed by the learned Arbitrator that similar grievances were agitated by the petitioner in the petition under Section 29A of the Act, but were rejected by the Hon’ble High Court. However, learned High Court never rejected these allegations, but had merely stated that the parties were at liberty to agitate these allegations in appropriate proceedings before the appropriate Forum. It is asserted that the Order made by he Arbitral Tribunal was per se illegal, contemptuous and passed in disrespect of the Orders of the High Court.
12. The conduct of the learned Arbitrator is claimed to be not in dignity of the Office, but he is pursuing his own interest and hotly against the petitioner. He has become an interested party and is putting an undue pressure by resorting to arm twisting methods to make the petitioner agree to the fee as demanded. He has tried to damage the career of the Conducting Officer by making false allegations. He has made the Orders in blatant disregard to the observations made by the High Court. He is not recording the proceedings correctly. In fact, he never records the proceedings on the spot, but makes false Orders subsequently as per his own whims and fancies. It is asserted that the proceedings before the learned Arbitrator are an act of abuse of power and the learned Arbitrator is illegally trying to snatch money from the petitioner in the shape of arbitration fee which is against the law, rules and spirit of the arbitration and more particularly Section 18 of the Act. A prayer is, therefore, made that the mandate of the learned Arbitral Tribunal may be terminated and he substituted by another Arbitrator.
13. The respondent in its reply has taken the preliminary objection that the proceedings are at an advance stage as only the Award remains to be published. It is further asserted that for a petition under Section 14 of the Act to be maintainable, it has to be shown that the arbitrator is de jure or de facto unable to perform his functions or he has withdrawn from his Office or parties have mutually agreed to terminate his mandate. None of the grounds are made out in the present proceedings and the application is liable to be dismissed. It is claimed that similar grounds of the Arbitrator being biased were agitated by the petitioner in the petition under Section 29A of the Act despite which this Court granted extension of time by six months to the Arbitral Tribunal.
14. The objections of the petitioner that Arbitrator is demanding high fee is not sustainable in as much as the petitioner never obtained a consent from the respondent to agree to any such fee structure and has been acting as per his whims. There can be no agreement without the consent of other party. The petitioner is no exception under the Arbitration and Conciliation Act which does not distinguish between Government and private party and is equally applicable to both. The petitioner had never obtained any consent from the respondent to the fee structure as determined by their Office Rules. Moreover, the petitioner cannot over rule the statutory provisions specified in the Fourth Schedule of the Act.
15. The learned Arbitrator was appointed by the petitioner vide letter dated 07.09.2017 and it was specifically stated that the appointment of the Arbitrator was as per Arbitration & Conciliation Act and the case was to be processed under the said Act. The Arbitrator at no point of time accepted or gave consent to revise his fee as per the Schedule of the petitioner and had been claiming the fee as per the Act and even quantified the same at the time of filing this application.
16. The Arbitrator has already closed the evidence of the respondent after due cross-examination of its witnesses by the petitioner. The petitioner who raised a Counter-Claim of approx. ₹19 Crore has failed to deposit the petty amount of ₹50,000/- as Arbitrator’s fee despite repeated orders by the learned Arbitrator.
17. It is also asserted that the Conducting Officer Lt. Col. K.S. Singh has been attending the proceedings regularly either in person or through his Counsel, as was necessary and required. The allegations made in the application are baseless and irrelevant for the purpose of determination of the present petition. It is asserted that each and every allegation made in the petition is concocted and absolutely false. It is submitted that the petition is without merit and is liable to be dismissed.
18. Submissions heard.
19. Section 14 provides for change of the Arbitrator when he becomes de jure or de facto, when he withdraws or when the parties mutually agree to the termination of his mandate. None of these conditions as provided under Section 14 for substitution of Arbitrator have been made out in the present case.
20. Section 15 further provides for termination of mandate of the Arbitrator either on the ground that the Arbitrator withdrawing from the office for any reason or pursuant to the Agreement between the parties.
21. The first ground of challenge is that the learned Arbitrator who is the retired Government employee of the petitioner, has insisted on payment of his arbitration fee in accordance with Fourth Schedule of the Act and not as per the norms of payment of fee as determined by the petitioner. To extract more fees, the Ld. Arbitrator had written to the Department that Conducting Officer was not attending the proceedings regularly and was misconducting himself, which was done to pressurize him to agree to the payment of maximum fees. Likewise, he also contacted his colleagues in the Department to get the higher fees.
