Gangotri Enterprises Ltd v. General Manager Northern Railways

64. (4) In case of the tribunal, comprising of three Members, any ruling on award shall be made by a majority of Members of Tribunal. In the absence of such a majority, the views of the Presiding Arbitrator shall prevail.

64. (5) Where the arbitral award is for the payment of money, no interest shall be payable on whole or any part of the money for any period till the date on which the award is made. 64.(6) The cost of arbitration shall be borne by the respective parties. The cost shall inter-alia include fee of the arbitrator (s), as per the rates fixed by Railway Board from time to time and the fee shall be borne equally by both the parties. Further, the fee payable to the arbitrator(s) would be governed by the instructions issued on the subject by Railway Board from time to time irrespective of the fact whether the arbitrator(s) is/are appointed by the Railway Administration or by the court of law unless specifically directed by Hon'ble court otherwise on the matter. 64.(7) Subject to the provisions of the aforesaid Arbitration and Conciliation Act 1996 and the rules thereunder and any statutory modifications thereof shall apply to the arbitration proceedings under this Clause.‖

9. Respondent claims that Clause 64 of GCC has been modified vide respondent’s letter dated 11.11.2016 and that the petitioner was required to provide waiver of Clause 12 (5) of the Act. The modified Clause 64 of GCC in terms of the stand of the respondent is as follows: “64.(1): Demand for Arbitration 64.(1) (i): In the event of any dispute or difference between the parties hereto as to The construction or operation of this contract", or the respective rights and liabilities of the parties on any matter in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the contractor may claim to be entitled to, or if the Railways fails to make a decision within 120 days, then and in any such case, but except in any of the "excepted matters" referred to in Clause 63 of these Conditions, the contractor, after 120 days but within 180 days of his presenting his final claim on dispute matters shall demand in writing that the dispute or difference be referred to arbitration.

64. (1) (ii) The demand for arbitration shall specify the matters which are in question, or subject of the dispute or difference as also the amount of claim item-wise. Only such dispute or difference, in respect of which the demand has been made, together with counter claims or set off, given by the Railway, shall be referred to arbitration and other matters shall not be included in the reference.

64. (1) (ii) (b) The parties may waive of the applicability of subsection 12(5) of the Arbitration and Conciliation (Amendment) Act, 2015, if they agree for such waiver, in writing, after dispute having arisen between them, in the format given under Annexure XII of these conditions.

64. (1) (iii) (a) The written and Arbitration valid demand proceedings for shall arbitration be is assumed received to by have the Railway, commenced from the day, a

64. (1) (iii) (b) The claimant shall submit his claim stating the facts supporting the claims along with all the relevant documents and the relief or remedy sought against each claim within a period of 30 days from the date of appointment of the Arbitral Tribunal.

64. (1) (iii) (c) The Railway shall submit its defence statement and counter claim(s), if any, within a period of 60 days of receipt of copy of claims from Tribunal thereafter, unless otherwise extension has been granted by Tribunal.

64. (1) (iii) (d) Place of Arbitration: The place of arbitration would be within the geographical limits of the Division of the Railway where the cause of action arose or the Headquarters of the concerned Railway or any other place with the written consent of both the parties.

64. (1) (iv) No new claim shall be added during proceedings by either party. However, a party may amend or supplement the original claim or defense thereof during the course of arbitration proceedings subject to acceptance by Tribunal having due regard to the delay in making it.

64. (1) (v) If the contractor(s) does/do not prefer his/their specific and final claims in writing, within a period of 90 days of receiving the intimation from the Railways that the final bill is ready for payment, he/they will be deemed to have waived his/their claim(s) and the Railway shall be discharged and released of all liabilities under the contract in respect of these claims. 64.(2) Obligation During Pendency of Arbitration: Work under the contract shall, unless otherwise directed by the engineer, continue during the arbitration proceedings, and no payment due or payable by the Railways shall be withheld on account of such proceedings, provided, however, it shall be open for Arbitral Tribunal to consider and decide whether or not ·such work should continue during arbitration proceedings. 64(3): Appointment of Arbitrator: 64 (3) (a). Appointment of Arbitrator where applicability of section 12(5) of Arbitration and Conciliation Act has been waived off:

