GARG BUILDERS vs HINDUSTAN PREFAB LIMITED & ANR.
$~46
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ARB.P. 467/2024
GARG BUILDERS …..Petitioner
Through: Mr. Rahul Malhotra, Adv.
versus
HINDUSTAN PREFAB LIMITED & ANR. ….Respondents
Through: Mr. Nischal Anand, Adv. for R-1
Mr. Vaibhav Manu Srivastava, Adv. with Mr. Dinesh Kumar, SSO for R-2/ESIC
CORAM:
HON’BLE MR. JUSTICE C. HARI SHANKAR
JUDGMENT (ORAL)
% 02.09.2024
1. This is a petition under Section 11(6) of the Arbitration and Conciliation Act, 19961 for reference of the dispute between the parties to arbitration.
2. The dispute arises in the context of an agreement dated 25 January 2017 between the petitioner and Respondent 1. The contract was for construction of a 100 bedded ESIC hospital at Raipur. The opening recitals in the contract read thus:
Whereas, HPL, has desirous of Construction of 100 Bedded ESIC Hospital at Raipur, Chattisgarh (hereinafter referred to as the PROJECT) on behalf of the Employees State Insurance Corporation, (hereinafter referred to as the OWNER), had invited tender as per Tender documents vide NIT No/HPL/DGM(C)/TC/ESIC/ Raipur/2016-17/92 dated 06-12-2006.
AND WHEREAS M/s Garg Builders had participated in the above referred tender vide their tender dated 28-12-2016 and HPL has accepted their aforesaid tender and award the contract for Construction of 100 Bedded Hospital at Raipur, Chattisgarh on the terms and conditions contained in its Letter of Intent no. HPL/DGM(C)/TC/AWARD/ 2016-17/64 dated 09-01-2017 and the documents referred to therein, which have been unequivocally accepted by M/s Garg Builders, vide their acceptance letter dated 12-01-2017 resulting into a contract.
NOW THEREFORE THIS DEED WITNESSETH AS UNDER:
ARTICLE 1.0 -AWARD OF CONTRACT
SCOPE OF WORK
1.1. HPL has awarded the contract to M/s Garg Builders, for the work of Construction of 100 Bedded Hospital at Raipur, Chattisgarh on the terms and conditions contained in its Letter of Intent no. HPL/DGM(C)/TC/AWARD/ 2016-17/64 dated 09-01-2017 and the documents referred to therein. The award has been taken effect from 09-01-2017, i.e. the date of issue of aforesaid letter of intent. The terms and expressions used in this agreement shall have the same meanings as are assigned to them in the Contract, Documents referred to in the succeeding Article.
ARTICLE 2.0- CONTRACT DOCUMENTS
2.1 The contract shall be performed strictly as per the terms and conditions stipulated heroin and in the following documents attached herewith (hereinafter referred to as “Contract Documents”).
(a) HPL, Notice Inviting Tender vide NIT No. HPL/DGIM(C)/TC/ISIC/ Raipur/2016-17/92 dated 06-12-2016 and HPL’s tender documents consisting of:
(1) General Conditions of Contract (GCC) along with amendments/errata to GCC (if any) issued.
(ii) Special Conditions of Contract including Appendices & Annexures,
(iii) Bill of Quantities along with amendments/corrigendum of schedule items, if any
(b) M/s Garg Builders letter proposal and their subsequent communication.
(1) Letter of Acceptance of Tender Conditions dated 26-12-2016 submitted along with tender on 28-12-2016.
(ii) Letter of acceptance by M/s Garg Builders, vide letter dated 12-01-2017 for Letter of Intent No. HPL/DGM(C)/TC/Award/2016-17764 dated 09-01-2017.
2.2 HPL’s detailed Letter of Intent No: HPL/DGM(C)/TC/Award/2016-17/64 dated 09-01-2017, Bill of Quantities (BOQ), agreed time schedule.
All the aforesaid contract documents referred to in para 2.1 and 2.2 above shall form an integral part of this Agreement, in so far as the same or any part thereof conform, to the tender documents and what has been specifically agreed to by HPL in its Letter of Intent. Any matter inconsistent there with, contrary or repugnant thereto or any deviations taken by the Contractor in its “TENDER” but not agreed to specifically by HPL, in its Letter of Intent, shall be deemed to have been withdrawn by the Contractor without any cost implication to HPL. For the sake of brevity, this Agreement along with its aforesaid contract documents and Letter of Intent shall be referred to as the “Contract”.
