IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE PIUS C.KURIAKOSE TUESDAY, THE 3RD JUNE 2008 / 13TH JYAISHTA 1930 AR.No. 43 of 2007() ------------------- : APPLICANT -------------------------- MS/ PRIME HABITATS PVT. LTD., V.K.COMPLEX, FORT ROAD, KANNUR-670001 REPRESENTED BY ITS DIRECTOR RAVI GUPTA. BY ADV. SRI.RAJESH NAMBIAR RESPONDENTS: OPPOSITE PARTIES ----------------------------- 1. THE UNION OF INDIA, REPRESENTED BY THE CHIEF ENGINEER(CONSTRUCTION), SOUTHERN RAILWAY, CHENNAI. 2. GENERAL MANAGER, SOUTHERN RAILWAY, HEAD QUARTERS OFFICE, CHENNAI-3. BY ADV. SRI.R.SATISH KUMAR SC RAILWAYS SRI.B.JAYASANKAR, SC, RAILWAYS THIS ARBITRATION REQUEST HAVING BEEN FINALLY HEARD ON 03/06/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: PIUS C. KURIAKOSE, J. ----------------------------------------------- AR. No. 43 OF 2007 ----------------------------------------------- Dated this the 3rd day of June, 2008 O R D E R The applicant was contractor to the Southern Railway for executing the work of doubling of the railway track between Shornur – Mangalore, Calicut – Cannanore Stations and construction of road over bridge in place of existing bridge No.1074. According to the applicant the work was completed by him in all respects on 1-9-2001, but respondents, viz., the Union of India represented by the Chief Engineer (Construction), Southern Railway, Chennai (R1) and the General Manager, Southern Railway (R2) did not finalise the applicant's final bill and pay his dues. The applicant therefore preferred a detailed claim dated 15-11-2006 which was followed by a request dated 29-1- 2007 for the constitution of an Arbitration Tribunal as provided under Article 64 of the General Conditions of Contract for the settlement of the claims. Pursuant to that demand, the railways by their letter dated 16-3-2007 offered a panel of four persons to the applicant with a request to the petitioner to select any two out of the panel as his nominees. Petitioner selected two names and intimated his choice to the respondents. His first choice was Mr.S.Vijaya Raghavan and second choice was Sri.Rajendra Prasad. Both the choices were AR N0. 43/07 -2- accepted by the railways and an Arbitratral Tribunal was constituted on 21-5-2007 with Sri.S.Vijaya Raghavan as the Presiding Arbitrator. The applicant complains that later the respondents suo motu, without intimating the petitioner and without obtaining the applicant's consent replaced Sri.Vijaya Raghavan, the Presiding Arbitrator and applicant's nominee by another officer Smt.Vijaya Kanth and intimated the same to the applicant by their letter dated 23-7-2007. Pursuant to the re- constitution the newly appointed Presiding Arbitrator on 11-9-2007 issued a letter to the applicant calling for detailed documents in support of the claim. The applicant by letters dated 11-9-2007 and 22-9-2007 objected to the change effected in the panel of arbitrators and the removal of the applicant's nominee without the applicant's consent. Respondents were informed that the Tribunal had been initially appointed in conformity with the General Conditions of Contract and unilateral change in the panel so constituted was unwarranted by the G.C.C. Since earlier letters dated 11-9-2007 and 22-9-2007 did not evoke response the applicant reiterated his objections by another letter dated 15-10-2007 and requested for appointment of an independent and impartial arbitrator. The railways instead of accepting the applicant's request rejected the objections and the same was intimated to the applicant by letter dated 24-10- AR N0. 43/07 -3- 2007. To the above letter, applicant sent his reply on 7-11-2007. Referring to clause 64(3)(a)(iii) of the G.C.C. the applicant contends that in the event of any one of the arbitrators already appointed becomes unable to discharge his duties for any reason whatsoever, the second respondent General Manager, Southern Railway is bound to appoint new Arbitrator in his place in the same manner in which the earlier Arbitrator had been appointed. Accordingly it is contended that in as much as for appointment of the new Arbitrator the earlier procedure has not been followed and suo motu appointment was made, the procedure adopted is illegal. Referring to clause 64(3)(a) (iii of the G.C.C. the applicant points out that according to that clause the