64. (3) (a) (i): in cases where the total value of all claims in question added together does not exceed Rs.1,00,00,000/- (Rupees One Crore only), the Arbitral Tribunal shall consist of a Sole Arbitrator who shall be a Gazetted Officer of Railway not below JA Grade, nominated by the General Manager. The sole Arbitrator shall be appointed within 60 days from the day when a written and valid demand for arbitration is received by GM.

64. (3) (a) (ii): In cases not covered by the Clause 64 (3) (a) (i), the Arbitral Tribunal shall consist of a panel of three Gazetted Railway officers not below JA Grade or 2 Railway Gazetted Officers not below JA Grade and a retired Railway Officer, retired not below the rank of SAG officer, as the arbitrators. For this purpose, the Railway will send a panel of at least four (4) names of Gazetted Railway Officers or one or more departments of the Rai/way which may also include the name(s) of retired Rai/way Officer(s) empanelled to work as Railway Arbitrator to the contractor within 60 days from the day when a written and valid demand for arbitration is received by GM. Contractor will be asked to suggest to General Manger at least 2 names out of the panel for appointment as contractor's nominee within 30 days from the date of dispatch of tile request by Railway. The General Manager shall appoint at least one out of them as the contractor's nominee and will, also simultaneously appoint the balance number of arbitrators either from the panel or from outside the panel, duly indicating the residing arbitrator's from amongst the 3 arbitrators so appointed. GM shall complete this exercise of appointing the Arbitral Tribunal within 30 days from the date of receipt of the names of contractor's nominees. While nominating the arbitrators, it will be necessary to ensure that one of them is from the Accounts Department. An officer of Selection Grade of the Accounts Department shall be considered of equal status to the officers in SA grade of other departments of the Railway for the purpose of appointment of arbitrator. 64 (3)(b): Appointment of Arbitrator where applicability of Section 12(5) of A&C has not been waived of: The Arbitral Tribunal shall consist of a Panel of Three (3) retired Railway Officer retired not below the rank of SAG Officer, as the arbitrators. For this purpose, the Railway will send a panel of at least four (4) names of retired Railway Officer(s) empaneled to work as Railway Arbitrator, fully indicating their retirement date to the contractor within 60 days from the day when a written and valid demand for arbitration for arbitration is received by the GM. Contractor will be asked to suggest to General Manager at least 2 names out of the panel for appointment as contractor's nominee within 30 days from the date of dispatch of the request by Railway. The General Manager shall appoint at least one out of them as the contractor's nominee and will also simultaneously appoint the balance number of arbitrators either from the pane or from outside the panel duly indicating the presiding arbitrator from amongst the 3 arbitrators so appointed. GM shall complete this exercise of appointing the Arbitral Tribunal within 30 days from the date of receipt of the names of contractor and nominees. While nominating the arbitrators, it will be necessary to ensure that one of them has advised in the Accounts Department. 64,(3) (b) (i): if one or more of the arbitrators appointed as above refuses to act as arbitrator, withdraws from his office as arbitrator or vacates his/their office/offices or is/are unable or unwilling to perform his functions as arbitrator for any reason whatsoever or dies or in the opinion of the General Manager fails to act without undue delay, the General Manager shall appoint new arbitrator/arbitrators to act in his/their place in the same manner in which the earlier arbitrator/arbitrators had been appointed. Such reconstituted Tribunal may, at its discretion, proceed with the reference from the stage at which it was left by the previous arbitrator(s). 64.(3) (c) (ii) (a) The Arbitral Tribunal shall have power to call for such evidence by way of affidavits or otherwise as the Arbitral Tribunal shall think proper, and it shall be the duty of the parties hereto to do or cause to be done all such things as may be necessary to enable the Arbitral Tribunal to make the award without any delay. The proceedings shall normally be conducted on the basis of documents and written statements. (b) Before proceeding into the merits of any dispute, the Arbitral Tribunal shall first decide and pass its orders over any pleas submitted/objections raised by any party if any, regarding appointment of Arbitral Tribunal, validity of arbitration, agreement, jurisdiction and scope of the tribunal to deal with the dispute (5) submitted to arbitration, applicability of time 'limitation' to any dispute, any violation of agreed procedure regarding conduct of the arbitral proceedings or pleas for interim measures of protecting and record its orders in day to day proceedings. A copy of the proceedings duly signed in by all the members of Tribunal should be provided to both the parties. 64.(3) (iii) (i) Qualification of Arbitrator (s) (a) Serving Gazetted Railway Officers of not below JA level. (b) Retired Railway Officers, not below SA Grade level three years after his date of retirement.