3. Clearly, Respondent 1 has entered into the contract with the petitioner on behalf of Respondent 2 ESIC. This fact is reflected from other recitals in the tender documents as well, as well as by the corrigendum to the General Conditions of Contract (GCC), which substitutes, for the words Chief Engineer/DG Works/Chief Engineer (Zone) as used in the GCC, the words CMD, HPL for & on behalf of ESIC.
4. There cannot, therefore, be any doubt about the fact that Respondent 1 entered into the agreement with the petitioner for and on behalf of Respondent 2 ESIC.
5. Mr. Vaibhav Manu Srivastava, learned Counsel appearing for the Respondent 2 ESIC, sought to be deleted from these proceedings submitting that the agreement forming subject matter of the dispute, was between the petitioner and Respondent 1, and that the ESIC was not a party to the agreement.
6. In view of the aforesaid observations, this submission cannot be accepted. The ESIC, prima facie, is required to be a part of the arbitral proceedings, given the fact that Respondent 1 has entered into the agreement on behalf of ESIC, applying the principles contained in the judgment of the Supreme Court in ONGC v Discovery Enterprises2 and Cox and Kings Ltd v SAP India (P) Ltd3.
7. Before proceeding further, it is necessary to note that the agreement is governed both by the General Conditions of Contract as well as Special Conditions of Contract (SCC), applicable to CPWD contracts. The GCC and the SCC Contained separate arbitration clauses. These clauses read thus:
Arbitration clause in the SCC
26. Settlement of Disputes and Arbitration:
Any or all Disputes, differences, or questions which may arise at any time between the parties hereto or any person claiming under them, touching or arising out of or in respect of this agreement or subject matter thereof shall first be endeavored to be amicably resolved at the top management level of the parties. However, in event of such dispute, difference or question etc. remaining unsolved, the same shall be referred to the arbitration by Sole Arbitrator to be nominated by The Chairman And Managing Director of Hindustan Prefab Limited, and provisions of the Arbitration and Conciliation Act, 1996 shall be applicable. The place of such arbitration shall be at New Delhi.
Arbitration clause in the GCC
CLAUSE 25
Except where otherwise provided in the contract, all questions and disputes relating to the meaning of the specifications, design, drawings and instructions here-in 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, designs, drawings, specifications, estimates, Instructions, orders or these conditions or otherwise concerning the works or the execution or failure to execute the same whether arising during the progress of the work or after the cancellation, termination, completion or abandonment thereof shall be dealt with as mentioned hereinafter:
(1) If the contractor considers any work demanded of him to be outside the requirements of the contract, or disputes any drawings, record or decision given in writing by the Engineer in-Charge-on any matter in connection with or arising out of the contract or carrying out” of the work, to be unacceptable, he shall promptly within 15 days request the Superintending Engineer in writing for written instruction or decision. Thereupon, the Superintending Engineer shall give his written Instructions or decision within e period of one month from the receipt of the contractor’s letter.
If the Superintending Engineer (fails to give his Instructions or decision in writing within the aforesaid period or if the contractor is dissatisfied with the instructions or decision of the Superintending Engineer, the contractor may, within 15 days of the receipt of Superintending Engineer’s decision, appeal to the Chief Engineer who shall afford an opportunity to the contractor to be heard, If the fatter so desires, and to offer evidence in support of his appeal. The Chief Engineer shall give his decision within 30 days of receipts appeal. If the contractor is dissatisfied with the decision of the Chief Engineer, the contractor may within 30 days from the receipt of the Chief Engineer decision, appeal before the Dispute Redressal Committee (DRC) along with a list of disputes with amounts claimed in respect of each such dispute and giving reference to the rejection of his disputes by the Chief Engineer. The Dispute Redressal Committee (PRC) shall give his decision within a period of 90 days from the receipt of Contractor’s appeal. The constitution of Dispute Redressal Committee (DRC) shall be as Indicated In Schedule ‘F’. If the Dispute Redressal Committee (DRC) (fails to give his decision within the aforesaid period or any party is dissatisfied with the decision of Dispute Redressal Committee (DRC), then either party may within a period of 30 days from the ‘receipt of the decision of Dispute Redressal Committee as (DRC), give notice to the Chief Engineer for appointment of arbitrator on prescribed proforma as per Appendix XV, falling which the said decision shall be final binding and conclusive and not referable to adjudication by the arbitrator.
