M/S. KAWATRA TENTS AND CATERERS PVT. LTD. vs DELHI URBAN SHELTER IMPROVEMENT BOARD (DUSIB)

$~23 & 24
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 16th April, 2024
+ O.M.P. (T) (COMM.) 33/2024
M/S. KAWATRA TENTS AND CATERERS
PVT. LTD. ….. Petitioner
Through: Mr. Yogesh Jagia, Mr. Amit Sood, Mr. Hriday Minocha and Mr. Chandan Dutta, Advocates. (M: 9810110858)
versus

DELHI URBAN SHELTER IMPROVEMENT
BOARD (DUSIB) ….. Respondent
Through: Mr. Naveen Kumar Raheja, Adv. (M: 9810129691)
24 AND
+ O.M.P. (T) (COMM.) 34/2024
M/S. KAWATRA TENTS AND
CATERERS PVT. LTD. ….. Petitioner
Through: Mr. Yogesh Jagia, Mr. Amit Sood, Mr. Hriday Minocha and Mr. Chandan Dutta, Advocates.
versus

DELHI URBAN SHELTER IMPROVEMENT
BOARD (DUSIB) ….. Respondent
Through: Mr. Naveen Kumar Raheja, Adv.
CORAM:
JUSTICE PRATHIBA M. SINGH
Prathiba M. Singh, J. (Oral)
1. This hearing has been done through hybrid mode.
I.A.8491/2024 (for exemption) in O.M.P.(T) (COMM.) 33/2024 
I.A.8494/2024 (for exemption) in O.M.P.(T) (COMM.) 34/2024
2. These are the applications seeking exemption from filing originals/certified/cleared/typed or translated copies of documents, left side margins, electronic documents, etc. Original documents shall be produced/filed at the time of Admission/Denial, if sought, strictly as per the DHC (Original Side) Rules, 2018.
3. Exemption is allowed, subject to all just exceptions. 
4. Accordingly, the applications are disposed of.
O.M.P.(T) (COMM.) 33/2024 & I.A.8492/2024 (for stay) 
O.M.P.(T) (COMM.) 34/2024 & I.A.8495/2024 (for stay)

5. The present petitions have been filed on behalf of the Petitioner- M/s Kawatra Tents & Caterers Pvt. Ltd. under Sections 14(2) & 15 of the Arbitration and Conciliation Act, 1996 challenging the appointment of the Sole Arbitrator by the DUSIB. The Petitioner states that the ld. Arbitrator has been appointed unilaterally by the Delhi Urban Shelter Improvement Board (hereinafter, ‘DUSIB’). Further, the Petitioner vide the present petitions is seeking appointment of a substitute arbitrator.
6. The present applications, I.A. 8492/2024 and I.A. 8495/2024 are filed on behalf of the Petitioner seeking a stay on the arbitration proceedings titled Delhi Urban Shelter Improvement Board (DUSIB) v M/s Kawatra Tents & Caterers Pvt. Ltd.
7. The case of the Petitioner is that it had entered into a license deed dated 27th April, 2018 (hereinafter, ‘Agreement’) by which the Petitioner was awarded a tender in respect of Chunks A and D, each measuring 9,200 sq. mtr. situated at District Centre, Raja Garden and was permitted to utilize the said chunks of land/property for the purpose of organizing cultural/religious/social functions, fairs/fetes, exhibitions, etc. The Agreement contains the arbitration clause, which reads as under:
“19. In cases of any dispute between the parties, the dispute shall be referred to the Arbitrator to be appointed by Member (Admn.) as per the provision of Arbitration & Conciliation Act, 1996.”

