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TMI Blog2019 (11) TMI 1154X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on 15.07.2016 for appointment of Design Consultants for the "comprehensive planning and designing, including preparation and development of concepts, master plan for the campus, preparation of all preliminary and working drawings for various buildings/structures, including preparation of specifications and schedule of quantities' for the proposed All India Institute of Medical Sciences at Guntur, Andhra Pradesh". (B) In response to the RFP, the consortium of the Applicants, namely, (i) Perkins Eastman Architects DPC, an Architectural firm having its registered office in New York and (ii) Edifice Consultants Private Limited, having its office in Mumbai submitted their bid on 28.09.2016. Letter of Intent was issued on 31.11.2017 awarding the project to the Applicants, the consideration being Rs. 15.63 crores. A letter of award was issued in favour of the Applicants on 22.02.2017 and a contract was entered into between the Applicants and the respondent on 22.05.2017, which provided inter alia for dispute resolution in Clause 24. The relevant portion of said Clause was as under: "24.0 DISPUTE RESOLUTION 24.1 Except as otherwise provided in the contract all questions and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 CMD, HSCC of the appeal. It is also a term of this contract that no person other than a person appointed by such CMD, HSCC as aforesaid should act as arbitrator. It is also a term of the contract that if the Design Consultant 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 HSCC that the final bill is ready for payment, the claim of the Design Consultant shall be deemed to have been waived and absolutely barred and HSCC shall be discharged and released of all liabilities under the contract and in respect of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in contravention to its own letter dated 24th June, 2019, the CGM of the Respondent addressed the Purported Appointment Letter dated 30th July, 2019 to one Major General K.T. Gajria thereby purportedly appointing him as a sole arbitrator in the matter. On the same date, the CGM of the Respondent also addressed a letter to the Applicants inter alia informing about the purported appointment of Mr. Gajria" 3. In the aforesaid premises the Applicants submit:- (a) The Applicants had duly invoked the arbitration clause; (b) The Chairman and Managing Director was the competent authority to appoint a sole arbitrator; (c) But the Chief General Manager of the respondent wrongfully appointed the sole arbitrator; (d) Such appointment was beyond the period prescribed; (e) In any case, an independent and impartial arbitrator is required to be appointed. 4. In response to the application, an affidavit-in-reply has been filed by the respondent denying all material allegations. It is accepted that the contract entered into between the parties contains Clause 24 regarding dispute resolution. It is, however, disputed that there was any inaction on part of the respondent in disch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para (z) and (aa) of the application that the Chairman and Managing Director failed to appoint the sole arbitrator within 30 days of the requisition dated 28.06.2019 and that it was the Chief General Manager of the respondent who purportedly made the appointment of a sole arbitrator on 30.07.2019. The infirmities thus projected were on two counts, namely, for over-stepping the limit of 30 days; and secondly the appointment was not made by the Chairman and Managing Director of the respondent. He pointed out that the period in terms of requisition dated 28.06.2019 expired on Friday and the appointment was made on the first available working day. Secondly, the appointment was actually made by the Chairman and Managing Director but was conveyed by the Chief General Manager, and as such the alleged infirmities were completely non-existent. He further submitted that arbitration, if any, in the instant matter would not be an International Commercial Arbitration. 6. The present application, therefore, raises two basic issues; first whether the arbitration in the present case would be an International Commercial Arbitration or not. In case, it is not, then this Court cannot deal with the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Consortium, all or any of the acts, deeds of things necessary or incidental to the Consortium's Application/Bid for the Project, including submission of Application/Bid, participating in conferences, responding to queries, submission of information/documents and generally to represent the Consortium in all its dealings with HSCC, any other Government Agency or any person, in connection with the Project until culmination of the process of bidding and thereafter till the completion of the Contract." 8. It is not disputed by the respondent that it was a requisite condition to declare a lead member of the Consortium and that by aforesaid declaration the applicant No.1 was shown to be the lead member of the Consortium. The reliance is however placed by the respondent on Clause 9 of the Consortium Agreement by virtue of which both the Applicants would be jointly and severely responsible for the execution of the project. It is clear that the declaration shows that the Applicant No.1 was accepted to be the lead member of the Consortium. Even if the liability of both the Applicants was stated in Clause 9 to be joint and several, that by itself would not change the status of the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fall within Section 2(1)(f)(iii) as being an association or a body of individuals, provided the central management and control is exercised in any country other than India. ... ... ... 