It is a term of contract that each party invoking arbitration must exhaust the aforesaid mechanism of settlement of claims/disputes prior to invoking arbitration.
(ii) Except whore the decision has become final, binding and conclusive in terms of Sub Para (i) above, disputes or difference shall be referred for adjudication through arbitration by a sole arbitrator appointed by the Chief Engineer, CPWD, in charge of the work or if there be no Chief Engineer, the Additional Director General of the concerned region of CPWD or If there be no Additional Director General, the Director General, CPWD. If the arbitrator so appointed is unable or unwilling to act or resigns his appointment or vacates his office due to any reason whatsoever, another sole arbitrator: shall be appointed in the manner aforesaid. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor.
It is a term of this contract that the party invoking arbitration shall give a list of disputes with amounts claimed in respect of each such dispute along with the notice for appointment of arbitrator and giving reference to the rejection by the Chief Engineer of the appeal.
It is also a term of this contract that no person, other than a person appointed by such Chief Engineer CPWD or Additional Director General or Director General, CPWD., as aforesaid, should act as arbitrator and if for any reason that is not possible, the matter shall not be referred to arbitration at all.
It is also a term of this contract that if the contractor does not make any demand for appointment of arbitrator in respect of any claims in writing as aforesaid within 120 days of receiving the Intimation from the Engineer-In-charge that the final bill is ready for payment, the claim of the contractor shall be deemed to have been waived and absolutely barred and the Government shall be discharged and released of all liabilities under the contract in respect of these claims.
The arbitration shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) or any statutory modifications or re-enactment thereof and the rules made thereunder and for the time being is force shall apply to the arbitration proceeding under this clause.
It is also a term of this contract that the arbitrator shall adjudicate of only such disputes as are referred to him by the appointing authority and give separate award against each dispute and claim referred to him and in all cases where the total amount of the claims by any party exceeds Rs. 1,00,000/-, the arbitrator shall give reasons for the award.
It is also a term of the contract that if any fees are payable to the arbitrator, these shall be paid equally by both the parties.
It is also a term of the contract that the arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties calling them to submit their statement of claims and counter statement of claims. The venue of the arbitration shall be such place as may be fixed by the arbitrator in his sole discretion. The fees, if any, of the arbitrator shall, if required to be paid before the award is made and published, be paid half and half by each of the parties. The cost of the reference and of the award-(including the fees, if any, of the arbitrator) shall be in the discretion of the arbitrator who may direct to any by whom and in what manner, such costs or any part thereof shall be paid and fix or settle the amount of costs to be so paid.
8. As is apparent, the arbitration clause in the SCC does not envisage any specific pre-arbitral protocol being followed before arbitration is invoked. As against this, Clause 25 of the GCC envisages an elaborate pre-arbitral protocol, to be followed and exhausted before a notice invoking arbitration is issued.
9. Without following the pre-arbitral protocol envisaged by Clause 25 of the GCC, the petitioner issued a notice to Respondent 1 under Section 21 of the 1996 Act on 15 October 2020. On Respondent 1 failing to respond, the petitioner filed Arb P 473/2021 before this Court under Section 11(6) of the 1996 Act, seeking reference of the dispute to arbitration.
10. Arb P 473/2021 was disposed of by a coordinate Bench of Honble Mr. Justice V K Rao on 10 October 2022. Rao J was of the view that the arbitration clause in the GCC and SCC had to be read together and that, therefore, without exhausting the pre-arbitral protocol envisaged in Clause 25 of the GCC, the petitioner could not have invoked arbitration.
