SCORE INFORMATION TECHNOLOGIES LTD  Vs GR INFRA PROJECTS LIMITED

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IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 28.01.2021
+ O.M.P. (T) (COMM.) 59/2020
SCORE INFORMATION TECHNOLOGIES
LIMITED …. Petitioner
versus

GR INFRA PROJECTS LIMITED ….. Respondent
Advocates who appeared in this case:
For the Petitioner: Mr Amar Dave, Mr Gautam Narayan and Mr
Pankaj Jain, Advocates.
For the Respondent: Mr H. S. Chandhok, Mr Rajan Raj, Ms
Shikha Thakur and Mr Hriday Kochhar,
Advocates.

CORAM
HON’BLE MR JUSTICE VIBHU BAKHRU

JUDGMENT
VIBHU BAKHRU, J

1. The petitioner has filed the present petition under Sections 14 and
15 of the Arbitration and Conciliation Act, 1996 (hereinafter the ‘A&C
Act’), inter alia , seeking that the mandate of the learned Sole Arbitrator
appointed by the respondent be terminated. According to the petitioner,
the learned Arbitrator is de jure unable to act as an Arbitrator under the
A&C Act.
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2. The disputes between the parties arise out of a contract whereby
the respondent had sub -contracted the work of “Trenching, Laying
Installati on, Testing of Optical Fiber Cable, PLB -Duct and accessories
for construction of exclusive optical NLD backbone and optical access
routes on turnkey basis for Defence Network for specified part of
Package F totaling to 224 Km (approx.) in the State of West Bengal.”
3. Bharat Sanchar Nigam Limited (hereinafter ‘BSNL’) had invited
tenders (Tender No. CA/CNP/NFS OFC/T -441/2013) for procurement,
supply, trenching, laying, installation, testing and maintenance of
optical fiber cable, PLB duct and accessories for construction of
exclusive optical National Long Distance (‘NLD’) backbone and
optical access routes on turnkey basis for the defence network. The
tender was for the Network For Spectrum (NFS) project of the Ministry
of Defence, Government of India.
4. The aforesaid works was divided into seven packages – Packages
A to G. The implementation of the project was undertaken jointly by
BSNL and Project Implementation Core Group (PICG). On 16.09.2014,
a contract for executing Package F was awarded by BSNL to ITI
Limited. The said Package consisted of 6021 Km of Optical Access
Routes in the States of West Bengal, Orissa, Bihar, Jharkhand, Sikkim
and Andaman and Nicobar Islands. The works were required to be
completed within a period of eighteen months.
5. On 17.10. 2014, ITI Limited sub -contracted the entire works to be
executed under Package F to A2Z Infra Engineering Limited. It is
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averred that in the month of February, 2015, A2Z Infra Engineering
Limited, further, sub -contracted the work to the respondent herein.
6. On 20.02.2015, the respondent issued a Letter of Intent (hereafter
‘LOI’) to the petitioner for executing the work relating to “obtaining
ROW, survey, trenching, laying, installation, testing and
commissioning of optical fiber cable, PLB duct & accesso ries for
construction of exclusive optical NLD backbone and optical access
route for defence network for a specified part of Package F of 224 km
(approximately) in the State of West Bengal”. In terms of the said LOI,
the petitioner was called upon to issu e a bank guarantee for an amount
equivalent to 5% of the total work (that is, a bank guarantee in the sum
of ₹25,20,000/ -). The said LOI expressly stated that a detailed Work
Order setting out the terms and conditions would be executed between
the parties separately, if the petitioner fulfilled the condition under the
LOI of providing the bank guarantee. On 22.02.2015, the petitioner
furnished a performance bank guarantee in the sum of ₹25.20 lacs being
5% of the value of the total work as mentioned in the LOI.
7. The petitioner states that thereafter, on 17.03.2015, the petitioner
commenced the work in accordance with the LOI, on a representation
made by the respondent that it would be paid for the same
notwithstanding that the Work Order was not issued.
