Arbitration Case No.77 of 2010 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Arbitration Case No. 77 of 2010 Date of decision: 14th July, 2011 M/s S.P.Singla Constructions (P) Ltd. .......Petitioner Versus The Chief Engineer (The Employer) World Bank Project-II, Haryana PWD ........Respondents BEFORE: HON'BLE MR. JUSTICE HEMANT GUPTA 1. Whether Reporters of local papers may be allowed to see the judgment? Yes/No 2. To be referred to the Reporters or not?Yes/No 3. Whether the judgment should be reported in the Digest? Yes/No Present: Mr. Rajiv Atma Ram, Senior Advocate with Mr. Akshay Bhan and Mr. Animesh Sharma, Advocates for the petitioner. Mr. Pradeep Singh Poonia, Addl. A.G.,Haryana, for the State of Haryana. Hemant Gupta, J.(Oral) The petitioner was awarded contract of the construction of Four Lane Railway Over Bridge (ROB) at level crossing No. 61-A on Delhi Bathinda Railway Line at RD 89-70 KM of Rohtak-Bhiwani Road vide letter dated 30.07.2006 in pursuance to the tender submitted by the petitioner on 17.04.2006. Disputes have arisen between parties to the agreement in relation to the contract. The petitioner sought resolution of such disputes by an Arbitrator in terms of Clause 67 of the agreement which read as under:- “67. ARBITRATION (GCC Clause 25.3) The procedure for arbitration will be as follows. 25.3 (a) In case of Dispute or difference arising Arbitration Case No.77 of 2010 2 between the Employer and a domestic Contractor relating to any matter arising out of or connected with this agreement, such disputes or difference shall be settled in accordance with the Arbitration and Conciliation Act, 1996. The Arbitral tribunal shall consist of 3 arbitrators one each to be appointed by the Employer and the Contractor. The third Arbitrator shall be chosen by the two Arbitrators so appointed by the Parties and shall act as presiding arbitrator. In case of failure of the two arbitrators appointed by the parties to reach upon a consensus within a period of 30 days from the appointment of the arbitrator appted subsequently, the Presiding Arbitrator shall be appointed by the Government of Haryana. The Arbitrators including the Presiding Arbitrator so appointed must possess minimum educational qualification of degree in Civil Engineering. If one of the parties fails to appoint its arbitrator within 30 days after receipt of the notice of the appointment of its arbitrator by the other party, then Government of Haryana shall appoint the arbitrator. A certified copy of the order of the Government of Haryana, making such an appointment shall be furnished to each of the parties.” The petitioner vide notice dated 4.02.2009 sought for conciliation as a precondition to raise dispute for resolution by an Arbitral Tribunal. The said claim was not accepted. Thereafter, the petitioner nominated Shri O.P.Goel, DG, CPWD (Retired) as an Arbitrator on 13.02.2010. On the other hand, the respondent nominated Shri H.R.Raheja, Chief Engineer, Haryana State Industrial Infrastructure Development Corporation, Sector-6, Panchkula as an Arbitrator on 12.03.2010. The third Arbitrator Shri R.K.Aggarwal, Engineer-in-Chief PWD (B&R) Branch (Retired) was appointed on 8.04.2010 with mutual consent by the two Arbitration Case No.77 of 2010 3 Arbitrators, so appointed by the parties. The petitioner objected to the appointment of Shri H.R.Raheja, Chief Engineer, Haryana State Industrial Infrastructure Development Corporation, Sector-6, Panchkula as an Arbitrator appointed by the respondent on 19.04.2010. Since such objection was not entertained, the present petition was filed before this Court on 17.05.2011. Learned counsel for the petitioner has raised two fold arguments. Firstly, that the respondent has failed to act in terms of the agreement. It is contended that under Clause 67 of the agreement, the Arbitrator on behalf of the employer was to be nominated by the employer i.e. Chief Engineer, whereas, in the present case the Arbitrator has been nominated by the Engineer-in-Chief. Learned counsel for the petitioner relied upon the judgment of the Hon'ble Supreme Court reported as AIR 1952 SC 16 titled as Commr. of Police v. Gordhandas Bhanji to contend that appointment has to be made only in the manner stipulated in the agreement and in no other manner. The respondent has failed to act as required under the appointment procedure. Therefore, in terms of Section 11 (6) (a), this Court is competent to set aside the appointment of such an Arbitrator and appoint another independent Arbitrator. Secondly, it is argued that in terms of Section 11(8), Court shall appoint an Arbitrator, who is an independent and impartial and not an employee of the State Government. To support the said argument, learned counsel for the petitioner has relied upon a recent judgment of the Hon'ble Apex Court reported as 2009 (8) S.C.C.520 titled as Indian Oil Corporation Ltd. & Ors. vs. M/s Raja Transport (p) Ltd. It is contended that the Arbitrator nominated by the respondent is an employee of the State Arbitration Case No.77 of 2010 4 Government, therefore, he cannot be said to be an independent and impartial arbitrator. On the other hand, Mr. Pradeep Singh Poonia, Additional Advocate General, Haryana argued that the Arbitrator has been appointed by the Engineer-in-Chief, a superior officer than the Chief Engineer - defined as an employer in the contract documents. It is argued that in fact the Chief Engineer has recommended the name of Shri H.R.Raheja, Chief Engineer, Haryana to act as an Arbitrator. It is a departmental decision and procedure to seek approval of the name of the Arbitrator from a superior