11. Paras 10 and 16 of the decision dated 10 October 2022 of Rao J in Arb P 473/2021 read thus:
10. The real issue which arises for consideration is whether the petitioner is required to follow the process as laid down in the GCC, which I have already reproduced above. The plea of the counsel for the petitioner is, as per the stipulation in the SCC, and also the SCC being specific, it shall prevail whereas, the counsel for HPL would submit the SCC only stipulate, that special conditions shall supersede/supplement the relevant conditions given in CPWD (GCC) tender document. It means, the GCC and SCC supplement each other. The procedure in GCC/SCC for making a reference to Arbitration have to be harmoniously read/followed. This plea of the counsel for HPL has to be considered, in conjunction with other plea that in view of clause 16 of the SCC which stipulates that the decision of the Chairman and Managing Director HPL, regarding the quantum of reduction as well as justification thereof in respect of rates for substantial work will be final and would not be open to Arbitration and adjudication. It follows that, before the parties are referred to arbitration it is necessary that the dispute(s) (if any) to be referred are determined/established as per the contract, and is not an excepted matter.
*****
16. From the reading of the aforesaid paragraphs, it is clear that the Supreme Court has in unequivocal terms said that if a clause stipulates that under certain circumstances there can be no arbitration then the controversy pertaining to the appointment of an arbitrator has to be put to rest. It is necessary to state that Mr. Malhotra would contest the submission made by learned counsel for the respondent No.1 by stating that the claims of the petitioner are also not with regard to the sub standard work. Hence, all the claims which have been raised by the petitioner are necessarily to be referred to arbitration process. I say nothing on this submission made by Mr. Malhotra as this Court is of the view, in view of the plea raised by learned counsel for the respondent No.1 that the remedy for the petitioner is to invoke the procedure/process as contemplated under the GCC/SCC (to be read harmoniously), the petitioner need to be relegated to the said procedure/process and if the petitioner still has any grievance, to seek such remedy as available in law.
12. At this stage, the following corrigendum to the GCC, as applicable to the agreement between the petitioner and the respondents required to be noted:
S. No.
For
Read as
1
Chief Engineer/ DG works/ Chief Engineer (Zone)
CMD, HPL for & on behalf of ESIC
2
Superintending Engineer
DGM(C)
3
Engineer -in -charge
Project Incharge
4
Department
Hindustan Prefab Limited
5
Administrative Head
C.M.D.,HPL
6
Owner
ESIC
7
C.P.W.D
H.P.L
13. Following the discipline of Clause 25 of the GCC, as amended by the aforenoted Corrigendum, the petitioner wrote to the Deputy General Manager (DGM) of the respondent on 9 December 2022, ventilating his claims. The DGM rejected the application on 7 January 2023. The petitioner appealed to the CMD of Respondent 1 on 25 January 2023. The CMD rejected the petitioners request on 1 March 2023. The petitioner, thereafter, wrote to the CMD on the same day i.e. 1 March 2023, seeking constitution of a Dispute Redressal Committee (DRC). The DRC was constituted on 20 April 2023. The petitioners claims were rejected by the DRC on 1 August 2023.
14. The petitioner, thereafter, issued a Section 21 notice to the both the respondent on 3 August 2023, raising its claims and seeking reference of the disputes to arbitration.
15. On the respondent not having responded to the reply to the said communication, the petitioner has filed the present petition under Section 11(6) of the 1996 Act.
16. Mr. Varun Nischal, learned Counsel appearing for the Respondent 1 raises, principally, two objections. The first is that the disputes raised by the petitioner travel beyond the disputes which formed subject matter of Arb P 473/2021 and in respect of which Rao J had, by the judgment dated 10 October 2022, granted liberty to the petitioner to exhaust the pre-arbitral protocol.
17. Given the considerable straitened scope of examination by this Court while exercising jurisdiction under Section 11(6) of the 1996 Act in view of the recent decision of the Supreme Court in SBI General Insurance Co Ltd v Krish Spinning4, this Court cannot enter into the specifics of the disputes raised by the petitioner. Even otherwise, there was no embargo on the petitioner raising disputes even beyond those which had been raised in Arb P 473/2021 and seeking reference of those disputes to arbitration, provided the pre-arbitral protocol envisaged by Clause 25 of the GCC was followed.
18. Inasmuch as the petitioner has followed the discipline of Clause 25 of the GCC before invoking arbitration, this Court cannot refuse to refer the dispute to arbitration merely on basis of Mr. Varun Nischals submissions that the disputes were in excess of those which formed subject matter of Arb P 473/2021.
19. The second objection of Mr. Nischal pertains to the third sub-para of Clause 25(ii) of the GCC, which reads as under:
It is also a term of this contract that no person, other than a person appointed by such Chief Engineer CPWD or Additional Director General or Directo General, CPWD as aforesaid, should act as arbitrator and if for any reason that is not possible, the matter shall not be referred to arbitration at all.
