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TMI Blog2019 (12) TMI 841X X X X Extracts X X X X X X X X Extracts X X X X ..... 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( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The modified Clause 64(3)(a)(ii) (where applicability of Section 12(5) has been waived off) inter alia provided that in cases where the total value of all claims exceeds ₹ 1 crore, the Arbitral Tribunal shall consist of a panel of three gazetted Railway Officers not below JA (Junior Administrative) Grade or two Railway Gazetted Officers not below JA Grade and a retired Railway Officer, retired not below the rank of Senior Administrative (SA) Grade officer as arbitrators. The procedure for constitution of the Arbitral Tribunal is provided thereon. Clause 64(3)(b) deals with the appointment of arbitrator where applicability of Section 12(5) of the Arbitration and Conciliation Act has not been waived off. Clause 64(3)(b) stipulates that the Arbitral Tribunal shall consist of a panel of three retired railway officers not below the rank of Senior Administrative Officer as the arbitrators as per the procedure indicated thereon. 4. Since the respondent did not complete the work under the contract within the prescribed period, on 18.10.2017, the appellant issued Seven days notice under Clause 62 of the General Conditions of Contract to the respondent. Thereafte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Contract, the respondent has no other recourse except by filing the petition under Section 11(6) of the Arbitration and Conciliation Act, 1996. 7. The High Court vide the impugned order dated 03.01.2019 rejected the argument of the appellant that the arbitrator ought to be appointed only from the panel of arbitrators in terms of General Conditions of Contract. The High Court observed that the powers of the Court to appoint arbitrator are independent of the contract between the parties and no fetters could be attached to the powers of the court. With those findings, the High Court appointed Shri Rajesh Dayal Khare, a retired judge of the Allahabad High Court as the sole arbitrator subject to his consent, under Section 11(8) of the Arbitration and Conciliation Act. Subsequently, vide order dated 29.03.2019, the High Court noted the consent of the arbitrator appointed by the court and directed the Arbitrator to proceed with the arbitration proceedings. Being aggrieved, the appellant has preferred these appeals. 8. Mr. A.N.S. Nadkarni, learned Additional Solicitor General (ASG) appearing for the appellant submitted that in terms of Clause 64(3)(a)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that as per the provisions of the Amendment Act, 2015, all employees present or past are statutorily made ineligibile for appointment as arbitrators. The learned counsel further submitted that when the General Manager himself being ineligible to be appointed as an arbitrator under Section 12(5) read with Schedule VII of the Act, the General Manager cannot nominate any of the persons to be arbitrator. The learned counsel for the respondent inter alia placed reliance upon Voestalpine Schienen Gmbh v. Delhi Metro Rail Corporation Limited (2017) 4 SCC 665, TRF Limited v. Energo Engineering Projects Limited (2017) 8 SCC 377 and number of other judgments which would be referred to at the appropriate place. 10. We have carefully considered the submissions and perused the impugned judgment and materials on record. The point falling for consideration is whether the High Court was right in appointing an independent arbitrator in contravention of the Clauses 64(3)(a)(ii) and 64(3)(b) of the General Conditions of Contract. Appointment of an independent arbitrator without reference to the Clauses of General Conditions of Contract (GCC) Whether correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ineligible to be appointed as an arbitrator. The only way in which this ineligibility can be removed, again, in law, is that parties may after disputes have arisen between them, waive the applicability of this sub-section by an express agreement in writing . Obviously, the express agreement in writing has reference to a person who is interdicted by the Seventh Schedule, but who is stated by parties (after the disputes have arisen between them) to be a person in whom they have faith notwithstanding the fact that such person is interdicted by the Seventh Schedule. 14. Per contra, on behalf of the appellant, Mr. A.N.S. Nadkarni, learned ASG has submitted that the appointment of arbitrator is governed as per Clauses 64(3)(a)(i) and 64(3)(a)(ii) of the General Conditions of Contract (GCC) where applicability of Section 12(5) of the Arbitration and Conciliation Act has been waived off and the Arbitral Tribunal shall consist of a panel of three serving Railway Officers or two serving officers and one retired officer. Learned ASG submitted that Clause 64(3)(b) of GCC deals with appointment of arbitrator where applicability of Section 12(5) of the Act has not been waive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arbitration and Conciliation (Amendment) Act, 2015. If they agree or such waiver in writing after having arisen between them in the formation under Annexure XII of these conditions. 