Case: Aravali Power Company Pvt. Ltd Vs. M/S. Era Infra Engineering Ltd

2. Construction work of permanent township for Indira Gandhi Super Thermal Power Project at Jhajjar, Haryana was awarded to the RespondentM/s Era Infra Engineering Ltd. on 20.05.2009 and contract dated 17.11.2009 signed thereafter broadly consisted of General Conditions of Contract (GCC) and Special Conditions of Contract (SCC). Clause 56 of the GCC stipulated arbitration between the parties in followingt where otherwise provided for in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work or as to any other questions, claim, rights, matter or thing whatsoever in any way arising out of or relating to the contract, design, drawing, specifications, estimates, instructions, orders or these conditions of otherwise concerning the works, or the executions or failures to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the Sole Arbitration of the Projectof the Project concerned of the owner, and if the Projectis unable or unwilling to act, to the sole arbitration of some other persons appointed by the Chairman and Managing Director, NTPC limited (Formerly National Thermal Power Corporation Ltd) willing to act as such Arbitrator. There will be no objections, if the Arbitrator so appointed is an employee of NTPC Limited (Formerly National Thermal Power Corporation Ltd), and that he had to deal with the matters to which the contract relates and that in the course of his duties as such he had expressed views on all or any of the matters in disputes or difference. The Arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason as aforesaid at the time of such transfer, vacations of office or inability to act, Chairman and Managing Directors, NTPC limited (Formerly National Thermal Power Corporation Ltd.), shall appoint another person to act as Arbitrator in accordance with the terms of the contract......According to thePower Company Pvt. Ltd., scheduled date of completion of work was 19.05.2011 but the progress of work was quite slow which compelled the Appellant to cancel certain remaining works by its letters dated 18.07.2014, 24.10.2014, 30.06.2015 and 08.07.2015. By its letter dated 29.07.2015 the Respondent alleged that the delays in the project were not attributable to the Respondent and after setting out certain grievances, the letter thereafter sought to invoke arbitration submitting further that arbitration be through a retired Judge of the High Court, the relevant portion of the letterview of the above circumstances and inaction of APCPL towards settlement of our claims/payments, we hereby invoke Arbitration Clause of the Contract Agreement request your good self to appoint Arbitrator for settlement of our claims according to Clause 56 of GCC of the Contract Agreement.However, we want to draw your attention to the legal point that once the order of part cancellation has been passed at the Highest Level of the Owner/Employer, hence, any forum for resolution of dispute constituted by the said authority & particularly its subordinate is of no legal consequence. It is a well settled proposition of law that nobody can be judge in its own cause. Therefore, in light of the aforesaid settled position of law, we seek an independent arbitration, through a retired Honble Judge of the Honble High Court so as to seek vindication of our grievance as mentioned in foregoing paras. Since the matter is utmost important, we hereby request that a panel of independent Arbitrators may kindly be made available to us so that we can choose from the panel. We would also be agreeable to the constitution of an Arbitral Tribunal comprising of nominee of your company; our nominee and both the nominee arbitrators appointing the Presiding/Umpire Arbitrator. We request that an early action in this regard may kindly be taken, in accordance with law.In response, while refuting the allegations in the letter under reply, the Appellant proceeded to appoint its Chief Executive Officer as the sole Arbitrator on 19.08.2015 and intimated the respondent on the same day in followingnote that in terms of the Arbitration Clause 56 of the GCC there is no provision for selection by you of Arbitrator from any panel of Arbitrators to be offered by us. There is also no provision for formation of an Arbitral Tribunal as suggested by you. Clause 56 of the GCC envisaged the appointment of the designated officers as Arbitrator and accordingly the Chief Executives Officer APCPL on your request, has been designated as the Sole Arbitrator. The Learned Arbitrator shall inform you of the Arbitral proceedings infurther communication dated 26.09.2015 the Appellant reiterated its stand taken in letter dated 19.08.2015.5. In the meanwhile, the Arbitrator so appointed fixed