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2019 (12) TMI 841 - SC - Indian LawsAppointment of an arbitrator without reference to the clauses of General Conditions 64 (3)(a)(ii) and 64 (3)(b) of the Contract - HELD THAT - Clause 64(3)(b) of GCC deals with appointment of arbitrator where applicability of Section 12(5) of the Act has not been waived off. The modified Clause 64(3)(b) inter alia provided that the arbitral tribunal shall consist of a panel of three retired railway officers not below the rank of SAO officer as arbitrator. For this purpose, the Railway will send a panel of at least four names of retired railway officer(s) empanelled. The contractor will be asked to suggest to the General Manager at least two names out of the panel for appointment as the contractor s nominee and the General Manager shall appoint at least one out of them as the contractor s nominee. The General Manager will also simultaneously appoint the balance number of arbitrators from the panel or from outside the panel. After coming into force of the Arbitration and Conciliation (Amendment) Act, 2015, when Clause 64 of the General Conditions of Contract has been modified inter alia providing for constitution of Arbitral Tribunal consisting of three arbitrators either serving or retired railway officers, the High Court is not justified in appointing an independent sole arbitrator without resorting to the procedure for appointment of the arbitrator as prescribed under Clause 64(3)(b) of the General Conditions of Contract. In the present matter, after the respondent had sent the letter dated 27.07.2018 calling upon the appellant to constitute Arbitral Tribunal, the appellant sent the communication dated 24.09.2018 nominating the panel of serving officers of Junior Administrative Grade to act as arbitrators and asked the respondent to select any two from the list and communicate to the office of the General Manager. By the letter dated 26.09.2018, the respondent conveyed their disagreement in waiving the applicability of Section 12(5) of the Amendment Act, 2015 - There is an express provision in the modified clauses of General Conditions of Contract, as per Clauses 64(3)(a)(ii) and 64(3)(b), the Arbitral Tribunal shall consist of a panel of three Gazetted Railway Officers Clause 64(3)(a)(ii) and three retired Railway Officers retired not below the rank of Senior Administrative Grade Officers Clause 64(3)(b) . When the agreement specifically provides for appointment of Arbitral Tribunal consisting of three arbitrators from out of the panel serving or retired Railway Officers, the appointment of the arbitrators should be in terms of the agreement as agreed by the parties - That being the conditions in the agreement between the parties and the General Conditions of the Contract, the High Court was not justified in appointing an independent sole arbitrator ignoring Clauses 64(3)(a)(ii) and 64(3) (b) of the General Conditions of Contract and the impugned orders cannot be sustained. Impugned order set aside - appeal allowed.
Issues Involved:
1. Appointment of an independent arbitrator without reference to the Clauses of General Conditions of Contract (GCC). 2. Eligibility of retired Railway Officers to be appointed as arbitrators under Section 12(5) read with Schedule VII of the Arbitration and Conciliation Act. 3. Failure to act in terms of the Contract in not responding within thirty days from the date of the request. 4. General Manager's eligibility to nominate the arbitrator after becoming ineligible by operation of law. Issue-wise Detailed Analysis: 1. Appointment of an Independent Arbitrator Without Reference to the Clauses of General Conditions of Contract (GCC): The appellant argued that the High Court erred in appointing an independent arbitrator, Shri Rajesh Dayal Khare, contrary to Clauses 64(3)(a)(ii) and 64(3)(b) of the GCC. These clauses stipulate that the Arbitral Tribunal should consist of a panel of three gazetted Railway Officers or retired Railway Officers. The High Court's decision was based on the premise that its powers to appoint an arbitrator are independent of the contract terms. The Supreme Court, however, emphasized that the High Court should have adhered to the procedure outlined in the GCC, which is binding on the parties. The Supreme Court referenced previous judgments, including Union of India v. Parmar Construction Company and Union of India v. Pradeep Vinod Construction Company, to support this stance. 2. Eligibility of Retired Railway Officers to be Appointed as Arbitrators: The respondent contended that the panel proposed by the appellant was ineligible under Section 12(5) read with Schedule VII of the Arbitration and Conciliation Act, as they were either serving or retired employees of the appellant. The Supreme Court, however, referred to Voestalpine Schienen Gmbh v. Delhi Metro Rail Corporation Limited and Government of Haryana PWD Haryana (B and R) Branch v. G.F. Toll Road Private Limited, which clarified that retired employees are not automatically ineligible to act as arbitrators. The Court held that the expertise of retired officers is valuable for resolving technical disputes, and their past employment does not disqualify them. 3. Failure to Act in Terms of the Contract in Not Responding Within Thirty Days: The respondent claimed that the appellant failed to act within the stipulated thirty days after the request for arbitration, thus forfeiting its right to appoint arbitrators. The Supreme Court noted that the appellant had sent a list of four serving officers within sixty days, and upon the respondent's disagreement, sent another list of retired officers. The respondent did not reply to this second list and instead filed a petition under Section 11(6) of the Act. The Supreme Court cited Punj Lloyd Ltd. v. Petronet MHB Ltd. and Union of India v. Bharat Battery Manufacturing Co. (P) Ltd., emphasizing that the right to appoint an arbitrator is not forfeited if the appointment is made before the filing of a Section 11 petition. 4. General Manager's Eligibility to Nominate the Arbitrator: The respondent argued that the General Manager, being ineligible to act as an arbitrator under Section 12(5), cannot nominate another arbitrator. The Supreme Court referred to TRF Limited v. Energo Engineering Projects Limited and Perkins Eastman Architects DPC and another v. HSCC (India) Limited, which distinguished between cases where the ineligible person appoints an arbitrator and where both parties nominate their respective arbitrators. The Court held that the General Manager’s power to nominate arbitrators is counterbalanced by the respondent’s power to choose from the panel, thus maintaining fairness. Conclusion: The Supreme Court set aside the High Court's orders and directed the appellant to send a fresh panel of four retired officers within thirty days. The respondent is to select two names from this panel, and the appellant will constitute the Arbitral Tribunal as per Clause 64(3)(b) of the GCC. The judgment underscores adherence to contractual terms in arbitration appointments and clarifies the eligibility of retired officers as arbitrators.
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