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TMI Blog2021 (11) TMI 1174X X X X Extracts X X X X X X X X Extracts X X X X ..... E COURT] , dispute had arisen with the appellant, who had nominated the sole arbitrator. Keeping in view the judgment passed in TRF Limited, the appellant itself challenged the appointment by filing an application before the arbitration for withdrawal, which was rejected. The petition filed before the High Court of Delhi was rejected on the ground that the person who had appointed the arbitrator was estopped from raising the plea. The matter was taken to the Apex Court, which had allowed the appeal and set aside the judgment of the High Court and held that arbitrator was unable to perform his function as an arbitrator and left it open for the High Court to appoint a substitute arbitrator with the consent of both the parties. Thus, it would be clear that the jurisdiction as such with the respondent-Nigam to appoint an nominated arbitrator has been taken away, in view of the said judgments and, therefore, the petitioner is well justified to approach this Court for the said purpose. Whether the claim would be held to be barred by limitation and whether the clause providing for pre-deposit is liable to be sustained or not? - HELD THAT:- It is to be noticed that in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant : Vaibhav Gupta, Advocate For the Respondent : Prateek Mahajan, Advocate ORDER GURMEET SINGH SANDHAWALIA, J. 1. The present order shall dispose of ARB-127-2019 and CWP-13539-2021, since common question of law and facts are involved. 2. In ARB-127-2019 the petitioner seeks appointment of an Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short '1996 Act') on the ground that Clause-25A of the contract (Annexure P-1) having been executed between the parties provides for the same. The contract was for special repair and maintenance of colony and roads at 132 KV S/Station HVPNL, Fazilpur, Sonipat entered on 01.09.2016 (Annexure P-2). 3. The same has been opposed by the Nigam on the ground of limitation that mainly the claim was made on 12.11.2018 (Annexure P-4) beyond the period of six months prescribed in the contract. Clause 25A (4) was also relied upon that no other person than the one appointed by MD/Chief Engineer shall act as an arbitrator and the matter shall not be liable to be referred to arbitration, if for any reason it was not possible to appoint such an arbitrator and the parties are free to avail th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and he sought to distinguish the judgment passed in M/s. ICOMM Tele Ltd. (supra). Reliance was placed upon the judgment passed by the Three Judges Bench of the Apex Court in 'S.K. Jain Vs. State of Haryana and another' 2009 (2) SCC (Civil) 163, wherein the dismissal of the writ petition by this Court upholding the clause of pre-deposit amount, was upheld. It is, thus, submitted that the Larger Bench judgment should prevail while distinguishing the subsequent judgment passed in M/s. ICOMM Tele Ltd. (supra). It is submitted that in M/s. ICOMM Tele Ltd. (supra), the contractor continued to loose money and that was as per the said clause and that is why the earlier judgment had been distinguished by the subsequent judgment. 7. The pleadings in the arbitration case would go on to show that the contractor had stated that he had successfully completed the contract work within 5 months which was to be reckoned after 15 days of issuing the letter of allotment. The arbitration clause had been invoked on 05.09.2018 (Annexure P-3) by filing it before the Executive Engineer and then before the Chief Engineer of the Corporation on 12.11.2018 (Annexure P-4). The said claim was reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of any part thereof or the rights, duties or liabilities of either party, including the termination of the contract by either party and correctness thereof at any stage whatsoever it shall be referred to arbitration of MD/Chief Engineer of HVPNL or his nominee not below the rank of Superintending Engineer subject to the following conditions:- 1. That in the first instance, before referring the matter to arbitration, it shall be referred by the contractor to be settled by the Engineer-In-Charge of the work at time of such reference in writing. The Engineer-in-charge shall convey his decision or that of the competent authority in writing to contractor within a period of 90 days from such a request in writing by the contractor. The decision given by the Engineer-In-charge or competent authority shall be final and binding upon the contractor except where he moves the Engineer-in-charge in writing for reference or such a claim or dispute to arbitration within a period of 60 days of his receipt of decision of the Engineer-in-charge or of the competent authority in writing. In case the contractor fails to make such a written request with in the stipulated period, the decision so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nter claim put forward by both the parties and not withstanding that any particular party has got the Arbitrator appointed. This shall be subject to the provisions of this arbitration clause as a whole. 7. In case the party invoking the arbitration is the contractor, the reference for arbitration shall be maintainable only after the contractor furnishes to the satisfaction of Engineering-In-Charge a case security fee deposited @ 3% of the total amount claimed by him. The sum so deposited by the contractor shall on the termination of the arbitration proceedings be adjusted against the cost and any amount awarded against the contractor. The remaining amount shall be refunded to the contractor with-in one month from the date of the award. 8. That the stamp fee due on the award shall be payable by the party at the discretion of the Arbitrator and in the event of such party failing to pay the stamp fee, it shall be recoverable from any sum due to such party under this contract or other contract. 9. The venue of the arbitration shall be such place or places as may be fixed by the Arbitrator from time to time at his sole discretion. 10. Neither party shall be entitled to bring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Engineer-In-Charge and he was required to convey his decision within a period 90 days. The decision given as such was to be final and had to be challenged within a period of 60 days. In case, the Engineer-In-Charge failed to convey his decision within 90 days, the contractor could make a request to the MD/Chief Engineer of the Nigam within the expiry of 90 days to refer the matter to arbitration. As per sub-clause (2) reference could not be made to an officer below the rank of a Superintending Engineer and by designation and further power to nominate any other officer in case the arbitrator appointed is unwilling to act as an arbitrator, as per sub-clause (3). Sub-clause (4) provides that no other person appointed by the MD/Chief Engineer shall act an as arbitrator and had also the clause that if for any reason it is not possible to appoint such an arbitrator, the matter was not to be referred to arbitration, but the parties would be at liberty to avail the civil remedy. Sub-clause (7) provides the furnishing of the security fee @ 3% of the total amount claimed by contractor and the sum so deposited by the contractor was to be adjusted against the costs and any amount awa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent or Central Public Works Department or Public Sector Undertakings. It was also held that the reason for empanelling these persons was to ensure the technical aspects of the dispute are suitably resolved by utilising their expertise to act as an arbitrator. Resultantly, it was noticed that a list of 31 persons had been given by the Corporation giving a very wide choice to nominate its arbitrators. 12. In TRF Limited (supra) the dispute was qua purchase order inter se the parties and the encashment of the bank guarantee. The High Court had upheld the appointment of the sole arbitrator which had been done by the Managing Director, who was a Former Judge of the Supreme Court. The challenge as such that the Managing Director could not nominate had been rejected. While referring to the provisions of Section 12, 6th Schedule and 7th Schedule and referring to various judgments, the Apex Court reversed the order of the High Court. Relevant portion of the said judgment reads as under:- 57. In such a context, the fulcrum of the controversy would be, can an ineligible arbitrator, like the Managing Director, nominate an arbitrator, who may be otherwise eligible and a respectable perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the appointment was set aside and an independent arbitrator namely Justice A.K. Sikri (retired) was appointed to decide the disputes. Relevant portion of the said judgment reads as under:- 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 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 where the Managing Director himself is named as an arbitrator with an additional power to appoint any other person as an arbitrato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 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. 15. Thus, it would be clear that the jurisdiction as such with the respondent-Nigam to appoint an nominated arbitrator has been taken away, in view of the said judgments and, therefore, the petitioner is well justified to approach this Court for the said purpose. 16. The issue now arises as to whether the claim would be held to be barred by limitation and whether the clause providing for pre-deposit is liable to be sustained or not. 17. The argument raised by Mr. Mahajan that limitation would stand in the way of this Court to appoint an arbitrator as the claim is belated, is without any basis. It is not disputed that the work was completed on 17.03.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was held that claim was time barred while upholding the order of the High Court. Relevant portion of the said judgment reads as under:- Section 43(1) and (3) of the 1996 Act is in pari materia with Section 37(1) and (4) of the 1940 Act. It is well-settled that by virtue of Article 137 of the First Schedule to the Limitation Act, 1963 the limitation period for reference of a dispute to arbitration or for seeking appointment of an arbitrator before a Court under the 1940 Act (See State of Orissa and Another v. Damodar Das, (1996) 2 SCC 216) as well as the 1996 Act (See Grasim Industries Limited v. State of Kerala, (2018) 14 SCC 265) is three years from the date on which the cause of action or the claim which is sought to be arbitrated first arises. In Damodar Das (supra), this Court observed, relying upon Russell on Arbitration by Anthony Walton (19th Edn.) at pages 45 and an earlier decision of a two Judge bench in Panchu Gopal Bose v. Board of Trustees for Port of Calcutta, (1993) 4 SCC 338, that the period of limitation for an application for appointment of arbitrator under Sections 8 and 20 of the 1940 Act commences on the date on which the cause of arbitration accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointment which had been made by the High Court after invoking the clause of arbitration after 5 years was set aside on the ground that there was an inordinate delay. Relevant portion of the said judgment reads as under:- 17. Given the vacuum in the law to provide a period of limitation under Section 11 of the Arbitration and Conciliation 1996, the Courts have taken recourse to the position that the limitation period would be governed by Article 137, which provides a period of 3 years from the date when the right to apply accrues. However, this is an unduly long period for filing an application u/S. 11, since it would defeat the very object of the Act, which provides for expeditious resolution of commercial disputes within a time bound period. The 1996 Act has been amended twice over in 2015 and 2019, to provide for further time limits to ensure that the arbitration proceedings are conducted and concluded expeditiously. Section 29A mandates that the arbitral tribunal will conclude the proceedings within a period of 18 months. In view of the legislative intent, the period of 3 years for filing an application under Section 11 would run contrary to the scheme of the Act. It woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted that it is structured on the basis of the quantum involved. Higher the claim, the higher is the amount of fee chargeable. There is a logic in it. It is the balancing factor to prevent frivolous and inflated claims. If the appellants' plea is accepted that there should be a cap in the figure, a claimant who is making higher claim stands on a better pedestal than one who makes a claim of a lesser amount. 25. In M/s. ICOMM Tele Ltd. (supra) the objectionable clause 25(viii) was struck down which was for 10% deposit. In the event of an award in favour of the claimant, the deposit was to be refunded to him in proportion to the amount awarded with regard to the amount claimed and the balance if any was to be forfeited and paid to the other party. Resultantly, the Apex Court came to the conclusion that nine times of the deposit could be forfeited by the parties who lost in the arbitration proceedings and despite the fact that the party has an award against it. Thus, the clause was held to be wholly arbitrary. Relevant portion of the said judgment reads as under:- 23. The important principle established by this case is that unless it is first found that the litigation th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is S.K. Jain's case which is a Three Judges Bench and, therefore, the claim as such for striking down of 3% deposit clause would not arise. It is to be noticed that the petitioner himself had at the initial stage while applying to the Chief Engineer on 12.11.2018 had agreed that the 3% of the claimed amount would be deposited prior to the learned Arbitrator entering into reference. Even otherwise in the case of Municipal Corporation, Jabalpur (supra), the Apex Court had held that the appointment of the arbitrator by the High Court would not be tenable because the contractor had not furnished the security as envisaged. Therefore, the Arbitration Board had not been constituted by the Corporation and neither the arbitrator could be appointed by the High Court. Resultantly, it was directed that the Corporation shall constitute an Arbitration Board on furnishing of the security of the sum to be determined by the Corporation and the Arbitration Board would proceed from the stage the earlier arbitrator was appointed by the High Court. It was held that the arbitrator could not be appointed inconsistently with the arbitration agreement. Resultantly, the interest of the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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