(c) Age of Arbitrator at the time of appointment shall be below 70 years.

(ii) An arbitrator may be appointed notwithstanding the total number of arbitration cases in which he has been appointed in the past.

(iii) While appointing arbitrator(s) under Sub-Clause

64.(3)(a) (i), 64.(3)(a)(ii), 64.(3)(b) above, due care shall be taken that he/they is/are not the one/those who had an opportunity to deal with the matters to which the contract relates or who in the course of his/their duties as Railway Servant(s) expressed views on all or any of the matters under dispute or differences. The proceedings of the Arbitral Tribunal or the award made by such Tribunal will, however, not be invalid merely for the reason that one or more arbitrator had, In the course of his service, opportunity to deal with the matters to which the contract relates or who in the course of his/their duties expressed views on all or any of the matters under dispute. 64.(3)(d) (i) The arbitral award shall state item wise, the sum and reasons upon which it is based. The analysis and reasons shall be detailed enough so that the award could be inferred therefrom. 64.(3)(d) (ii) A party may apply for corrections of any computational errors, any typographical or clerical errors or any other error of similar nature occurring in the award of a Tribunal and interpretation of a specific point of award to Tribunal within 60 days of receipt of the award. 64.(3)(d) (iii) A party may apply to Tribunal within 60 days of receipt of award to make an additional award as to claims presented in the arbitral proceedings but omitted from the arbitral award. 64.(4) In case of the Tribunal, comprising of three Members, any ruling on award shall be made by a majority of Members of Tribunal. In the absence of such a majority, the views of the Presiding Arbitrator shall prevail. 64.(5) Where the arbitral award is for the payment of money, no interest shall be payable on whole or any part of the money for any period till the date on which the award is made. 64.(6) (a) The cost of arbitration shall be borne by the respective parties. The cost shall inter-alia include fee of the arbitrator(s), as per the rates fixed by Railway Board from time to time and the fee shall be borne equally by both the parties, provided parties sign an agreement in the format given at Annexure II to these condition after/while referring these disputes to Arbitration. Further, the fee payable to the arbitrator(s) would be governed by the instructions issue on the subject by Railway Board from time to time irrespective of the fact whether the arbitrator(s) is/are appointed by the Railway Administration or by the court of law unless specifically directed by Hon'ble Court otherwise on the matter. (b) (i) Sole Arbitrator shall be entitled for 25% extra fee over the fee prescribed by Railway Board from time to time.

(ii) Arbitrator Tribunal shall be entitled to 50%

64. (7) Subject to the provisions of the aforesaid Arbitration and Conciliation Act 1996 and the rules thereunder and relevant para of general Conditions of Contract (GCC) and any statutory modifications thereof shall apply to the appointment of the arbitrators and arbitration proceedings under this Clause.‖

10. Thus, in terms of clause 63 of GCC, petitioner referred and raised the disputes in its communication dated 24.08.2019 addressed to the General Manager, Northern Railways respectively in all the matters.