22. It has been rightly agitated on behalf of the respondent that the name of the learned Arbitrator was proposed by the petitioner, and despite he being a retired government employee, no objection was taken by the respondent and had consented to him being the Arbitrator in the dispute between the parties. Further, the appointment of the Arbitrator was made by the petitioner vide letter dated 07.09.2017 and the relevant part of the appointment letter reads as under: “Whereas per Para 3 of Part III of RFP i.e. Arbitration Clause, any dispute, disagreement or question arising out or relating to the contract cannot be settled amicably, may be resolved through arbitration. A case will be processed for Arbitration as per the Arbitration & Conciliation (Amendment) Act, 2015”
23. The Arbitrator had accepted the appointment on the basis of letter dated 07.09.2017, wherein it was clearly indicated that the proceedings shall be governed by Arbitration & Conciliation (Amendment) Act, 2015. The learned Arbitrator at no point of time since the date of his appointment, ever gave consent to agree to the Arbitrator’s fee as quantified by the norm of the petitioner. In fact, since the beginning, he directed both the parties to deposit ₹50,000/- each vide Order dated 23.04.2018 and after the Counter- Claim of approximately, ₹19 Crores was filed, he again directed the parties to deposit the Arbitrator’s fee in accordance with Fourth Schedule of the A & C Act. The appointment of the Arbitrator was under Arbitration & Conciliation Act, 1996 and the terms of appointment were naturally to be governed by the provisions of the Act. The fee payable to the Arbitrator is governed by Fourth Schedule, unless the parties otherwise mutually agree to pay the Arbitrator’s Fee.
24. In Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV 2022 SCC OnLine SC 1122, it has been held as under: “200. ….
(i) Arbitrators do not have the power to unilaterally issue binding and enforceable orders determining their own fees. A unilateral determination of fees violates the principles of party autonomy and the doctrine of the prohibition of in rem suam decisions, i.e., the arbitrators cannot be a judge of their own private claim against the parties regarding their remuneration. However, the arbitral tribunal has the discretion to apportion the costs (including arbitrators' fee and expenses) between the parties in terms of Section 31(8) and Section 31A of the Arbitration Act and also demand a deposit (advance on costs) in accordance with Section 38 of the Arbitration Act. If while fixing costs or deposits, the arbitral tribunal makes any finding relating to arbitrators' fees (in the absence of an agreement between the parties and arbitrators), it cannot be enforced in favour of the arbitrators. The arbitral tribunal can only exercise a lien over the delivery of arbitral award if the payment to it remains outstanding under Section 39(1). The party can approach the court to review the fees demanded by the arbitrators if it believes the fees are unreasonable under Section 39(2);
(ii) Since this judgment holds that the fees of the arbitrators must be fixed at the inception to avoid unnecessary litigation and conflicts between the parties and the arbitrators at a later stage, this Court has issued certain directives to govern proceedings in ad hoc arbitrations in Section C.2.4;”
25. In National Highways Authority of India vs. Gammon Engineers and Contractors Pvt. Ltd., 2018 SCC OnLine Del 10183, an objection was taken that as the Arbitral Tribunal has failed to abide by the condition fixed in the Arbitration Agreement or by the petition in its circular, it should be deemed as de jure and de facto unwillingness on the part of the Arbitrators to perform their functions thereby leading to termination of the mandate of the Tribunal.
26. In Union of India (UOI) vs. Singh Builders Syndicate, (2009) 4 SCC 523 the Hon’ble Supreme Court expressed its dismay over the disagreement over the fee being charged by the Arbitral Tribunal and observed that when an Arbitrator is appointed by a Court without indicating fees either both parties or at least one part has disadvantage. Firstly, the parties will be constrained to agree to the fee whatever is suggested by the Arbitrator. If high fee is claimed by the Arbitrator to which one agrees, the other party has to reluctantly pay such high fee even if it is unable to afford and is put in an embarrassing position. It was observed that what is found to be objectionable is parties being forced to go to an Arbitrator appointed by the Court and then being forced to agree for a fee fixed by such Arbitrator.
27. To answer these concerns expressed by the Hon’ble Supreme Court in the case of Singh Builders Syndicate (supra), the Law Commission of India in its Report No. 246 observed that in view of the high costs associated with the Arbitrator, including the arbitrary, unilateral and disproportionate fixation of fee by several Arbitrators, some mechanism to rationalize fee structures must be set in place. Based on this recommendation of the Law Commission of India, the Arbitration and Conciliation (Amendment) Act, 2015 introduced Schedule IV of A & C Act, 1996. Though it is not mandatory, but provides for a reasonable fee structure that may be adopted by the High Court while appointing the Arbitrator under Section 11 of A & C Act, 1996.