15. Section 2(1)(f)(iii) of the Act refers to two different sets of persons: an "association" as distinct and separate from a "body of individuals". For example, under Section 2(31) of the Income Tax Act, 1961, "person" is defined as including, under sub- clause (v), an association of persons, or body of individuals, whether incorporated or not. It is in this sense, that an association is referred to in Section 2(1) (f)(iii) which would therefore include a consortium consisting of two or more bodies corporate, at least one of whom is a body corporate incorporated in a country other than India. ... ... ... 17. Law Commission Report No. 246 of August 2014, which made several amendments to the Arbitration and Conciliation Act, 1996, gave the following reason for deleting the words "a company or": "(iii) In sub-section (1), clause (f), sub-clause (iii), delete the words "a company or" before the words "an association or a body of individuals". [Note.-The reference to "a company" in sub- sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagement and Control" of the Association was held to be in a country other than India. Relying on said decision we conclude that the lead member of the Consortium company i.e. Applicant No.1 being an Architectural Firm having its registered office in New York, requirements of Section 2(1)(f) of the Act are satisfied and the arbitration in the present case would be an "International Commercial Arbitration". 11. That takes us to the second issue, namely, whether a case has been made out for exercise of power by the Court for an appointment of an arbitrator. 12. The communication invoking arbitration in terms of Clause 24 was sent by the Applicants on 28.06.2019 and the period within which the respondent was to make the necessary appointment expired on 28.07.2019. The next day was a working day but the appointment was made on Tuesday, the 30th July, 2019. Technically, the appointment was not within the time stipulated but such delay on part of the respondent could not be said to be an infraction of such magnitude that exercise of power by the Court under Section 11 of the Act merely on that ground is called for. 13. However, the point that has been urged, relying upon the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf was disqualified and disentitled could also not nominate any other person to act as an arbitrator. The submission countered by the respondent therein was as under: - "7.1. The submission to the effect that since the Managing Director of the respondent has become ineligible to act as an arbitrator subsequent to the amendment in the Act, he could also not have nominated any other person as arbitrator is absolutely unsustainable, for the Fifth and the Seventh Schedules fundamentally guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence and impartiality of the arbitrator. To elaborate, if any person whose relationship with the parties or the counsel or the subject-matter of dispute falls under any of the categories specified in the Seventh Schedule, he is ineligible to be appointed as an arbitrator but not otherwise. The issue was discussed and decided by this Court as under:- 50. First, we shall deal with Clause (d). There is no quarrel that by virtue of Section 12(5) of the Act, if any person who falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as the arbitrator. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by the Constitution Bench of this Court in Roop Chand v. State of Punjab AIR 1963 SC 1503. In that case, it was held by the majority that where the State Government had, under Section 41(1) of the East Punjab Holdings (Consolidation and Prevention of Fragmentation) Act, 1948, delegated its appellate powers vested in it under Section 21(4) to an "officer", an order passed by such an officer was an order passed by the State Government itself and "not an order passed by any officer under this Act" within Section 42 and was not revisable by the State Government. It was pointed out that for the purpose of exercise of powers of revision by the State under Section 42 of that Act, the order sought to be revised must be an order passed by an officer in his own right and not as a delegate of the State. The State Government was, therefore, not entitled under Section 42 to call for the records of the case which was disposed of by an officer acting as its delegate." (emphasis in original) 51. Be it noted in the said case, reference was made to Behari Kunj Sahkari Awas Samiti v. State of U.P. (1997) 7 SCC 37, which followed the decision in Roop Chand v. State of Punjab AIR 1963 SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. 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." 15. It was thus held that as the Managing Director became ineligible by operation of law to act as an arbitrator, he could not nominate another person to act as an arbitrator and that once the identity of the Managing Director as the sole arbitrator was lost, the power to nominate someone else as an arbitrator was also obliterated. The relevant Clause in said case had nominated the Managing Director himself to be the sole arbitrator and also empowered said Managing Director to nominate another person to act as an arbitrator. The Managing Director thus had two capacities under said Clause, the first as an arbitrator and the second as an appointing authority. In the present case we are concerned with only one capacity of the Chairman and Managing Director and that is as an appointing authority. We thus have two categories of cases. The first, similar to the one dealt with in TRF Limited (2017) 8 SCC 377 where the Managing Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (Act 3 of 2016) and recognised by the decision of this Court in TRF Limited (2017) 8 SCC 377. 