General Manager is bound to appoint at least one out of two of the names selected by the contractor. In this case both the nominees of the contractor were accepted by the General Manager and importantly Sri.S.Vijaya Raghavan was the first choice of the applicant and hence Sri.Vijaya Raghavan could never have been replaced by another arbitrator without the applicant's consent. The applicant also contends that Smt.Vijaya Kanth,the newly appointed Presiding Arbitrator is the principal HOD cadre officer of the organization – Office of the FA and CAO, Construction, Egmore, Chennai – which executed the work. Therefore a conflict of interest is likely to arise if Smt.Vijaya Kath is AR N0. 43/07 -4- allowed to function as a member of the Arbitration Tribunal. On these reasons the applicant submits that he is constrained to approach the the Honourable Chief Justice for intervention and appointment of an impartial arbitrator under section 11(5) and (6) of the Arbitration and Conciliation Act, 1996. 2. Annexure -A is copy of the notice of claim cum demand for arbitration dated 29-1-2007 submitted by the applicant to the respondent. Annexure-B is copy of the letter dated 160302007 from the respondents to the applicant containing request to the appicant to select any two out of the panel of four mentioned in that letter. Annexure -C is copy of the applicant's intimation dated 9-4-2007 of his choice of Sri.Vijaya Raghavan as the first choice and Sri.Rajendra Prasad as the second choice. Annexure D is copy of the intimation from the respondents accepting both the choices of the applicant and constituting an Arbitration Tribunal with Sri.Vajaya Raghavan as the Presiding Arbitrator. Annexure -E is copy of the letter dated 23-7- 2007 informing the applicant of the unilateral re-constitution of the Arbitration Tribunal replacing Sri. Vijaya Raghavan with Smt.Vijaya Kanth as the Presiding Arbitrator. Annexure F is copy of the letter dated 11-9-2007 issued by the newly appointed Presiding Arbitrator directing the applicant to submit documents in support of the claim. AR N0. 43/07 -5- Annexures G and H are copies of the letters dated 11-9-2007 and 22- 9-2007 sent by the applicant to the respondent objecting to the unilateral change of the panel of arbitrators. Annexure I is copy of the letter dated 24-9-2007 by which the newly appointed Presiding Arbitrator sought for confirmation from the 2nd respondent regarding continuance of arbitration proceedings. Annexure J is copy of the letter dated 15-10-2007 sent by the applicant requesting for appointment of independent arbitrator. Annexure K is the letter dated 24-10-2007 from second respondent rejecting the applicant's objections. Annexure L is copy of the applicant's reply to annexure K. Annexure M is copy of the relevant extract of the conditions of the contract containing the arbitration clause. 3. The standing counsel for the railways on entering appearance by the respondents has filed a detailed statement. It is contended that as per clause 64(3)(b) of the General Conditions, Gazetted Railway Officers alone can be appointed as Arbitrators. It is conceded that as per the request of the applicant, a panel of 4 names were given and the applicant selected two out of them and accordingly three member Arbitral Tribunal was constituted with the following persons: (1) S.Vijaya Raghavan, Presiding Arbitrator (2) Rajendra Prasad, (3) T.M.Sreedhar. The Presiding Arbitrator Sri.S.Vijaya Raghavan had been AR N0. 43/07 -6- transferred and hence the General Manager appointed Smt.Vijaya Kanth as the Presiding Arbitrator by invoking his right conferred upon him under clause 64 (3)(c) of General Conditions of Contract. Considering the applicant's objection to the appointment of Smt.Vijaya Kanth and also Annexure L notice which was last sent by the applicant to the General Manager, the General Manager accepted the applicant's request and terminated the mandate of the existing Arbitral Tribunal and a fresh panel of arbitrators consisting of the following officers were presented to the applicant requesting the applicant to select any two among the following as his nominees. (1) Smt.Sujatha Jayaraj, (2) Sri.P.P. Udayakumar, (3) Sri.A.K.Sinha and (4) Sri. V.G.Ramesh Kumar. It is submitted that as per the established proceedures and agreed terms of contract upon the applicant choosing his nominees, the General Manager will appoint Arbitral Tribunal consisting of 3 members. New names have been submitted by the General manager within reasonable time and it is for the applicant to make selection of two names. Statement refers to the order of the Supreme Court in SLP.14395/2007 by which the Supreme Court set aside the appointment of Hon'ble Justice R.Bhaskaran as Arbitrator and upheld the appointment of Gazetted Officers from the railway establishment made by the railways. Ultimately it is contended in the statement AR N0. 