8. On 11.08.2015, the respondent issued a Work Order for a total
of 1056.85 Km “for obtaining Row, Survey, Trenching, Laying,
Installation, Testing & Commissioning of Optical Fibre Cable, PLB
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Duct & Accessories for construction of Exclusive optical NLD
Backbo ne & optical access route for Defense network for specified part
of Package F totaling of 1056 Km (approx.) in the State of West Bengal
and Sikkim”. It is averred that subsequently, in the month of September
2015, BSNL accepted the appointment of the peti tioner as a sub –
contractor for execution of part of Package F.
9. The petitioner claims that the work awarded to it entailed
providing thirty -five links out of which the petitioner has completed
sixteen links. The petitioner also avers that the said links were handed
over and acceptance certificates for the same have been issued by BSNL
and PICG.
10. The respondent alleges that the pace of the execution of the work
has been slow and the petitioner has also abandoned part of the works.
Accordingly, on 03.10.20 17, the respondent issued a show cause notice
in terms of Clause 3.4 of the Work Order placed on the petitioner.
11. Thereafter, under the cover of a letter dated 12.03.2019, the
respondent terminated the Work Order placed on the petitioner alleging
that the petitioner was responsible for inordinately delaying the
execution of the contract awarded to it.
12. The petitioner claims that the delay in execution of the works was
not attributable to the petitioner but for reasons beyond its control and
those attributable to the respondent.
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13. In view of the disputes that had arisen between the parties, the
respondent issued a notice dated 23.11.2019 informing the petitioner
that it had, pursuant to Clause 23 of the Work Order, appointed a sole
Arbitrator to adjudicate the disputes between the parties.
14. The petitioner responded by a letter dated 17.12.2019 objecting
to the termination of the Work Order and contesting the allegations
levelled against it.
15. On 23.12.2019, the petitioner sent a letter to the respondent
contending that the appointment of the Sole Arbitrator was wrongful,
illegal and contrary to the Arbitrat ion Clause. The petitioner further
stated that it had not submitted to the jurisdiction of the Arbitrator
appointed by the respondent.
16. The first meeting of the Arbitral Tribunal was held on
07.01.2020. The respondent claims that the representatives of t he
petitioner present at the hearing had expressed that the petitioner had no
objection for constitution of the Arbitral Tribunal consisting of the Sole
Arbitrator appointed by the respondent. This is disputed by the
petitioner. The petitioner claims that the proceedings recorded by the
learned Arbitrator incorrectly record that the petitioner had no objection
to the constitution of the Arbitral Tribunal. The petitioner further
submits that its representatives were present but did not have the
assistance o f any counsel. At the material time, the parties were
attempting to arrive at an amicable resolution of the disputes. However,
they were unable to arrive at an amicable settlement.
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17. On 26.02.2020, the Arbitral Tribunal held its second hearing,
wherein it directed the respondent to file its Statement of Claims on or
before 15.04.2020.
18. Thereafter, both the parties sent mails to the Arbitral Tribunal.
Whereas the respondent claimed that the petitioner was using dilatory
tactics in delaying the proceedings; the petitioner claimed that the
respondent had invoked the Arbitration as a dilatory tactics to avoid
making payments of its legitimate dues. The petitioner also stated that
it was advised to file a Writ Petition before this Court for impleading
the necess ary stakeholders and it had done so.
19. On 10.09.2020, the petitioner sent an email to the Arbitrator, inter
alia, informing the learned Arbitrator that it had filed a Writ Petition
[W.P.(C) 6174/2020] before this Court. The petitioner also stated that
it wa s resorting to taking appropriate remedies against the claimant for
wrongful and illegal invocation of Arbitration as well as the unilateral
appointment of the Arbitral Tribunal. The petitioner contended that the
same was contrary to various decisions incl uding the judgment of the
Supreme Court in Perkins Eastman Architects DPC and Anr. v. HSCC
(India) Limited: Arbitration Application No 32 of 2019 decided on
26.11.2019 . Thereafter, on 29.09.2020, the petitioner filed the present
petition.