11. It is the case of the petitioner that despite receipt of notice by General Manager, Northern Railways and even after expiry of 120 days from the date of the notice, no decision has been received from the respondent or its General Manager. Instead, the respondent vide its communications dated 22.06.2020 in ARB.P.366/2020; dated 27.12.2019 and 02.06.2020 in ARB.P.368/2020 and dated 27.12.2019 and 02.06.2020 in ARB.P.370/2020, without invocation of Clause 64 by petitioner herein, sought to unilaterally propose a panel of four names and sought the petitioner’s choice of its nominee out of the said proposed four names. No such communication took place in ARB.P.367/2020.

12. For reference, letter dated 22.06.2020 as received by the petitioner from the respondent in ARB.P.366/2020 is reproduced as below: “ NORTHERN RAILWAY HEADQUARTER OFFICE KASHMERE GATE. DELHI-110006. Na.74-W-4-1-409-WA-S.E,Rd- ARB Dated·-22-06-2020 M/s. Gangatrl Enterprises Llmltud, B-158, Soctor·A, Mahanagar, Lucknow Sub:- Demand for arbitration for the work of “Additional works such as construction of boundary wall/ retaining wall, circulating area, entry road, service road, RCC box bridge and other allied works in connection with Development of New Passenger Terminal at Anand Vihar” (Contract Agreement NO.74-W/1/358/WA/ANVR/SE Rd. dt. 14-01-2009 Agency:- M/s Gangotri Enterprises Ltd.) ----------x--------- Dear Sir’s, This is in reference to your letter cited above, the General Manager, Northern Railway, Baroda House, New Delhi has nominated a panel of following four retired Railway Officers, retired not below the rank of Senior Administrative Grade Officer to suggest at least two names out of the panel and there after G.M. will appoint one out of them to act as your nominee-

1. Shri Bhuvnesh P. Khare, Retd. GM/DLW.

2. Shri R.K. Gupta, Retd. GM/ER.

3. Shri Ashok Kumar Agarwal, Retd. GM/ICF/Chennai.

4. Smt. Saandhay Deep Das, Retd. FA&CAO/System/NR. You are, therefore, requested to suggest at least two names out of the above panel, to be appointed as Co- Arbitrator as your nominee by the General Manager, Northern Railway, within 15 days from the date of issue of this letter positively. (Parag Prasad) Dy. Chief Engineer/ C/G-1 For General Manager Copy to:-

1. The Dy. Chief Engineer/ Const., Northern Railway, State Entry Road, New Delhi:- for information and necessary action.”

13. It is the contention of petitioner that respondent was required to provide the decision in respect of the claims raised by petitioner in terms of Clause 63 of GCC and the stage for proposing panel, if permissible, would have come only on invocation of Clause 64 of GCC. Since the disputed claims raised by petitioner are above Rs.10 lakh, in terms of Clause 64(3)(a)(2) of the GCC, an Arbitral Tribunal comprising of three Arbitrators would be required to be constituted. Thus, in view of the same, petitioner raised disputes in terms of Clause 64 to be referred for Arbitration.

14. In view thereof, notices dated 25.06.2020 were sent respectively by the petitioner through its counsel in all the cases. By the said notices, petitioner appointed its nominee Arbitrators, namely, Justice (Retd.) O.P. Garg (former Judge of Allahabad High Court) in ARB. P. 366/2020 and Justice (Retd.) B.C. Kandpal (Former Judge of Uttrakhand High Court) in the other three cases, i.e., ARB. P. 367/2020, ARB. P. 368/2020, ARB. P. 370/2020.

15. Since no response was received from the respondent despite service of notices as aforesaid and the respondent failed to appoint any nominee Arbitrator, present petitions have been filed for appointment of nominee Arbitrator of the respondent. The petitioner has raised claims to the tune of approximately Rs. 97,83,04,430/- in ARB. P. 366/2020; approximately Rs. 101,89,58,153/- in ARB. P. 367/2020; approximately Rs. 39,38,26,452/- in ARB. P. 368/2020 and approximately Rs. 30,03,57,367/- in ARB. P. 370/2020.

