The Bombay High Court on June 2, 2020 in the case of Afcons Infrastructure Limited (“Petitioner”) vs. Konkan Railway Corporation Limited (“Respondent”) ARBP no. 10 of 2019, adjudicated upon the issues encompassing the procedure of appointment of arbitrators by the court, and from a panel.
Facts of the case:
The dispute arose between the parties with respect to a contract dated December 12, 2005 for construction of B.G. Single Line Tunnels on the Katra-Laone, section of Udhampur-Shrinagar-Baramulla Rail Link Project. The Petitioner claimed that the dispute arose between the parties owing to wrongful deductions made by the Respondent from payment due to the Petitioner.
The contract also comprised of an arbitration clause, as per which, the arbitral tribunal was to consist of three gazetted railway officers not below ‘JA Grade’. Secondly, the panel of such gazetted railway officers was to be prepared by the Respondent from amongst the officers of one or more departments of the railway. Thirdly, the panel so prepared would be shared with the Petitioner (contractor) who would be asked to suggest upto two names out of the panel for appointment as contractor’s nominee. Fourthly, the power to appoint the nominee arbitrator of the contractor vested with the managing director of the Respondent with the only rider that he shall appoint at least one out of the two names suggested by the Petitioner. Fifthly, the power to appoint the rest of the arbitrators from within or outside the panel and the presiding arbitrator from amongst those three arbitrators, vested with the managing director of the Respondent.
The petitioner had initially filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act, 1996”) before the District Court, Ramban in respect of fore poling item (for amount to be paid by adding contract percentage). Thereafter, the Petitioner herein filed an application, before the High Court of Jammu and Kashmir under Section 11 (3)(4) and (6) of the Jammu and Kashmir Arbitration and Conciliation Act, 1997 for appointment of arbitrator. The said application still awaits final adjudication.
The Petitioner invoked the arbitration clause for the second time vide its letter dated July 2, 2018 and, inter-alia, alleged that there was failure on the part of the Respondent to adhere to the procedure prescribed for appointment for the arbitrators under the governing arbitration clause and thus, the procedure prescribed under Section 11(3) of the Arbitration Act, 1996 would govern the constitution of the arbitral tribunal. The Petitioner, therefore, nominated Shri R.G. Kulkarni, Retired Secretary and Engineer-in-Chief, Government of Maharashtra to be its nominee arbitrator and called upon the Respondent to nominate its arbitrator in terms of the Arbitration Act 1996, within a period of 30 days.
The Respondent vide its letter dated July 11, 2018, apprised the Petitioner that the case regarding appointment of arbitrator for the subject contract is sub-judice before the High Court of Jammu and Kashmir. However, the Petitioner joined the issue by a communication dated August 3, 2018 asserting, inter-alia, that the reference to arbitration contained in the letter dated July 2, 2018 is a fresh reference distinct from and unrelated to the earlier reference dated June 27, 2012, which is pending before the High Court of Jammu and Kashmir. In response to the said letter, the Respondent, vide its letter dated August 29, 2018, countered by asserting that the arbitral tribunal was formed as per the terms and conditions of the contract for the entire contract and the same is under challenge at the instance of the Petitioner in the High Court of Jammu and Kashmir and rejected the appointment of Mr. R.G. Kulkarni as Petitioner’s nominee arbitrator.
The Petitioner thus, filed the instant petition under Section 11(6) of the Arbitration Act, 1996 before the Bombay High Court.
Issues:
The issues which arose for consideration before the court were:
Decision by the court:
Issue no.1
The Bombay High Court noted that it is well recognized that the bar to the jurisdiction envisaged by Section 42 of the Arbitration Act, 1996 to entertain any application in respect of an arbitration agreement under Part I, once such an application is made to a court, by any other court than the court to which such application is first made, does not apply to the applications like the application to the judicial authority under Section 8 of the Arbitration Act, 1996 or the application for appointment of arbitrator under Section 11 of the Arbitration Act, 1996.