16. After coming into force of Arbitration and Conciliation (Amendment) Act, 2015, the Government of India, Ministry of Railways made a modification to Clause 64 of the General Conditions of Contract and the Railway Board issued a notification dated 16.11.2016 in this regard. The modified Clause 64(3)(a)(i) (where applicability of Section 12(5) of the Act has been waived off) inter alia provided that in case where the total value of all claims in question added together does not exceed rupees one crore, the arbitral tribunal shall consist of a sole arbitrator who shall be a Gazetted Officer of Railways not below JA Grade nominated by the General Manager. In terms of Clause 64(3)(a)(i), the sole arbitrator shall be appointed within sixty days from the day when a written and valid demand for arbitration is received by the General Manager. In the present case, since the value of the work contract is worth more than ₹ 165 crores, Clause 64(3)(a)(i) is not applicable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the day when a written and valid demand for arbitrators is received by the GM. Contractor will be asked to suggest to General Manager at least two names out of the panel for appointment as contractor s nominee within 30 days from the date of dispatch of the request by Railway. The General Manager shall appoint at least one out of them as the contractor s nominee and will, also simultaneously appoint the balance number of arbitrators other from the panel or from outside the panel, duly indicating the presiding arbitrator from amongst the three arbitrators so appointed CM shall complete tis exercise of appointing the Arbitral Tribunal within 30 days from the receipt of the names of contract s nominees. While nominating the arbitrators, it will be necessary to ensure that one of them has served in the Accounts Department. 19. 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract under the inbuilt mechanism as agreed by the parties. 22. Applying ratio of the Parmar Construction Company, in Pradeep Vinod Construction Company (2019) SCC Online SC 1467, the Supreme Court held that the appointment of arbitrator should be in terms of the agreement and the High Court was not right in appointing an independent arbitrator ignoring Clause 64 of the General Conditions of Contract. As held in Parmar Construction Company and Pradeep Vinod Construction Company, the High Court was not justified in appointing an independent arbitrator without resorting to the procedure for appointment of the arbitrators which has been prescribed under the General Conditions of Contract. RE: Contention:- Retired Railway Officers are not eligible to be appointed as arbitrators under Section 12(5) read with Schedule VII of the Act and were statutorily made ineligible to be appointed as an arbitrator. 23. Vide letter dated 27.07.2018, the respondent made a request for appointment of arbitrator/constitution of Arbitral Tribunal. In response to the same, the appellant sent a letter dated 24.09.2018 nominating the names of four servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent-Delhi Metro Rail Corporation are the Government employees or Ex-Government employees, that by itself may not make such persons ineligible to act as arbitrators of the respondent-DMRC. It was observed that the persons who have worked in the Railways under the Central Government or the Central Public Works Department or Public Sector Undertakings cannot be treated as employee or consultant or advisor of the respondent-DMRC. In para (26) of Voestalpine Schienen Gmbh, the Supreme Court held as under:- 26. It cannot be said that simply because the person is a retired officer who retired from the government or other statutory corporation or public sector undertaking and had no connection with DMRC (the party in dispute), he would be treated as ineligible to act as an arbitrator. Had this been the intention of the legislature, the Seventh Schedule would have covered such persons as well. Bias or even real likelihood of bias cannot be attributed to such highly qualified and experienced persons, simply on the ground that they served the Central Government or PSUs, even when they had no connection with DMRC. The very reason for empanelling these persons is to ensure th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the High Court for appointment of a sole arbitrator, by which time, no steps were taken by the appellant under the Contract, except sending two lists of persons by letters dated 24.09.2018 and 25.10.2018 who were de jure ineligible to be appointed as