16. It is the contention of the petitioner that since General Manager of the respondent is interested in the outcome of the arbitration, he is as such ineligible to appoint petitioner’s nominee arbitrator. Moreover, the persons proposed to be appointed as arbitrators in terms of Clause 64 (3)(a)(2) of the GCC are ineligible for appointment by virtue of amended Section 12(5) read with Seventh Schedule of the Act. It is further submitted that petitioner is not agreeable to waiver of Section 12(5) of the Act as demanded by the office of the respondent.

17. Respondent on the other hand, has opposed the present petitions. Ld. Counsel appearing for respondent submits that in terms of Clause 64 of GCC, respondent has nominated panel of four retired Railway officers, not below the rank of Senior Administrative Grade Officers. Thus, petitioner was requested to suggest at least two names out of the panel, out of which GM was to appoint one arbitrator as the nominee of petitioner. It is submitted that Railways is bound by the procedure prescribed under Section 64 (3)(b) of GCC for appointment of arbitrator, which is applicable to those cases where applicability of Section 12(5) of the Act has not been waived of. It is contended that the petitioner at best, can demand for resolution of dispute through arbitration under Clause 64 (1) (ii) of GCC and cannot nominate its Arbitrator.

18. Learned counsel for respondent has relied upon judgment of Supreme Court in the case of Central Organisation for Railway Electrification vs. ECI – SPIC –SMO-MCML, (2020) 14 SCC 712 to contend that in identical case involving same clauses, Supreme Court has upheld the same. She has further relied upon judgment in the case of Voestalpine Schienen GMBH vs. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665 and contended that Supreme Court has held in the said case that merely because Arbitrators as drawn by Delhi Metro Rail Corporation (‘DMRC’) are government employees or exgovernment employees, does not by itself make such persons ineligible to act as arbitrators of DMRC.

19. I have considered the contentions raised on behalf of both the parties.

20. Amendments have been made to the Arbitration and Conciliation Act, 1996 in Sections 12(1) and 12(5) and Fifth, Sixth and Seventh Schedule of the Act with respect to the issue of independence of Arbitrators. The present petitions require consideration of the issue of appointment of unilateral appointment sought to be done by the respondent despite the bar as provided by virtue of amended Sections 12(5) of the Act, which enumerates the disqualification in the Seventh Schedule.

21. The position of law after amendment of the Act is that an employee of the respondent or even a retired employee would be ineligible to be appointed as an arbitrator. In the case of Perkins Eastman Architects DPC & Anr. vs. HSCC (India) Ltd., reported as 2019 SCC Online SC 1517, Supreme Court has held that a party or an official or an authority having interest in the dispute would be disentitled to be appointed as an arbitrator. It has been held as follows:

23. Sub-para (vii) of the aforesaid para 48 lays down that if there are justifiable doubts as to the independence and impartiality of the person nominated, and if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, such appointment can be made by the Court. It may also be noted that on the issue of necessity and desirability of impartial and independent arbitrators the matter was considered by the Law Commission in its Report No. 246. Paras 53 to 60 under the heading ―Neutrality of Arbitrators‖ are quoted in the judgment of this Court in Voestalpine Schienen GmbH v. DMRC [Voestalpine Schienen GmbH v. DMRC, (2017) 4 SCC 665: (2017) 2 SCC (Civ) 607], while paras 59 and 60 of the Report stand extracted in the decision of this Court in Bharat Broadband Network Ltd. v. United Telecoms Ltd. [Bharat Broadband Network Ltd. v. United Telecoms Ltd., (2019) 5 SCC 755: (2019) 3 SCC (Civ) 1]. For the present purposes, we may rely on para 57, which is to the following effect: (Voestalpine case [Voestalpine Schienen GmbH v. DMRC, (2017) 4 SCC 665: (2017) 2 SCC (Civ) 607], SCC p. 681, para 16) ―16. … ‗57. The balance between procedural fairness and binding nature of these contracts, appears to have been tilted in favour of the latter by the Supreme Court, and the Commission believes the present position of law is far from satisfactory. Since the principles of impartiality and independence cannot be discarded at any stage of the proceedings, specifically at the stage of constitution of the Arbitral Tribunal, it would be incongruous to say that party autonomy can be exercised in complete disregard of these principles — even if the same has been agreed prior to the disputes having arisen between the parties. There are certain minimum levels of independence and impartiality that should be required of the arbitral process regardless of the parties' apparent agreement. A sensible law cannot, for instance, permit appointment of an arbitrator who is himself a party to the dispute, or who is employed by (or similarly dependent on) one party, even if this is what the parties agreed. The Commission hastens to add that Mr P.K. Malhotra, the ex officio member of the Law Commission suggested having an exception for the State, and allow State parties to appoint employee arbitrators. The Commission is of the opinion that, on this issue, there cannot be any distinction between State and non-State parties. The concept of party autonomy cannot be stretched to a point where it negates the very basis of having impartial and independent adjudicators for resolution of disputes. In fact, when the party appointing an adjudicator is the State, the duty to appoint an impartial and independent adjudicator is that much more onerous — and the right to natural justice cannot be said to have been waived only on the basis of a ―prior‖ agreement between the parties at the time of the contract and before arising of the disputes.‘ ‖ (emphasis in original)