Discussions and Conclusion
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20. Before proceeding further, it would be relevant to refer to the
Arbitration Clause as included in the General Conditions of Contract
(GCC) which form a part of the Work Order. Clause 23 of the GCC is
reproduced below: –
“23. DISPUTE RESOLUTION
If any dispute arises between the parties hereto during the
subsistence of this Work Order or thereafter, including in
connection with the validity, interpretation,
implementation of any alleged breach of any provision of
this Work Order o r relating to any question with reference
to or in connection with the work order, including the
question as to whether any termination of this Work Order
has been legitimate, the parties hereto shall endeavour to
settle such dispute amicably within 30 day s from arising
of the dispute by either of the parties in writing to other
party mention ing the exact nature of the subject in dispute.
In case, the said dispute could not be resolved amicably
within the said period of 30 days, then immediately upon
expiry of the said period in a written communication by
either party to the dispute, shall inform the other party that
the subject matter in dispute shall be referred to
arbitration. The arbitration shall be in accordance with the
Arbitration and Conciliation Ac t 1996 including any
statutory amendments made thereof. The arbitration
proceedings shall be conducted by a sole arbitrator
appointed by the Company.
In case of a dispute, the Company shall appoint the sole
arbitrator and send notice to such appointment in writing
to the Contractor.
The sole arbitrator shall give the award as expeditiously
as possible. The award of the sole arbitrator shall be
binding on the parties . The venue of the arbitration as
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mutually agreed by the parties to this Work Order shall be
exclusively and only held in New Delhi.
It is mutually agreed between the parties hereto that
Courts in New Delhi subject to the aforesaid shall have
exclusive jurisdiction. During the process of arbitration,
the Order should be executed with no interrupt ion, any
party defaulting in performing their scope of work prior
or during the subsistence or after the award has been made
but before it is enforced as a rule of the court, shall be held
liable for the cost incurred by the other party/parties for
executi ng the scope of work of the defaulting party.”
21. The petitioner contends that although the Arbitration Clause
provides for the unilateral appointment of a Sole Arbitrator by the
respondent, such an appointment is not permissible in view of the
decisions of t he Supreme Court in Perkins Eastman Architects DPC
and Anr. v. HSCC (India) Limited (supra ). Mr. Dave, learned counsel
appearing for the petitioner also relies on the decision of a Coordinate
Bench of this Court in Proddatur Cable TV Digi Services v. Citi Cable
Network Limited: (2020) 267 DLT 51 in support of his contention that
unilateral appoi ntment of the learned Arbitrator is not permissible.
22. In addition, he also referred to the decisions of the Supreme Court
in Bharat Broadband Network Limited v. United Telecoms Limited:
(2019) 5 SCC 755 , in support of his contention that a petition for
terminating the mandate of an Arbitrator, who is ineligible under
Section 12(5) of the A&C Act and for the appointment of another
Arbitrator in his place, is maintainable and it is not necessary for a party
to challenge the learned Arbitrator under Section 13 of the A&C Act.
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23. In Perkins Eastman Architects DPC and Anr. v. HSCC (India)
Limited (supra ), the Supreme Court had, following the principle
enunciated in its earlier decision in TRF Limited v. Energo
Engineering Projects Limited: (2017) 8 SCC 377 , observ ed as under:
“20. We thus have two categories of cases. The
first, similar to the one dealt with in TRF Limited where
the Managing Director himself is named as an arbitrator
with an additional power to appoint any other person as
an arbitrator. In the seco nd category, the Managing
Director is not to act as an arbitrator himself but is
empowered or authorised to appoint any other person of
his choice or discretion as an arbitrator. If, in the first
category of cases, the Managing Director was found
incompete nt, it was because of the interest that he would
be said to be having in the outcome or result of the
dispute. The element of invalidity would thus be directly
relatable to and arise from the interest that he would be
having in such outcome or decision. If that be the test,
similar invalidity would always arise and spring even in
the second category of cases. If the interest that he has in
the outcome of the dispute, is taken to be the basis for the
possibility of bias, it will always be present irrespectiv e
of whether the matter stands under the first or second
category of cases. We are conscious that if such deduction
is drawn from the decision of this Court in TRF Limited,
all cases having clauses similar to that with which we are
presently concerned, a p arty to the agreement would be
disentitled to make any appointment of an Arbitrator on
its own and it would always be available to argue that a
party or an official or an authority having interest in the
dispute would be disentitled to make appointment of an
Arbitrator.