20. Mr. Nischal submits that the import of the afore-extracted Clause is clearly that the dispute is arbitrable only if the arbitrator is appointed by the CMD of the respondent. If the CMD of the respondent did not appoint an arbitrator, the dispute would not be arbitrable. He places reliance on the judgment of the Supreme Court in Oriental Insurance Company Ltd v Narbheram Power and Steel Pvt Ltd5 and on the decision of a coordinate Bench of this Court in Vindhya Vasini v BHEL6.
21. Mr. Malhotra, on the other hand, submits that, the decision in Vindhya Vasini has been found, by another coordinate Bench of this Court, in a petition between the petitioner and respondent itself (Garg Builders v Hindustan Prefab Ltd7) to effectively be per incuriam earlier decisions passed by the Supreme Court, which were not noticed in Vindhya Vasini. Paras 13 to 19 of the decision in Garg Builders may be reproduced thus:
13. The respondent further relies on M/s Vindhya Vasini Construction Company vs. M/s Bharat Heavy Electricals Ltd, passed by this court in ARB.P. 1298/2022 which considered the judgment of Perkins (supra) and held that having an express agreement between the parties which contemplates that there shall be no Arbitration at all in case the nominee of the respondent cannot act as an Arbitrator, then there remains no mandate on the parties which binds the parties for reference to arbitration. The operative portion of M/s Vindhya Vasini (supra) reads as under:-
22. There can be no dispute on the proposition laid down in Enercon (India) Limited and Others (supra), which holds that in interpreting or construing terms of the Arbitration Agreement, the Courts must adopt a pragmatic approach and not a pedantic or technical approach, however, in the present case, the Agreement being unambiguous, question of interpretation thereof does not arise. The learned counsel for the petitioner submits that the dominant intention of the parties was to have their disputes resolved through Arbitration and therefore, such intent be not defeated by the subsequent portion of the Clause. I do not find merit in the submission inasmuch as the parties themselves agreed that in case the nominee of the Head TBG cannot act as an Arbitrator, there shall be no Arbitration. Having expressly agreed to such stipulation, the parties are bound by this.
23. The submission of the learned counsel for the petitioner that the stipulation in Clause 23 of the Work Order insofar as it provides that in case the nominee of the Head TBG cannot act as an Arbitrator, the dispute shall not be referred to Arbitration, is unconscionable or unenforceable, also does not impress me. As noted hereinabove, arbitration is by the consent of the parties. It provides for an alternate dispute resolution mechanism. The parties in fact voluntarily agreed to have their disputes resolved through a mechanism other than the one provided by the State in form of Courts of Law. There is no mandate on the parties to necessarily have their matters resolved through Arbitration in case they do not wish to provide for the same in their Agreement. The remedy to have the disputes resolved through the mechanism of ordinary Civil Courts is still open to the petitioner. It is not as if the petitioner is left remediless by the stipulation in Clause 23.
14. Mr. Malhotra, learned counsel for the petitioner states that the above judgment is per incuriam since it has failed to appreciate the judgment of Nandyal Coop. Spinning Mills LTD. vs. K.V. Mohan Rao8, passed by the Honble Supreme Court and judgments of this court in NCR Developers. Vs. University of Delhi in ARB.P. 180/2019 M/s ESS ESS Construction vs. Union of India9 and Nav Nirman Construction Company vs. Executive Engineer CD- IX, Irrigation and Flood Control Department, GNCT of Delhi10, wherein in cases of similar arbitration clauses which mandated appointment of Arbitrator by one party and in case of failure stipulates that there shall be no arbitration at all, the courts have allowed the parties to proceed with arbitration. The operative portion of the abovementioned judgments read as under:
a. Nandyal Coop. Spinning Mills LTD. vs. K.V. Mohan Rao11:
11. It would thus be clear that if no had been appointed in terms of the contract within 15 days from the date of receipt of the notice, the administrative head of the appellant had abdicated himself of the power to appoint under the contract. The court gets jurisdiction to appoint an arbitrator in place of the contract by operation of Section 8(1)(a). The contention of Shri Rao, therefore, that since the agreement postulated preference to arbitrator appointed by the administrative head of the appellant and if he neglects to appoint, the only remedy open to the contractor was to have recourse to civil suit is without force. It is seen that under the contract the respondent contracted out from adjudication of his claim by a civil court. Had the contract provided for appointment of a named arbitrator and the named person was not appointed, certainly the only remedy left to the contracting party was the right to suit. That is not the case on hand. The contract did not expressly provide for the appointment of a named arbitrator. Instead power has been given to the administrative head of the appellant to appoint sole arbitrator. When he failed to do so within the stipulated period of 15 days enjoined under Section 8(1)(a), then the respondent has been given right under Clause 65.2 to avail the remedy under Section 8(1)(a) and request the court to appoint an arbitrator. If the contention of Shri Rao is given acceptance, it would amount to putting a premium on inaction depriving the contractor of the remedy of arbitration frustrating the contract itself. (Emphasis supplied)