28. In Madras Fertilizers Limited vs.
SICGIL India Limited & Hon’ble Mr. Justice V. Ratnam (Retd.) 2007 SCC OnLine Mad 748, it was held that a party cannot be forced to pay a fee higher than what is capable of paying to the Arbitrator. Considering the long-drawn controversy with regard to the fixation of fee by the second respondent due to which the arbitration proceedings could not make headway, it was held in totality of the facts and circumstances, that the Arbitrator had become de jure unable to perform his functions effectively warranting termination of mandate under Section 14(1)(a) of A & C Act, 1996.
29. In the present case, neither there is any document or any record to show that learned Arbitrator had ever consented to the fee schedule as proposed by the petitioner, nor at any point of time did he concede to the same. Rather since the commencement of the Arbitration, learned Arbitrator had been insisting on payment of Arbitrator’s fee in accordance with Fourth Schedule of the Act which is in accordance with his appointment vide letter dated 07.09.2017. The assertion of the petitioner in regard to misconduct on the part of the learned Arbitrator in seeking his fee as per Fourth Schedule is without any basis. There is no claim of the Ld. Arbitrator for a fee higher than what is prescribed under the Fourth Schedule and even by yielding any kind of pressure, the Conducting Officer could not have prevailed on the Department to pay an additional fee. This averment of the petitioner has no basis. It is evident that the petitioner in order to avoid its liability to pay the Fees of the Arbitrator, is raising frivolous objections which is clearly against the mandate of the statute.
30. The second ground of challenge raised by the petitioner is that the learned Arbitrator misconducted himself and made frivolous complaints against the Conducting Officer to Director General with the sole intent of ruining his career. Also, the conduct of the Ld. Arbitrator appeared to be biased. It cannot be overlooked in this context that the Ld. Arbitrator is a retired Govt officer from the Petitioner Department and had been nominated by the Petitioner itself.
31. In Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Limited (2017) 4 SCC 665, it was observed that Section 12 has been amended with the objective to introduce neutrality of arbitrators viz their independence and impartiality. The amended provision is enacted to identify the circumstances which may give rise to justifiable doubts about the independence or impartiality of the arbitrator. It has been explained that simply because a person is a retired officer from the Government or other statutory corporation or Public Sector Undertaking, cannot be treated in ineligible to act as an Arbitrator. Had this been the intention of the legislature, the Seventh Schedule would have covered such persons as well. Bias or even likelihood of bias cannot be attributed to such highly qualified and experienced persons simply on the ground as they had served in the Central Government or PSU. The very reason for empanelling these persons is to ensure that technical aspect of the dispute is suitably resolved by utilizing their expertise when they act as Arbitrator. These observations were endorsed in the decision of the Supreme Court in Central Organisation for Railway Electrification vs.
ECI-SPIC-SMO-MCML (JV) A Joint Venture Company (2020) 14 SCC 712.
32. The respondent herein could have harboured some apprehension about the Ld. Arbitrator about his leaning towards the petitioner, but here is the case where petitioner has questioned the credibility of the Ld. Arbitrator nominated by it solely because of the issue of fees raised by the Ld. Arbitrator, which does not behove the petitioner. Though the respondent has claimed bias on the part of the learned Arbitrator, but has not been able to substantiate his averments or allegations on any of the alleged grounds.
33. The third ground of challenge is that the learned Arbitrator did not dictate any Order on the date fixed, but would subsequently send a copy of the Order by way of e-mail after a few days, which reflected that the Orders were being written subsequently and were being antedated. This contention also has no basis as the Orders were of the date on which the proceeding were being held, though the copy of Order was naturally being sent subsequently through e-mail. Rather, this assertion shows that the copies of the Orders were being duly made available to the parties.
34. The petitioner has further claimed that the learned Arbitrator insisted on the petitioner to conduct the cross-examination of the witnesses of the respondent even though the file was not available with him. Again, it has been explained by the respondent that their witness used to come from Lucknow and had to appear on several dates because of the objections taken by the petitioner. In these circumstances, insistence by the learned Arbitrator for recording of the evidence of the witnesses was with the sole objective of expeditious disposal and adjudication of the disputes rather than to compel the petitioner to conduct the cross-examination with an ulterior motive. In fact, this reflects that the learned Arbitrator has shown diligence and had made every endeavour to complete the arbitration within the statutory time frame. In fact, as stated the Ld. Arbitrator has completed the entire proceedings and only the Award remains to be published.
35. The petitioner has not been able to establish any of the grounds as contained in Section 14 or Section 15 of the Act. The present petition is without merit and is hereby dismissed with the observation that the learned Arbitrator may proceed with the arbitration proceedings and publish the Award, as per Rules.
JUDGE FEBRUARY 08, 2023