2023 (6) TMI 1331 - HC - Indian Laws

Seeking to appoint an arbitrator to adjudicate upon the claims made therein by the petitioner - HELD THAT - That part of Clause 33 of the agreement between the parties providing for constitution of a Dispute Resolution Committee with a stipulation that before availing of dispute resolution the disputed amount has to be deposited is invalid and contrary to law for more than one reason. The first and foremost is that it fetters the right of the petitioner a party to the arbitration agreement to avail of arbitration which is a statutory right. If the petitioner is making a claim which is then and there disputed by the respondent why should the petitioner being the claimant be asked to deposit the disputed amount? When the petitioner is making a claim against the respondent it is unable at that point of time to know whether the whole claim or part of it would be admitted or the whole of it denied by the latter. Hence it is unable to gauge the disputed amount. Even if it were possible for the respondent to notify the disputed amount immediately the clause would only be operative if the respondent was simultaneously making a counter claim more than the petitioner s claim which was being denied by the petitioner by seeking reference of the dispute to arbitration. If you read Section 12(5) of the said Act along with its 7th schedule the General Manager or any other employee of the respondent past or present is disqualified from being an arbitrator on the likelihood of bias. The arbitration clause provides for appointment of a sole arbitrator by the Chairman of the respondent. If the petitioner also had a right to nominate an arbitrator then it could have been argued that the General Manager s power to appoint an arbitrator of his choice was counter balanced by the petitioner s similar right and the clause adjudged to be valid in terms of CENTRAL ORGANISATION FOR RAILWAY ELECTRIFICATION VERSUS M/S ECI-SPIC-SMO-MCML (JV) A JOINT VENTURE COMPANY 2019 (12) TMI 841 - SUPREME COURT . Under Section 11 sub-section 6A of the said Act the court exercising power under Section 11 of the said Act has the power to go into the question of validity of an arbitration agreement - it is held that the part of the arbitration clause providing for appointment of an arbitrator is non-est. Therefore the arbitration clause between the parties does not contain any valid provision for appointment of an arbitrator. The court has to exercise the power. This application is disposed off by referring the disputes between the parties as raised in this Section 11 petition and the claim and counter claim that may be filed by the parties in terms thereof to be adjudicated by a learned arbitrator.

Summary

Issues Involved:
1. Validity of the Dispute Resolution Committee clause requiring pre-deposit of the disputed amount.
2. Eligibility of the General Manager or any employee of the respondent to act as an arbitrator under Section 12(5) of the Arbitration and Conciliation Act, 1996.

Summary:

1. Validity of the Dispute Resolution Committee Clause:
The petitioner challenged the clause requiring a pre-deposit of the disputed amount before referring the matter to the Dispute Resolution Committee (DRC). The court found this clause invalid and contrary to law, stating it fetters the right to arbitration, a statutory right. The clause was deemed ambiguous and vague, as it was unclear how the petitioner could determine the disputed amount at the time of making a claim. The court referenced ICOMM Tele Ltd. vs. Punjab State Water Supply & Sewerage Board & Anr. (2019) 4 SCC 401, which ruled that such pre-deposit clauses are a "clog on the arbitration process."

2. Eligibility of the General Manager or any Employee of the Respondent as Arbitrator:
The petitioner argued that the clause allowing the General Manager or any employee of the respondent to appoint an arbitrator was invalid under Section 12(5) of the Arbitration and Conciliation Act, 1996, which disqualifies individuals likely to be biased. The court cited Perkins Eastman Architects DPC and Anr. vs. HSCC (India) Ltd. (2020) 20 SCC 760, which held that if an appointing authority is disqualified due to potential bias, their appointee is also disqualified. The court ruled that any arbitrator appointed by the General Manager under the disputed clause would be ineligible, making the arbitration clause non-est (invalid).

Final Conclusions:
The court concluded that the Dispute Resolution Committee clause requiring a pre-deposit is invalid and ambiguous. It also ruled that the arbitration clause allowing the General Manager to appoint an arbitrator is invalid under Section 12(5) and the Seventh Schedule of the Arbitration and Conciliation Act, 1996. Consequently, the court appointed Hon'ble Mr. Justice Pinaki Chandra Ghose, a former Judge of the Supreme Court of India, as the sole arbitrator to adjudicate the disputes between the parties. The application was disposed of accordingly.