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
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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 arbi trator 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 t he 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 dis pute 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.”
24. In Proddatur Cable TV Digi Services v. Citi Cable Network
Limited (supra ), a Coordinate Bench of this Court had following the
earlier decisions of the Supre me Court in TRF Limited v. Energo
Engineering Projects Limited (supra ) and Perkins Eastman Architects
DPC and Anr. v. HSCC (India) Limited (supra ) held that the unilateral
appointment of an Arbitrator by a company (a party to the Arbitration
Agreement) wou ld also be impermissible. The Court had founded the
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decision on the rationale that an incorporated entity also acts through
individuals (directors) who are ineligible to act as Arbitrators in terms
of Section 12(5) of the A&C Act read with the Seventh Sche dule of the
A&C Act. The relevant observations made by the court are as under:
“25. Insofar as the reliance by the respondent on
the judgments permitting unilateral appointment by the
Authority designate of one party to the agreement is
concerned, in my vi ew, the same will have no relevance
in view of the judgment of the Supreme Court in the case
of Perkins (supra). The argument of the respondent that
in the Arbitration Clause before the Supreme Court in the
case of Perkins was with regard to the power of a
Managing Director to appoint an Arbitrator whereas in
the present case it is the Company only merits rejection.
First and foremost, one has to see the rationale and the
reasoning behind the judgment in the case of Perkins
(supra). The Supreme Court held t hat the Managing
Director was ineligible from appointing an Arbitrator on
the simple logic that a Managing Director of a Company
would always have an interest in the outcome of the
arbitration proceedings. The interest in this context takes
the shape of bi as and partiality. As a natural corollary, if
the Managing Director suffers this disability, even if he
was to appoint another person as an Arbitrator, the thread
of biasness, partiality and interest in the outcome of the
dispute would continue to run. See n in this light, it can
hardly be argued that the judgment in Perkins (supra) will
not apply only because the designated Authority
empowered to appoint an Arbitrator is other than a
Managing Director. Moreover, as brought out by the
respondent itself, Comp any here is run by the Board of
Directors. The ‘Board of Directors’ is defined in Section
2(10) of the Companies Act, 2013 as under:
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“2(10) “ Board of Directors” or “Board”, in
relation to a company, means the collective body of the
directors of the company .”
26. Thus, the Company is run none other than the
Directors collectively. Duties of the Directors have been
stipulated in Section 166 of the Companies Act, 2013. A
bare perusal of the duties clearly reveals that the Director
at all times, has to act in g ood faith to promote the objects
of the Company and in the best interest of the Company,
its employees and the shareholders. A Director shall not
involve in a situation in which he may have a direct or an
indirect interest that conflicts or possibly may co nflict
with the interest of the Company. It goes without saying
that the Directors of the Company as a part of the Board
of the Directors would be interested in the outcome of the
Arbitration proceedings. The Company therefore, acting
through its Board of Directors would suffer the
ineligibility under Section 12(5) read with Schedule VII
of the Act. The same ineligibility would also apply to any
person appointed by the said Company. Thus, in my view,
for the purposes of Section 11(6) and Section 12(5) read
with Schedule VII, there cannot be a distinction based on
the appointing authority being a Company.
25. The said view has also been followed by a Coordinate Bench of
this Court. In M/s Omcon Infrastructure pvt. Ltd. v. Indiabulls
Investment Advisors Limited: O MP(T)(COMM.) 35/2020, decided on
01.09.2020 , the Court allowed the petition filed under Section 14 of the
A&C Act and terminated the mandate of an Arbitrator who had been
unilaterally appointed by a party. The Court following the decision of
the Supreme C ourt in Perkins Eastman Architects DPC and Anr. v.
HSCC (India) Limited (supra ), held as under: –
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“9. …….The ratio of the decision in Perkins Eastman
Architects DPC & Anr. (supra ) cannot be read in such a
narrow manner as has been sought to be done by the
learned Arbitrator. In my view, once the Managing
Director of the Respondent Company was ineligible to
appoint the arbitrator in the light of the decision in
Perkins Eastman Architects DPC &Anr. (supra ), the
same would also bar the Company itself from unil aterally
appointing the sole arbitrator.”