8. It is stated that disputes arose between the parties herein in view of the claim of the Respondent that fee with respect to the Agreement amounting to Rs. 3,84,26,920/- for which a recovery certificate dated 24th August, 2022 was issued, has been denied by the Petitioner. Further, the Petitioner challenged the alleged demands raised by the Respondent by way of an appeal under Section 45 of the Delhi Urban Shelter Improvement Board Act, 2010 before the Hon’ble Lieutenant Governor of Delhi (hereinafter, ‘LG’). In the said appeal, the stand of the Petitioner was that due to COVID-19 pandemic and lockdown, there had to be some relief granted in respect of rent/license fee.  The said appeal was decided by the Hon’ble LG vide order dated 8th February, 2023 in the following terms.  
“ I have considered the submissions made by both the sides and have also gone through the case file. I observe that the Hon’ble High Court of Delhi vide order dated 16.11.2021 has appointed an arbitrator regarding the dispute of monthly licence fee in the matter of the other licensee of adjoining land designated as Chunk-C.
Further, I observe that the appellant in the present appeal is also seeking appointment of an arbitrator in terms of the agreement between the appellant and DUSIB. 
Clause 19 the agreement/licence deed dated 27.04.2018 is re-produced as under:
19. In cases of any dispute between the parties, the dispute shall be referred to the arbitrator to be appointed by Member (Admn.) as per the provision of Arbitration & Conciliation Act, 1996. 
I, also observe that the loss and gain are part of any commercial agreement and both the appellant and the respondent are bound by the terms & conditions of the agreement. However, reading of clause 19 of the agreement makes it abundantly clear that an arbitrator shall be appointed in case of any dispute between the parties. Therefore, Director (Admin), DUSIB is hereby directed to appoint an arbitrator in terms of clause 19 of the agreement dated 27.04.2018 for adjudication of the dispute between the parties. The appeal is disposed off accordingly. 
Announced.
File be consigned to records.”     

9. In view of the said order of Hon’ble LG, the Respondent vide its communication dated 26th May, 2023 appointed Mr. B.S. Mathur (retd. ADJ) as the ld. Sole Arbitrator to adjudicate the disputes between the parties. The arbitration reference was accepted by the ld. Sole Arbitrator vide communication dated 23rd June, 2023 and the proceedings before the ld. Arbitrator commenced. However, after the proceedings had gone further till the stage of evidence, upon legal advice, the Petitioner moved an application seeking termination of the mandate of the Arbitrator.  However, vide order dated 16th March, 2024 the ld. Arbitrator dismissed the said application on the ground that the issue of terminating the mandate of an arbitrator can only be filed before the Court.
10. Submission of ld. Counsel for the Petitioner is that the appointment of the ld. Arbitrator unilaterally by the Member (Admn) – DUSIB, who is himself disqualified, under the Act, without taking consent of the Petitioner, is contrary to the settled legal position in various decisions including (i) Kotak Mahindra Bank Ltd.  v.  Narendra Kumar Prajapat (2023 SCC OnLine Del 3148), (ii) Chennai Metro Rail Limited Administrative Building v. Transtonnelstroy Afcons (JV) and Ors. (2023/INSC/932) and Perkins Eastman Architects DPC and Anr.  v.   HSCC (India) Limited, (2020) 20 SCC 760.   It is also submitted by ld. Counsel for the Petitioner that since the appointment of the arbitrator was itself unilateral, the award, if any, passed would itself be nullity and thus, a new Arbitrator ought to be appointed by this Court.  
11. On the other hand, ld. Counsel for the Respondent submits that the Petitioner has fully participated in the proceedings and it is only at the stage of evidence that the Petitioner has filed this application for seeking termination of the mandate of the ld. Sole Arbitrator. Accordingly, after having participated and consented, the Petitioner cannot resile from the same.
12. The Court has perused the matter.  The clear position after Perkins Eastman Architects DPC (supra) and TRF Ltd. v. Energo Engg. Projects [(2017) 8 SCC 377] is that a person interested in the outcome of the decision of the dispute must not have the power to appoint the arbitrator. The relevant portion of the judgment Perkins Eastman Architects DPC (supra) is hereinunder:
“20. We thus have two categories of cases. The first, similar to the one dealt with in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] where the Managing Director himself is named as an arbitrator with an additional power to appoint any other person as an arbitrator. In the second 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 incompetent, 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 irrespective 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 Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] , all cases having clauses similar to that with which we are presently concerned, a party 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 Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] Para 50 of the decision shows that this Court was concerned with the 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 arbitrator 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 the 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 dispute 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 (3 of 2016) and recognised by the decision of this Court in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72]”

13. A similar view has been taken in the judgment Geeta Poddar v Satya Developers Pvt. Ltd. (2022 SCC OnLine Del 2650) wherein the Court held that an arbitration clause which creates a unilateral right in favour of a party to appoint an arbitrator is not legally enforceable. The relevant portion of the judgment is extracted hereinunder:

“15. The first question that arises is whether the appointment of the second sole arbitrator, who has now passed the award, was non-est. To find an answer, interpretation of the arbitration clause (extracted above) is crucial. The arbitration clause, as worded, entails that any dispute and/or controversy arising out of or in connection with the Agreement, shall be referred to arbitration before a sole arbitrator, to be appointed by the Managing Director of Respondent. In other words, a unilateral right has been created in favour of the Managing Director of Respondent to appoint a sole arbitrator. There can be no cavil that such an arbitration clause is legally unenforceable in view of the 2015 Amendment to the Act.5 The right of unilateral appointment of a sole arbitrator, by the Managing Director of Respondent, is ex-facie contrary to Section 12(5) read with Seventh Schedule of the Act. This provision has been interpreted by the Supreme Court at various occasions, in circumstances which were nearly identical to the present case. Let us examine the same briefly.”
16. In TRF Limited (supra), the Supreme Court held that by virtue of Section 12(5) of the Act, the Managing Director of any of the parties was ineligible to act as an arbitrator and therefore, was also ineligible to appoint or nominate another person as an arbitrator. The reasons thereof have been detailing therein, as under:
“54. In such a context, the fulcrum of the controversy would be, can an ineligible arbitrator, like the Managing Director, nominate an arbitrator, who may be otherwise eligible and a respectable person. As stated earlier, we are neither concerned with the objectivity nor the individual respectability. We are only concerned with the authority or the power of the Managing Director. By our analysis, we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. Once cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated. Therefore, the view expressed by the High Court is not sustainable and we say so.”
17.This came to be further closely examined in Perkins Eastman (supra) in context of an arbitration clause which empowered the Chairman and Managing Director of HSCC (India) to appoint an arbitrator. The Apex Court, relying on the principle laid down in TRF Limited (supra), held that as the Managing Director would be interested in the outcome of the dispute, it was impermissible for him to unilaterally appoint an arbitrator. It was held that the moment a named Arbitrator fell within any of the categories enshrined in the Seventh Schedule, he become ineligible under Section 12(5), and could neither function as nor nominate another Arbitrator. This is the law as it stands today.6
18. In view of the foregoing settled position of law, there exists no doubt in the mind of the Court that unilateral appointment of the second sole arbitrator by the Managing Director of the Respondent was non-est in law, being in conflict with Section 12(5) read with Seventh Schedule of the Act, and thus void ab initio”

14. There can be no doubt, however, that the Petitioner ought to have raised this issue at the earliest possible time, which it had not.  The matter, thus requires consideration.   Accordingly, issue notice in the petitions. 
15. Mr. Naveen Kumar Raheja, ld. Counsel accepts notice on behalf of the Respondent- DUSIB. 
16. In the meantime, there shall be a stay of the proceedings before the Sole Arbitrator.  
17. Let a reply be filed within four weeks.  Rejoinder thereto be filed within four weeks thereafter.     
18. List before the Joint Registrar on 8th July, 2024.
19. List before the Court on 2nd August, 2024.

PRATHIBA M. SINGH
JUDGE
APRIL 16, 2024/dk/rks

O.M.P. (T) (COMM.) 33/2024 & 34/2024 Page 2 of 2