the arbitrators. In this regard, reliance was placed upon Punj Lloyd Ltd. v. Petronet MHB Ltd. (2006) 2 SCC 638. Considering the applicability of Section 11(6) of the Act, in Punj Lloyd Ltd., the Supreme Court held as under:- 5. Having heard the learned counsel for the parties, we are satisfied that the appeal deserves to be allowed. The learned counsel for the appellant has placed reliance on the law laid down by this Court in the case of Datar Switchgears Ltd. v. Tata Finance Ltd. (2000) 8 SCC 151, wherein this Court has held as under: [S]o far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... days) in terms of Clause 64(3)(a)(ii) (where applicability of Section 12(5) of the Act has been waived off) sent a panel of four serving railway officers of JA Grade to act as arbitrators and requested the respondent to select any two from the list and communicate to the office at the earliest for formation of Arbitration Tribunal. 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. By the letter dated 25.10.2018, in terms of Clause 64(3)(b) of GCC (where applicability of Section 12(5) has not been waived off) the appellant has nominated a panel of four retired railway officers to act as arbitrators and requested the respondent to select any two from the list and communicate to the appellant within thirty days from the date of the letter for formation of Arbitration Tribunal. The respondent has neither sent its reply nor selected two names from the list and replied to the appellant. Without responding to the appellant, the respondent has filed petition under Section 11(6) of the Arbitration and Conciliation Act before the High Court on 17.12.2018. When the respondent has not sent any r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot nominate another as an arbitrator, in para (50), the Court has discussed about another situation where both the parties could nominate respective arbitrators of their choice and that it would get counter-balanced by equal power with the other party. In para (50) of TRF Limited, the Supreme court held as under:- 50. ..We are singularly concerned with the issue, whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator. At the cost of repetition, we may state that when there are two parties, one may nominate an arbitrator and the other may appoint another. That is altogether a different situation. If there is a clause requiring the parties to nominate their respective arbitrator, their authority to nominate cannot be questioned. What really in that circumstance can be called in question is the procedural compliance and the eligibility of their arbitrator depending upon the norms provided under the Act and the Schedules appended thereto . [Underlining added] 33. Considering the decision in TRF Limited, in Perkins Eastman Architects DPC and another v. HSCC (India) Limited (2019 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 .. 35. As discussed earlier, after Arbitration and Conciliation (Amendment) Act, 2015, the Railway Board vide notification dated 16.11.2016 has amended and notified Clause 64 of the General Conditions of Contract. As per Clause 64(3)(a)(ii) [where applicability of Section 12(5) of the Act has been waived off], in a case not covered by Clause 64(3)(a)(i), the Arbitral Tribunal shall consist of a panel of three Gazetted Railway Officers not below the rank of Junior Administrative Grade or two Railway Gazetted Officers not below the rank of Junior Administrative Grade and a retired Railway Officer retired not below the rank of Senior Administrative Grade Officer, as the arbitrators. For this purpose, the General Manager, Railway will send a panel of at least four names of Gazetted Railway Officers of one or more departments of the Railway within sixty days from the date when a written and valid demand for arbitration is received by the General Manager. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ominating 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. In response to the respondent s letter dated 26.09.2018, the appellant has sent a panel of four retired Railway Officers to act as arbitrators giving the details of those retired officers and requesting the respondent to select any two from the list and communicate to the office of the General Manager. Since the respondent has been given the power to select two names from out of the four names of the panel, the power of the appellant nominating its arbitrator gets counter-balanced by the power of choice given to the respondent. Thus, the power of the General Manager to nominate the arbitrator is counter-balanced by the power of the respondent to select any of the two nominees from out of the four names suggested from the panel of the retired officers. In view of the modified Clauses 64(3)(a)(ii) and 64(3)(b) of GCC, it cannot therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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