24. In Voestalpine[Voestalpine Schienen GMBH v. DMRC, (2017) 4 SCC 665: (2017) 2 SCC (Civ) 607], this Court dealt with independence and impartiality of the arbitrator as under: (SCC pp. 687-88 & 690-91, paras 20 to 22 &

30) ―20. 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 applied to all judicial and quasi-judicial proceedings. It is for this reason that notwithstanding the fact that relationship between the parties to the arbitration and the arbitrators themselves are contractual in nature and the source of an arbitrator's appointment is deduced from the agreement entered into between the parties, notwithstanding the same non-independence and nonimpartiality of such arbitrator (though contractually agreed upon) would render him ineligible to conduct the arbitration. The genesis behind this rational is that even when an arbitrator is appointed in terms of contract and by the parties to the contract, he is independent of the parties. Functions and duties require him to rise above the partisan interest of the parties and not to act in, or so as to further, the particular interest of either parties. After all, the arbitrator has adjudicatory role to perform and, therefore, he must be independent of parties as well as impartial. The United Kingdom Supreme Court has beautifully highlighted this aspect in Hashwani v. Jivraj [Hashwani v. Jivraj, (2011) 1 WLR 1872: 2011 UKSC 40] in the following words: (WLR p. 1889, para 45) ‗45. … the dominant purpose of appointing an arbitrator or arbitrators is the impartial resolution of the dispute between the parties in accordance with the terms of the agreement and, although the contract between the parties and the arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the parties.‘

21. Similarly, Cour de Cassation, France, in a judgment delivered in 1972 in Consorts Ury [Fouchard, Gaillard, Goldman on International Commercial Arbitration, 562 [Emmanuel Gaillard & John Savage (Eds.) 1999] {quoting Cour de cassation [Cass.] [Supreme Court for judicial matters] Consorts Ury v. S.A. des Galeries Lafayette, Cass. 2e civ., 13-4-1972, JCP, Pt. II, No. 17189 (1972) (France)}.], underlined that: ‗an independent mind is indispensable in the exercise of judicial power, whatever the source of that power may be, and it is one of the essential qualities of an arbitrator‘.

22. Independence and impartiality are two different concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well accepted, is a more subjective concept as compared to independence. Independence, which is more an objective concept, may, thus, be more straightforwardly ascertained by the parties at the outset of the arbitration proceedings in light of the circumstances disclosed by the arbitrator, while partiality will more likely surface during the arbitration proceedings. ***

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.‖

22. Thus, any person whose relationship with the parties or the counsel or the subject matter of the dispute falls under the Seventh Schedule, shall be ineligible to be appointed as arbitrator by virtue of Section 12(5) of the Act. Elucidating the law in this regard, Supreme Court in the case of Bharat Broadband Network Limited v. United Telecoms Limited, (2019) 5 SCC 755, held as follows: