Delhi High Court: In a petition invoking the jurisdiction of the Court conferred by Section 11 of the Arbitration and Conciliation Act, 1996 (‘the Act’), wherein appointment of a nominee arbitrator of the Union of India (‘respondent’) was sought, consequent to an asserted failure on its part to abide by the appointment procedure, the Single Judge Bench of Yashwant Varma, J., allowed the parties to nominate their arbitrators, considering the failure of the settlement in Dispute Redressal Committee.
Background
The proceedings before the Dispute Redressal Committee (‘DRC’) were initiated on 28-04- 2023. Since 11 out of the 13 claims raised by the petitioner remained unresolved, the matter was thereafter adjourned to 03-05-2023. However, the parties could not resolve their differences in the meeting that was held on that date and consequently the proceedings before the DRC concluded without any settlement being reached. The existence of disputes between the parties and the same being resolved by way of arbitration was essentially not disputed. However, the respondent raised various objections with respect to the prayer made for constitution of the Arbitral Tribunal referring to Clause 25 of the Contract between the parties, wherein it was provided for the parties to approach DRC before seeking reference of disputes to an Arbitral Tribunal.
Court’s Decision
Clause 25 of the Contract provides for “Settlement of Disputes and Arbitration”. On perusing Clause 25 of the Contract, the Court said that if the contractor were to raise a dispute arising out of the Contract, it is entitled to raise a dispute before the Chief Engineer (‘CE’) / Additional Director General (‘ADG’), who are in turn obliged to refer disputes to the DRC. If the DRC fails to render a decision or if any party be dissatisfied with the view taken by it ultimately or if matters remain unresolved, either party is conferred the right to give a notice to the CE/ ADG/ Director General for appointment of an arbitrator.
It further stipulates that where the Arbitral Tribunal is to comprise of three arbitrators, each party shall nominate an arbitrator who shall, in turn, appoint the third or the presiding arbitrator. If the respondent fails to appoint the second arbitrator or the two nominated arbitrators fails to concur on a presiding arbitrator, the DG stands empowered to appoint the second or the presiding arbitrator. The Court said that since the tendered value was more than Rs.100 crores, disputes had to be referred for the consideration of a panel of three arbitrators.
The Court noted that Clause 25 not only contemplates a process of conciliation being undertaken by the DRC, but the imperatives of that process being also adhered to is underscored with the Contract stipulating that each party invoking arbitration must exhaust the mechanism of settlement before the DRC prior to invoking arbitration. Further, the Court noted that the petitioner in terms of its Invocation Notice dated 27-01-2023 had proceeded to indicate the name of its nominee arbitrator without going through the procedure as prescribed in Clause 25.
The Court said that Perkins Eastman Architects DPC v. HSCC (India) Ltd., (2020) 20 SCC 760, is an authoritative precedent on the issue of the appointing authority being divested of the power to nominate an arbitrator in case the said authority itself be disqualified under the Act. The Court said that while Clause 25 confers a right on the petitioner to appoint its nominee arbitrator, the power vested in the CE, ADG or the DG to appoint is in respect of the second or a presiding arbitrator. The powers so vested becomes exercisable in case the respondent fails to abide by the timelines prescribed in Clause 25 and defaults in nominating its arbitrator. Any appointment of a member of the Arbitral Tribunal by the CE, ADG or the DG would clearly not sustain in light of the unequivocal exposition of the legal position in Perkins.
The Court referred to Central Organisation for Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), (2020) 14 SCC 712, wherein, the aspect of former employees not being ipso facto disqualified from acting as arbitrators was highlighted. Thus, the Court was unable to recognise or uphold a power vesting in the CE, ADG or the DG to appoint a constituent member of the Arbitral Tribunal.
Further, the Court considered the issue with respect to the qualifications that members of the Arbitral Tribunal were liable to possess.
The Court noted that it was pertinent to observe that the stipulation under Clause 25 uses the expressions “any member” and “to be appointed as arbitrator”. The Court said that the provision regarding the qualifications did not specify or prescribe that “all members” of the Arbitral Tribunal must hold the qualifications that were prescribed.
The Court noted that the word ’any/ when used in a statute or a contract has always thrown up its fair share of doubts. While in some instances it has been understood to mean ’either’, in others it was interpreted to mean ’all’. Decisions as well as lexicons have however collectively desisted from ascribing a definitive meaning to that word entering the cautionary caveat of it being a phrase which can have a flexible meaning and its meaning liable to be gathered from the context in which it is deployed.
The Court said that the phrase “any member” must be interpreted in the context in which it is used in Clause 25. The Court noted that the phrase was structured singularly with the word “arbitrator” and “member” being used. Clause 25 contemplates both a solitary as well as a panel of arbitrators. The penultimate part of the qualification clause reiterated the singular approach stating that the mandatory qualification is for a person “to be appointed as arbitrator.” Thus, the Court said that the word ’any’ in the qualification clause cannot be read as “all members”.
The Court said that any other interpretation of the term would lead to the Arbitral Tribunal consisting of only Graduate Engineers who may have had experience of handling public works engineering contracts. This would have clearly violated the fundamental precept of party autonomy on which the entire adjudicatory process itself is founded.
Further, the Court viewed that the word “any” was not liable to be read as “all” for the following additional reasons:
i. Ex facie, the clause did not take into consideration or contemplate any Graduate Engineers with experience in works and contracts other than those relating to the government. The said clause also stipulated that the Graduate Engineer’s experience must be equivalent to and be at par with that of a CE (Joint Secretary, Government of India). This would essentially result in the said prescription in Clause 25 being liable to be understood as restricting the nominated arbitrator to be a Graduate Engineer who may have had experience of handling public works engineering contracts under the government or its entities and agencies only.
Thus, the Court opined that the stipulations contained in Clause 25 must consequently be read down and understood to mean that at least one or more of the members of the Arbitral Tribunal must possess the qualifications as prescribed in Clause 25. However, Clause 25 cannot be interpreted to require all members of the Arbitral Tribunal to possess the qualifications as prescribed therein.
Further, the Court said that the article specifying qualifications did not clarify whether the nominee arbitrator who is to be a Graduate Engineer, should be a serving or a retired employee of the Government. It was also not specified whether the nominated arbitrator could be drawn from departments or ministries other than those with which the respondent is affiliated. Therefore, to sustain and uphold Clause 25 and insofar as it specifies qualifications, the Court considered it necessary to have read it down to mean a retired government employee, to save the appointment of a person who holds those qualifications and who would not otherwise fall foul of the prohibitions contained in the Seventh Schedule of the Act.
The completion of proceedings before the DRC was significant since the rights of parties to nominate gets triggered only once the DRC takes a decision or concludes proceedings upon a failure on the part of parties to reach a settlement.
The Court noted that the petitioner had proceeded to name its nominee arbitrator on 27-01-2023. It was in response to the aforesaid communication that the respondent had taken the objection that such a nomination would not sustain till such time as the mechanism of settlement as constructed under Clause 25 has been pursued and completed. Therefore, the Court viewed the nomination made by the petitioner as premature. Similarly, the right of the respondent to name an arbitrator independently and / or its failure to abide by the appointment procedure was also directly related to the completion of proceedings before the DRC.
The Court also said that by the time the instant petition was filed before the Court, the respondent had failed to nominate an arbitrator and its right to do so cannot be forfeited since the DRC reported a failure of conciliation only on 02-05-2023.
The Court concluded that:
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It shall be open to the petitioner to address a fresh communication indicating the name of its nominee arbitrator. While doing so, it would also be open to the petitioner to reiterate the name as suggested and contained in its communication of 27-01-2023.
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Upon receipt of the said intimation, it would be open to the respondent to nominate its arbitrator. The two nominated arbitrators may, in turn, then proceed to appoint a presiding arbitrator.
[Shapoorji Pallonji And Company Private Limited v. Union of India, Arbitration Proceedings 222/2023, Order Dated: 13-05-2023]
Advocates who appeared in this case :
For the Petitioner: Senior Advocate Ciccu Mukhopadhyay, Advocate Saurav Agrawal, Advocate Sonali Jaitley, Advocate Jaiyesh Bakshi, Advocate Ravi Tyagi, Advocate Mayank Mishra, Advocate Chirag Sharma, Advocate Mayuri Shukla and Advocate Sakshi Tibrewal;
For the Respondent: Central Government Standing Counsel Apoorv Kurup, Advocate Ajay Arjun Sharma.