b. M/s ESS ESS Construction vs. Union of India12:
15. In the present case, it might still have been possible for the Chief Engineer to be asked to appoint an Arbitrator. However, learned counsel for the Respondent states that it is practically impossible for the Chief Engineer to now appoint an Arbitrator as such person would not be qualified in terms of the Act as amended from 23rd October, 2015. The clause in the present case envisages the applicability of the Act or any statutory modification or re-enactment thereof. Therefore, learned counsel for the Respondent was right in contending that under the amended Act it is not possible for the Respondent to appoint an Arbitrator. When asked whether the Chief Engineer could appoint an independent person who may not be disqualified to act as an arbitrator, learned counsel for the Respondent answered in the in the negative stating that the Chief Engineer would not be permitted to appoint a person other than an employee of the government itself.
16. It is high time that the Departments of the Union of India should frame a policy for the appointment of Arbitrators not inconsistent with the requirements of the Act as amended with effect from 23rd October, 2015 particularly since many of the standard clauses involving the Respondent talk of the applicability of the Act or any statutory modification or re-enactment thereof. A panel of competent persons both independent and qualified, to act as Arbitrators should be prepared by them for this purpose.
17. As far as the present case is concerned, with the Respondent being candid about the inability of the Chief Engineer to appoint an Arbitrator, the Court sees no impediment to refer the disputes to the arbitration of a sole Arbitrator appointed by the Court.
c. M/s Nav Nirman Construction Company vs. Executive Engineer CD- IX, Irrigation and Flood Control Department, GNCT of Delhi13:
12. The legal position, which emerges, is as follows:
i) If the arbitration clause contains a term that a designated authority shall appoint an arbitrator, then recourse to take arbitration shall be according to the said provision.
ii) The position would be slightly different if there is a named arbitrator where the failure of the named arbitrator to act would nullify the arbitration clause itself. In other words, the arbitration clause, such as the one in issue, will not perish merely because the designated authority fails to appoint an arbitrator even though charged with the said obligation.
iii) In case of the designated authority failing to act in appointing an arbitrator after the arbitration clause has been invoked the aggrieved party is well within its right to approach the court under Section 11 of the said Act seeking the appointment of an arbitrator by the Hon’ble Chief Justice or his designate.
If the aforesaid principles are applied to the facts of the present case, it is not disputed that the arbitration clause was invoked by the appellant. No arbitrator was appointed by the designated authority. The appellant filed an application under Section 11(6) of the said Act. The respondent took the plea of the designated authority being there to appoint the arbitrator. It is in such circumstances that the court appointed the arbitrator which was well within the authority of law.
14. We are, thus, not in agreement with the view taken by the learned single Judge that the arbitration clause in question can give rise to a position in law that the failure of the designated authority to appoint an arbitrator would give a go bye to arbitration or denude the Chief Justice or his designate to appoint an arbitrator. In fact, this is not a peculiar arbitration clause but such term is contained in various arbitration clauses of various authorities which have been analyzed by the Supreme Court and this Court as is apparent from the judgement in Nandyal Coop. Spinning Mills Ltd. case (supra).
d. NCR Developers. Vs. University of Delhi dated 25.04.2019 in ARB.P. 180/2019:
10. The Court cannot decipher the understanding between the parties in a manner the Respondent is canvassing. The arbitration clause has to be given a meaningful construction. The clause gives the Respondent a right to make an appointment but not to extinguish or abandon the clause all together. If the objection of the Respondent is sustained, it would mean that arbitration can be resorted to solely as per the choice of the Respondent. The Respondent has the right to appoint an Arbitrator but not an exclusive right to decide whether to arbitrate or not. Respondents interpretation of the clause is not correct. Therefore, since the Respondent has failed to act as per the agreed procedure, Petitioner is well within its right to approach this court under Section 11 (6) (a) of the Act and the power of the court, in the facts of the present case, is not impinged.
