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TMI Blog2023 (6) TMI 1331X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii). All disputes and differences arising out of or in any way touching or concerning this Agreement (except those the decision whereof is otherwise herein before expressly provided for or to which the public premises [Eviction of Unauthorized Occupants] Act and the rules framed there under which are now enforced or which may hereafter come into force are applicable), shall, in the first instance, be referred to a Dispute Resolution Committee (DRC) setup at the airports, for which a written application should be obtained from the party and the points clearly spelt out. In case the dispute is not resolved within 45 days of reference, then the case shall be referred to sole arbitration of a person to be appointed by the Chairman/Member of the Authority. The award of the arbitrator so appointed shall be final and binding on the parties. The Arbitration & Conciliation Act, 1996 shall be applicable. Once the arbitration clause has been invoked, the DRC process will cease to be operative. It will be no bar that the Arbitrator appointed as aforesaid is or has been an employee of the Authority and the appointment of the Arbitrator will not be challenged; or be open to Question in any Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for 3rd year w.e.f 27.03.2019 to 24.03.2020. ₹89,46,874.00 Claim No. 4 :- On account of compensation/ damages suffered for 4th year w.e.f 25.03.2020 to 18.11.2020. ₹89,46,874.00 Claim No. 5 :- Refund/Release/Payment Bank guarantee and Security Deposit. ₹1,30,30,006.00 Total:- ₹10,85,15,345.00 (Ten Crore Eighty Five Lakh Fifteen Thousand Three Hundred forty five only). (The break up of the claims are mentioned in letter dated 28.11.2020 and necessary vouchers will be submitted in due course.) Claim No. 6 :- Interest @ 18% p.a; from the date of final claim i.e 28.11.2020 till realisation of full amount. Claim No. 7 :- Cost of Arbitration To be calculated." Clauses 32 and 33 of the agreement relates to constitution of the Dispute Resolution Committee and its functions. An application has to be made to the commercial department which would put up the gist of the case to the Committee. The petitioner would have to deposit the disputed amount. The petitioner would be given an opportunity to present his case before the Committee together with a written statement. The recommendations of the Committee would have to be put up to the tender acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court. Next, learned counsel also relied on Section 12(5) of the said Act. It is in the following terms:- "12(5). Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing." The 7th Schedule is set out hereunder:- "THE SEVENTH SCHEDULE [See Section 12(5)] Arbitrator's relationship with the parties or counsel 1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party. 2. The arbitrator currently represents or advises one of the parties or an affiliate of one of the parties. 3. The arbitrator currently represents the lawyer or law firm acting as counsel for one of the parties. 4. The arbitrator is a lawyer in the same law firm which is representing one of the parties. 5. The arbitrator is a manager, director or part of the management, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... encompasses all companies in one group of companies including the parent company. Explanation 3.--For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialised pool. If in such fields it is the custom and practice for parties frequently to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out above." He contended that the arbitration clause providing for appointment of a sole arbitrator by the Chairman/member of the authority was violative of the above provision. He said that the appointee of the Chairman was bound to be a present employee or past employee of the respondent, thus being ineligible to be appointed as an arbitrator. To this, Mr. Majumdar, learned Additional Solicitor General, appearing for the said respondent argued that the arbitration clause did not nominate any arbitrator who was ineligible under the 7th schedule. Only power had been given to the Chairman or member of the Airport Authority to nominate an arbitrator. Before such nomination was mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Joint Venture Company reported in (2020) 14 SCC 712. This is a very interesting case. It was concerned with Clause 64 of the general clauses of contract of the Railways which provided for appointment of three arbitrators. Out of the panel of names of the Railways, the other party was required to suggest two names out of which the Railways were to select one to be the other party's nominee arbitrator. The other two arbitrators were to be appointed by the General Manager of the Railways. The Supreme Court after consideration of the above decisions made a distinction between this case and the others. It said that here the contractor enjoyed the power of appointing an arbitrator counter balancing the power of the Railways to appoint an arbitrator. Hence, the arbitration clause was valid and the High Court was in error in appointing an arbitrator other than one through the machinery provided in the arbitration agreement. In Aravali Power Company Pvt. Ltd. vs. Era Infra Engineering Ltd. reported in (2017) 15 SCC 32 cited by learned counsel for the respondent, the Supreme Court ruled that the fact that the arbitrator is an employee of one of the parties was not a ground for disqualifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-est. It is for the court to decide the question. This has been emphasized by the legislature in successive amendments to subsection 6A of Section 11 of the said Act between 2015 and 2019. The Supreme Court has gone to the extent of saying that when a person is ineligible by virtue of the seventh schedule to act as an arbitrator on the ground of bias, he could not be called upon to nominate another arbitrator. This is an extension of the principle of bias to a very high degree so as to ensure that the arbitral proceedings are freely and fairly conducted in accordance with law. FINAL CONCLUSIONS My conclusions are as follows:- 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. [ICOMM Tele Ltd. vs. Punjab State Water Supply and Sewerage Board and Anr. reported in (2019) 4 SCC 401]. Secondly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity to appoint a sole arbitrator, then the likelihood of his being biased, is also transferred to his nominee or appointee. Such nominee of a disqualified person is also similarly disqualified to be arbitrator. In those circumstances, Clause 33 providing for appointment of a sole arbitrator as a General Manager is violative of Section 12(5) read with the seventh schedule and the above Supreme Court decisions. Any arbitrator appointed by the General Manager of the respondent under this clause would be disqualified. 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 vs. ECI-SPIC-SMOMCML (JV) A Joint Venture Company reported in (2020) 14 SCC 712. 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 arbitrati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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