17. We must also at this stage refer to the following observations made by this Court in para 48 of its decision in Indian Oil Corpn. Ltd. v. Raja Transport (P) Ltd. (2009) 8 SCC 520, which were in the context that was obtaining before Act 3 of 2016 had come into force: - "48. In the light of the above discussion, the scope of Section 11 of the Act containing the scheme of appointment of arbitrators may be summarised thus: (i) Where the agreement provides for arbitration with three arbitrators (ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that (i) a party failing to act as required under the agreed appointment procedure; or (ii) the parties (or the two appointed arbitrators) failing to reach an agreement expected of them under the agreed appointment procedure; or (iii) a person/institution who has been entrusted with any function under the agreed appointment procedure, failing to perform such function. (vi) The Chief Justice or his designate while exercising power under sub-section (6) of Section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause. (vii) If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore the designated arbitrator and appoint someone else." 18. Sub para (vii) of aforesaid paragraph 48 lays down that if there are justifiable doubts as to the independence and impartiality of the person nominated, and if other circumstances warrant appointment of an independent arbitrator by ignoring the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed only on the basis of a "prior" agreement between the parties at the time of the contract and before arising of the disputes." 19. In Voestalpine (2015) 3 SCC 800, this Court dealt with independence and impartiality of the arbitrator as under: "20. Independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which applied to all judicial and quasi- judicial proceedings. It is for this reason that notwithstanding the fact that relationship between the parties to the arbitration and the arbitrators themselves are contractual in nature and the source of an arbitrator's appointment is deduced from the agreement entered into between the parties, notwithstanding the same non-independence and non- impartiality of such arbitrator (though contractually agreed upon) would render him ineligible to conduct the arbitration. The genesis behind this rational is that even when an arbitrator is appointed in terms of contract and by the parties to the contract, he is independent of the parties. Functions and duties require him to rise above the partisan interest of the parties and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings, specially at the stage of constitution of the Arbitral Tribunal. We, therefore, direct that DMRC shall prepare a broadbased panel on the aforesaid lines, within a period of two months from today." 20. In the light of the aforestated principles, the report of the Law Commission and the decision in Voestapline Schienen Gmbh (2017) 4 SCC 665, the imperatives of creating healthy arbitration environment demand that the instant application deserves acceptance. 21. The further question that arises is whether the power can be exercised by this Court under Section 11 of the Act when the appointment of an arbitrator has already been made by the respondent and whether the appellant should be left to raise challenge at an appropriate stage in terms of remedies available in law. Similar controversy was gone into by a Designated Judge of this Court in Walter Bau AG (2015) 3 SCC 800 and the discussion on the point was as under:- "9. While it is correct that in Antrix16 and Pricol Ltd. (2015) 4 SCC 177, it was opined by this Court that after appointment of an arbitrator is made, the remedy of the aggrieved party is not under Section 11(6) but such remedy lies elsewhere and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appointment, therefore, is clearly invalid in law." 22. It may be noted here that the aforesaid view of the Designated Judge in Walter Bau AG (2015) 3 SCC 800 was pressed into service on behalf of the appellant in TRF Limited (2017) 8 SCC 377 and the opinion expressed by the Designated Judge was found to be in consonance with the binding authorities of this Court. It was observed:- "32. Mr Sundaram, learned Senior Counsel for the appellant has also drawn inspiration from the judgment passed by the Designated Judge of this Court in Walter Bau AG (2015) 3 SCC 800, where the learned Judge, after referring to Antrix Corpn. Ltd (2014) 11 SCC 560. , distinguished the same and also distinguished the authority in Pricol Ltd. v. Johnson Controls Enterprise Ltd. (2015) 4 SCC 177 and came to hold that: (Walter Bau AG case (2015) 3 SCC 800, SCC p. 806, para 10) "10. Unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the Court exercising jurisdiction under Section 11(6) of the Arbitration Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be countenanced in law. ..." 33. We may immediat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall not be taken as any reflection on the competence and standing of the arbitrator appointed by the respondent. We must place on record that not even a suggestion in that respect was made by the learned counsel for the Applicants. The matter was argued and has been considered purely from the legal perspective as discussed hereinabove. 27. This application is allowed in aforesaid terms. ARBITRATION APPLICATION NO.34 OF 2019 Perkins Eastman Architects DPC & Anr. ...Applicants VERSUS HSCC (India) Ltd. ...Respondent 28. The basic facts in this application are more or less identical except that the request for proposal in this case pertains to "comprehensive planning and designing, including preparation and development of concepts, master plan for the campus, preparation of all preliminary and working drawings for various buildings/structures, including preparation of specifications and schedule of quantities' for the proposed All India Institute of Medical Sciences at Kalyani, West Bengal.". Clause No.24 titled as "Dispute Resolution" in this case and the communication addressed by the Applicants are also identical and the response by the respondent was also similar. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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