11. The Court’s power to appoint an Arbitrator under Section 11 (6) of the Act, has been subject matter of several decisions of this Court and the Supreme Court. In the case of Nandyal Coop. Spinning Mills Ltd (supra), relied upon by the Petitioner, a question arose with respect to the jurisdiction of the Court to make an appointment under Section 8 (1) (a) of the Arbitration Act,1940 in view of a para materia Arbitration Clause. This Court held that an aggrieved party has the right to file an application under Section 8 of the Arbitration Act,1940 Act, where the opposite party fails to appoint an Arbitrator(s) as per the terms of the Contract. The judgment of the Division Bench of this Court, in Nav Nirman Construction Company Ltd.(supra) also fortifies the aforementioned view. In the said case, the Single Judge while deciding objections to the award under section 34 of the Act arrived at a conclusion that in view of the arbitration clause [containing a para materia condition] failure of the designated authority to appoint an arbitrator would give a go bye to arbitration. Over turning the said decision, the Division Bench held that the failure of the designate authority to appoint an arbitrator cannot be construed to denude the Chief Justice or his designate to appoint an Arbitrator. Respondent has placed reliance upon Newton Engineering and Chemical Ltd. (supra) wherein the arbitration clause inter alia provided that no person other than ED(NR) or the person designated by the ED (NR) should act as an arbitrator. The question arose that if the office of ED (NR) ceased to exist in the Corporation and the parties were unable to reach at an agreed solution, whether the arbitration clause survives? The Court while interpreting the clause, expressed the view that in such a situation, the Court has no power to appoint an arbitrator for resolution of the disputes. However, it is apposite to state that on a perusal of the judgment, one cannot conclude whether the arbitration clause had a similar condition to the effect that in a certain event, there would be, “no arbitration at all” and therefore the case is distinguishable on facts. The learned counsel for the Respondent has also placed reliance on a decision of the Supreme Court in the case of ACC Ltd. (supra). A perusal of the judgment elucidates the facts in the said case are distinct and distinguishable and therefore the Court is not persuaded to rely on the aforementioned case.
12. Thus, Respondents interpretation of the clause is not correct. Since the Respondent has failed to act as per the agreed procedure, Petitioner is well within its right to approach this court under section 11 (6) (a) of the Act and the power of the Court, in the facts of the present case has not been encroached.
15. A perusal of the aforesaid judgments clearly shows that there the judgment of M/s Vindhya Vasini Construction Company (supra) has failed to appreciate the findings of the judgments in Nandyal Coop. Spinning Mills LTD. (supra), M/s NCR Developers (supra), M/s ESS ESS Construction (supra) and M/s Nav Nirman Construction Company (supra) which were all prior to the judgment of M/s Vindhya Vasini Construction Company (supra).
16. In M/s Vindhya Vasini Construction Company (supra), the learned Single Judge held that in terms of the contract if the nominee of the head of TBG cannot act as an arbitrator, there shall be no arbitration.
17. However, the Honble Supreme Court in Nandyal Coop. Spinning Mills LTD. (supra) had priorly held that once the power had been given to the head, in the event of him failing to do so, the Court would be competent to appoint an Arbitrator. Otherwise, it would amount to putting a premium on the inaction.
18. Further, in the case of M/s Nav Nirman Construction Company (supra) this court clearly held that in case of a designated authority failing to act in appointing an Arbitrator, after the arbitration clause has been invoked, the party was within its right to approach the Court under section 11 of the Arbitration and Conciliation Act, 1996. The same is also the view of M/s NCR Developers (supra). Therefore in this view of the matter, with due respect, I am unable to subscribe to the view of M/s Vindhya Vasini Construction Company (supra).