43/07 -7- that due to the subsequent event the arbitration request has become infructuous. 4. I have heard the submissions of Sri.Rajesh Nambiar, learned counsel for the applicant and those of Sri.Satishkumar, learned standing counsel for the railways. Sri.Rajesh Nambiar would strenuously submit on the basis of clause 63(3)(c) of the General Conditions of Contract that in the event of an arbitrator who had been duly appointed has become incapable of functioning as arbitrator appointment of a substitute in his place shall be made adopting the very same procedure. When the attention of the learned counsel was drawn to the subsequent event of panel of four new names have been furnished to the applicant as stated in paragraph 6 of the statement submitted by the standing counsel, Mr.Rajesh Nambiar would submit that what could be rightly done in the circumstances of this case is to appoint a substitute for Sri.Vijaya Raghavan who alone has become incapable of discharging the functions as Arbitrator. According to the learned counsel, Sri.Vijaya Raghavan, nominee of the applicant was accepted as the Presiding Arbitrator and Sri.Rajendra Prasad, another nominee of the applicant was accepted as co-arbitrator. The third arbitrator in the Tribunal constituted was Sri.T.M.Sreedhar. The maximum which could be done is to substitute Sri.Vijaya Raghavan by AR N0. 43/07 -8- another nominee of the applicant as the Presiding Arbitrator. As per the new panel forwarded to the applicant as stated in paragraph 6 of the statement four new persons are being proposed. These names are not acceptable to the applicant. Applicant is entitled to have his nominee as the Presiding Arbitrator and he is also entitled to the continuance of Sri.Rajendra Prasad, member of the original Tribunal as a member of the new Tribunal also. Sri.Sathish Kumar, learned standing counsel would resist the above submission. According to the learned standing counsel clause 64(3)(a)(iii) only mandates that the same procedure should be followed for constituting fresh Tribunal and when 4 names are being offered and the contractor is given the permission to select two, it is enough if the respondents select one out of those two names for constituting a fresh Tribunal. The learned standing counsel would place before me a copy of the order of the Supreme Court in SLP.14395/07. 5. Having considered the rival submissions addressed at the Bar in the light of the order of the Hon'ble Supreme Court in SLP. No. 14395/07 I am of the view that the respondents are justified in insisting that the Arbitral Tribunal should consist of railway officers themselves. I do not find any exceptional case made out for appointment of persons from outside the railway establishment as AR N0. 43/07 -9- Arbitrators in this case. At the same time, I find merit in the submission of the learned counsel for the applicant that the thorough reconstitution of the original arbitral tribunal was improper and that the applicant is entitled to have his nominee as the presiding arbitrator since in the original tribunal it was his nominee who was made the Presiding Arbitrator. The result therefore is that the A.R. Will stand disposed of in the following terms. The applicant is directed to select two names from out of the four names mentioned in paragraph 6 of the statement submitted by the standing counsel and inform the second respondent at the earliest and at any rate within 10 days of receiving copy of this order. Second respondent will appoint one out of those two names as a substitute for Sri.Vijaya Raghavan, the original Presiding Arbitrator and the original tribunal subject to such substitution should be allowed to adjudicate the reference in accordance with law. (PIUS C.KURIAKOSE, JUDGE) ksv/-