The court also stated that with the amendment brought about by the Amendment Act, 2015, the power is now vested in the Supreme Court or High Court or its delegate instead of the Chief Justice or his delegate. This legislative change, however, does not seem to have any bearing upon the well-recognized proposition that the bar under Section 42 of the Arbitration Act, 1996 does not apply to the authority which is vested with the power to appoint an arbitrator under Section 11 of the Arbitration Act, 1996. The court thus observed that:
“19…It is plain that the Supreme Court or High Court or its delegate while exercising power under Section 11 of the Arbitration Act, 1996 cannot be equated with the term “Court” as contemplated under Section 42 of the Arbitration Act, 1996 which has a definite and exhaustive meaning under Section 2(1)(e) of the Arbitration Act, 1996.”
The court enumerated that the object of Section 11(12)(b) of the Arbitration Act, 1996 seems to be to provide with clarity that the High Court will only be such a High Court within whose local limits the Principal Civil Court referred to in Section 2(1)(e) is situated. Moreover, as per the court, since in Bharat Aluminium Co. vs. Kaiser Aluminium Technical Services Incorporation (2012) 9 SCC 552, the Supreme Court has clarified that the legislature has intentionally given jurisdiction to two courts i.e. the court which would have jurisdiction where the cause of action is located and the court where the arbitration takes place, the provisions of Section 11(12)(b) of the Arbitration Act, 1996 cannot be so construed as to curtail the ambit of the definition of the “Court” under Section 2(1)(e) of the Arbitration Act, 1996.
The court also observed that, the provisions contained under Section 11(11) of the Arbitration Act, 1996 provides that where more than one request has been made to different High Court or their designates under sub-sections (4), (5) and (6) of Section 11, the High Court or its designate to whom the request has been first made under the relevant sub-section shall alone be competent to decide the request. This provision indicates that the legislature was alive to the fact that in view of the definition of the ‘Court’ under Section 2(1)(e), in respect of the very same arbitrable dispute, more than one request can be made to different High Courts, and, thus, the legislature took care to provide that in such an eventuality the High Court to which the request has been first made, shall alone be competent to decide the request.
However, considering the facts and circumstances of the instant case, the court held that:
“33…..the fact that a request for constitution of arbitral tribunal was made to the High Court of Jammu and Kashmir in respect of a dispute which arose in the year 2012 would not preclude the Petitioner from approaching the court for exercise of the power under section 11 of the Arbitration Act, 1996 especially when the arbitrable dispute arose subsequent to the coming into force of the Amendment Act, 2015 and the consequent commencement of the arbitration proceedings post enforcement of the Amendment Act, 2015. Thus, I am persuaded to hold that the dispute raised in the instant application being a distinct dispute, which arose in terms of the contract between the parties providing for reference to arbitration, this Court can exercise the powers under section 11 of the Act, 1996.” (emphasis supplied)
Issue no.2
The Bombay High Court enumerated that the provisions under the contract for constituting the arbitral tribunal are in flagrant violation of the amended provisions of Section 12 read in conjunction with the Fifth and Seventh Schedule of the Arbitration Act, 1996, introduced by the Amendment Act, 2015.
The court, thus, held that:
“46….the endeavour on the part of the Respondent to urge that the mere fact that the arbitral Tribunal is to consist of gazetted Railway Officers does not reflect upon their independence and impartiality, does not deserve countenance. In view of the amended provisions of the Act, 1996, the officers of the Respondent or for that matter, Indian Railways (as demonstrated in the cases of Afcons Infrastructure Ltd. (supra) and ITD Cementation Ltd. (supra) are simply ineligible to be appointed as the Arbitrators. To add to this, the procedure of appointment which does not vest free choice to nominate an Arbitrator with the contractor and, conversely, vests the power to appoint the presiding Arbitrator with the Managing Director of the Respondent also militates against the principles of autonomy and neutrality and impartiality, respectively. Thus the prayer of the Petitioner to constitute an independent arbitral Tribunal appears justifiable.” (emphasis supplied)
This update has been contributed by Arka Majumdar (Partner) and Kunal Dey (Associate).
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