19. In the present case, the respondent no. 1 with the consent of the respondent no. 2 was to appoint an Arbitrator. The notice invoking arbitration was sent on 25.05.2023, however the respondents failed to appoint an Arbitrator. The present petition under section 11(6) of the Arbitration and Conciliation Act, 1996 was filed around 11.07.2023. In the Arbitration clause there was no named arbitrator but the EMD of respondent No. 1 with consent and on behalf of respondent No. 2 had to appoint an arbitrator. Since the same was not appointed, despite notice, the present petition is maintainable.
22. There is thus, a plurality of views on whether, in a case where the contract is hedged in by a clause such as the third sub-para of Clause 25(ii) of the GCC, and no arbitrator is appointed by the officers named in the said para, the dispute would be rendered non-arbitrable.
23. Apart from the view taken in Garg Builders, there are at least two reasons why, according to me, the view taken by the coordinate Bench in Vindhya Vasini cannot be applied.
24. In the first place, the clause contained in third sub-para of Clause 25(ii) of the GCC envisages the CMD of the respondent appointing an arbitrator, and the matter not being referred to arbitration at all if for any reason that is not possible. It is only, therefore, in a case of impossibility that this clause would apply. In other words, the clause does not apply merely because no arbitrator was in fact appointed by the CMD of the respondent. In order for the clause to apply, the respondent would have to show that it was impossible for the CMD of the respondent to appoint an arbitrator. Though this aspect of the matter has not been noticed either in Vindhya Vasini or in the earlier decision in Garg Builders, I am of the opinion that it is of considerable significance.
25. It is not Mr. Nischal Anands contention that there was any impossibility, hindering the appointment of the arbitrator by the CMD of the respondent. In that view of the matter, the afore-extracted stipulation in the third sub-para of clause 25 (ii) would not apply at all.
26. Secondly, if the aspect of impossibility is ignored, the case is directly covered by the judgments of the Supreme Court in Bharat Broadband Network Ltd v United Telecoms Ltd14, Perkins Eastman Architects DPC v HSCC (India) Ltd15 and Haryana Space Application Centre v Pan India Consultants Pvt Ltd16 read with Section 12(5)17 of the 1996 Act.
27. The law that emerges from these decisions read with Section 12(5) of the 1996 Act, is that, where the arbitration agreement envisages the arbitrator being appointed by one of the parties to the dispute, the clause is unworkable in law and the Court has to step in to appoint the arbitrator.
28. The stipulation, in the afore-extracted third para of clause 25(ii) is directly hit by Bharat Broadband Network Ltd, Perkins Eastman Architects DPC and Haryana Space Application Centre. Applying the ratio of these decisions, therefore, the arbitrator has necessarily to be appointed by the Court.
29. No other objection, which can be examined by the Section 11(6) Court, given the recent decision in SBI General Insurance Co Ltd, has been taken.
30. As the parties have not been able to arrive at a consensus regarding the arbitration, the Court has necessarily to step in.
31. Accordingly, this Court requests Honble Ms. Justice Reva Khetrapal (Mob: 9871300030), a learned retired Judge of Delhi High Court to arbitrate on the disputes between the parties.
32. The arbitration shall take place under the aegis of the Delhi International Arbitration Centre (DIAC) and would be governed by its rules and regulations.
33. The arbitrator would be entitled to charge fees as per the schedule of fees maintained by the DIAC.
34. The learned arbitrator is requested to file the requisite disclosure under Section 12(2) of the 1996 Act within a week of entering on the reference.
35. All other objections are left open to be agitated by the parties before the learned Arbitral Tribunal in accordance with law.
36. The petition is allowed in the aforesaid terms.
C. HARI SHANKAR, J.
SEPTEMBER 2, 2024
dsn
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1 the 1996 Act, hereinafter
2 (2022) 8 SCC 42
3 (2024) 4 SCC 1
4 2024 SCC OnLine SC 1754
5 2023 SCC OnLine Del 2768
6 (2018) 6 SCC 534
7 MANU/DE/2895/2024
8 (1993) 2 SCC 654
9 2017 SCC OnLine Delhi 6804
10 2011 SCC OnLine Del 3948
11 (1993) 2 SCC 654
12 2017 SCC OnLine Delhi, 6804
13 2011 SCC OnLine Del 3948
14 (2019) 5 SCC 755
15 (2020) 20 SCC 760
16(2021) 3 SCC 103
17 (5) Notwithstanding any prior agreement to the contrary, any person whose relationship, 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 arisen between them, waive the applicability of this sub-section by an express agreement in writing
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