Officer. It is submitted that Chief Engineer and Engineer in Chief are the functionaries of the State Government and both exercise their powers for and on behalf of Governor of Haryana and that there is no illegality or irregularity in such appointment. After hearing learned counsel for the parties, I do not find any merit in the present petition. The employer as defined in the contract document means the Chief Engineer, World Bank Project (for and on behalf of Governor of Haryana). Written statement to the present petition had been filed by Shri A.K.Jain, Chief Engineer, Haryana PWD (B&R) -cum- Executive Director, Haryana State Roads & Bridges Development Corporation Ltd. In the said written statement, it is pointed out to the following effect:- “On the recommendation of the Chief Engineer i.e. Employer the Arbitrator Sh. H.R.Raheja was appointed by the Engineer-in-Chief who is a superior officer in hierarchy. Further the applicant did not raise any objection at the time of appointment of Sh. H.R.Raheja as Arbitrator. Hence, the contentions of the applicant mentioned in the para are devoid of merits and are suffering from legal infirmity. Moreover, the Arbitration Case No.77 of 2010 5 appointment of the Presiding Arbitrator has been made within a stipulated period of 30 days and that he is a person of sound integrity, impartial & independence, it is upto the applicant to prove otherwise, it is not a precondition that the working or retired employee of the department can not be appointed as an Arbitrator.” As per the facts on record, the recommendation for appointment of an Arbitrator was by the employer i.e. Chief Engineer, who was acting for and on behalf of the Governor of Haryana. Such recommendation has been accepted by Engineer in Chief. The right to appoint an Arbitrator is regulated by the contract, executed for and on behalf of the State of Haryana. The Engineer-in-Chief is an officer, higher in hierarchy. The process of appointment has been initiated by Chief Engineer as mentioned but the recommendation has been approved by the Engineer-in-Chief. The approval is departmental procedure and does not impinge upon the administrative decision of the Chief Engineer. The Chief Engineer is not exercising either judicial or quasi judicial powers which alone can be said to exercisable by the named authority. Therefore, I do not find any illegality or irregularity in the appointment of an Arbitrator on behalf of the respondents. It cannot be said that such a recommendation of the Chief Engineer is in violation of the mandate of the contractual conditions. I do not find that the judgment in Gordhandas Bhanji’s case (supra) provides any assistance to the argument raised by the learned counsel for the petitioner. In the said case, the power to cancel the license in terms of “City of Bombay Police Act, 1902” was with the Commissioner. The license was cancelled by State Government and that the Commissioner acted only as transmitting Agent. The cancellation of a license effects civil Arbitration Case No.77 of 2010 6 rights of the licensee. Therefore, such power could be exercise only by the Authority mentioned in the Statutory Provisions. But in the present case, the parties have entered into contract and the power to appoint an arbitrator is an administrative power. Therefore, such judgment does not provide any help to the arguments raised by the counsel for the petitioner. In support of the second argument, learned counsel for the petitioner made reference to para 17 of the judgment of Indian Oil Corporation’s case (supra) which reads under:- “17. xxxx Contractors in their anxiety to secure contracts from government/statutory bodies/public sector undertakings, agree to arbitration clauses providing for employee-arbitrators. But when subsequently disputes arise, they balk at the idea of arbitration by such employee-arbitrators and tend to litigate to secure an “independent” arbitrator. The number of litigation's seeking appointment of independent Arbitrator bears testimony to this vexed problem. It will be appropriate if governments/statutory authorities/public sector undertaking reconsider their policy providing for arbitration by employee-arbitrators in deference to the specific provisions of the new Act reiterating the need for independence and impartiality in Arbitrators. A general shift may in future be necessary for understanding the word “independent” as referring to someone not connected with either party. That may improve the credibility of Arbitration as an alternative dispute resolution process. Be that as it may.” A reading of the above extract shows that the reliance of the petitioner is on the obiter part of judgment. The bench has expressed hope for the future, for consideration of the Government/Statutory Authority/ Public Sector Undertakings. But there is no direction to act on such Arbitration Case No.77 of 2010 7 observations and in respect of existing agreements. It may be noticed that an objection has been raised after the two Arbitrators nominated third arbitrator. The Arbitrator nominated by the respondent has thus acted in the dispute resolution mechanism. Therefore, the petitioner is stopped to dispute the appointment of an arbitrator by the respondent as well. Still further the Arbitrator nominated by the respondent in the present case, is a Chief Engineer working with another juristic entity, therefore, it cannot be said that the said arbitrator is not an independent or impartial arbitrator. In view of the above, I do not find any merit in the present petition. The same is dismissed. [HEMANT GUPTA] JUDGE 14th July, 2011 Vimal/Shivani Kaushik