26. After some arguments, Mr. Chandhok, learned counsel appearing
for the respondent fairly conceded that in view of the decisions of the
Supreme Court in TRF Limited v. Energo Engineering Projects
Limited (supra ), Perkins Eastman Architects DPC and Anr. v. HS CC
(India) Limited (supra ) and the decision of this Court in Proddatur
Cable TV Digi Services v. Citi Cable Network Limited (supra ), it is no
longer open for a company to unilaterally appoint an Arbitrator.
However, he submitted that in the present case, the petitioner had agreed
to the appointment of the learned Arbitrator and therefore, waived the
applicability of Section 12(5) of the A&C Act. Therefore, it was not
open for the petitioner to now challenge the appointment of the learned
Arbitrator. He a lso referred to the minutes of the first meeting held
before the Arbitral Tribunal on 07.01.2020, wherein the Arbitrator had
recorded the statement made on behalf of the parties that they had no
objection to the constitution of the Arbitral Tribunal.
27. Thus, the limited issue to be addressed is whether the petitioner
has waived the applicability of Section 12(5) of the A&C Act.
28. Section 12(5) of the A&C Act reads as under: –
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“12(5) Notwithstanding any prior agreement to the
contrary, any person whose relatio nship, with the parties
or counsel or the subject -matter of the dispute, falls under
any of the categories specified in the Seventh Schedule
shall be ineligible to be appointed as an arbitrator:
Provided that parties may, subsequent to disputes
having ari sen between them, waive the applicability of this
sub-section by an express agreement in writing.”
29. In terms of the proviso to Sub -section 12(5) of the A&C Act, the
parties may waive the applicability of Section 12(5) of the Act.
However, the said waiver ha s to be (i) subsequent to the disputes having
arisen; and (ii) made by way of “ an express agreement in writing ”.
30. Concededly, in this case, there is no written agreement between
the parties, whereby the petitioner has agreed to waive the applicability
of Section 12(5) of the A&C Act.
31. This Court is also unable to accept that the proceedings recorded
by the Arbitrator would constitute such an express agreement in the
facts of this case. The petitioner had pointed out that on that date, its
representatives w ere not assisted by any counsel. It is also averred by
the petitioner that the proceedings of the day, which are not signed by
the parties, incorrectly record that the petitioner had no objection for the
appointment of the learned Arbitrator. The petition er had immediately
on receipt of the notice of appointment of the learned Arbitrator, had
objected to such appointment.
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32. As noticed above, the petitioner had in its letter dated 23.12.2019,
clearly stated that it had not submitted to the jurisdiction of t he learned
Sole Arbitrator. Although the petitioner had not specifically referred to
its objection to the respondent unilaterally appointing the learned
Arbitrator, it nonetheless, had expressed its opposition to the
appointment of learned Arbitrator. Ther eafter, the petitioner had
objected to the appointment of the learned Arbitrator and contended that
the respondent had appointed the Arbitrator as a dilatory tactic to
withhold the payments due to the petitioner.
33. Thus, it is difficult to accept that the petitioner had not objected
to the appointment of the learned Arbitrator. Subsequently, by an email
dated 10.09.2020, the petitioner had expressly stated that the unilateral
appointment of the Tribunal is contrary to the decision of the Supreme
Court in Perkins Eastman Architects DPC and Anr. v. HSCC (India)
Limited (supra ).
34. In view of the above, the present petition is allowed. The
mandate of learned Arbitrator unilaterally appointed by the respondent
stands terminated. Justice (Retired) R.C. Chopra, a former judge of this
Court is appointed as the Sole Arbitrator to adjudi cate the disputes that
have arisen between the parties in connection with the Work Order
dated 11.08.2015. This is subject to the Arbitrator making the necessary
disclosure under Section 12(1) of the A&C Act and not being ineligible
under Section 12(5) of the A&C Act.
35. The petition is allowed in the aforesaid terms.
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36. The parties are at liberty to approach the Learned Arbitrator for
further proceedings.

VIBHU BAKHRU, J
JANUARY 28, 2021
RK
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