the first hearing in arbitration on 07.10.2015. The parties appeared on 07.10.2015 and the proceedings show that the hearing was fixed on 09.04.2016 by which time there was to be completion of filing of statement of response to counter claim etc. The proceedings do not show any objection having been raised by the Respondent regarding continuation of the arbitration proceedings. On 04.12.2015 a letter was addressed by the Respondent to the Arbitrator seeking extension of time to file its statement of claim. It was stated, interng held on 07.10.2015 the Claimant was given 60 days time to file its Statement of Claim. In this connection it is to state that we need to collect some more data and files from our other offices to make the Statement of Claim. For that purpose, we need about one month further time to submit our Statement of Claim.It is therefore, requested that the Ld. Sole Arbitrator may kindly grant one month further time to the Claimant to file its Statement ofrd, the Arbitrator granted one months time, as prayed for.6. On 01.01.2016, the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as "the Amendment Act") was gazetted and according to Section 1(2), the Amendment Act was deemed to have come into force on 23rd October, 2015.7. For the first time on 12.01.2016, the Respondent sought to challenge the Arbitrator and raised objection regarding constitution of the arbitral tribunal asreference to the above referred communications addressed by us, we hereby state that the constitution of the present arbitral tribunal is wholly invalid/void & against the settled principles of law, and on account of which Era Infra Engineering Ltd. is seeking appropriate legal remedies by approaching the Honble High Court for appointment of an Independent Arbitral Tribunal. Accordingly, we hereby request your good self to kindly restrain yourself from assuming reference and seeking to proceed with the present alleged proceedings, till the final outcome of the above referred legal proceedings, sought to be immediately & urgently filed/preferred by Era Infra Engineering Ltd.The objection was rejected by the Arbitrator on 22.01.2016 on the ground that the Respondent had participated in the arbitral proceedings on 07.10.2015 without raising any protest. The Respondent was then intimated to attend proceedings in arbitration scheduled to be held on 16.02.2016. The Respondent however, approached the High Court of Delhi by filing petition under Section 14 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "1996 Act"), registered as OMP(T)(Comm.) No.13/2016, seeking termination of the mandate of the Arbitrator. Grounds I, IV, VI, VII and VIII raised in the petitionIt is submitted that it is a settled principle of law that nobody can be a judge in his own cause. In other words, a party to the Agreement cannot be an arbiter in his own cause. It is submitted that interest of justice and equity require that where a party to the contract disputes the committing of any breach of the condition, the adjudication should be by an independent person or body and not by the other party to the contract.IV That without prejudice to the above, it would also be relevant to mention herein that the allegedly appointed Arbitrator namely, Shri S.K. Sinha, would also be otherwise unable to perform the functions of an independent Arbitrator, in as much as, he has himself, in his official capacity in thedealt with contracts of nature similar to the contract works in question herein (including the present contract works), on behalf of theThat it would also be worth mentioning that the Honble Courts have consistently held and observed that the policy of the Government/Statutory Authorities/Pubic Sector undertakings, to provide/appoint for arbitration by an Employee Arbitrator is a vexed problem which requires reconsideration, which is more so in deference to the specific provisions of the new Act reiterating the need for an independent and impartial Arbitrator.VII That in furtherance of the aforementioned spirit as reiterated by the Honble Courts, the Act has also been suitably amended by the Legislature, whereby, inter alia, it has been expressly provided that an Arbitrator who is an Employee, Manager, Director or part of the Management or has a similar controlling influence in one of the parties to the arbitration, is a valid ground giving rise to justifiable doubts as to the independence or impartiality of an Arbitrator. Furthermore, it has also been provided that an Arbitrators previous involvement in the case/subject matter would also be a valid ground giving rise to justifiable doubts as to the independence or impartiality of an Arbitrator.VIII That in the present case, as brought out above, the alleged Arbitrator so appointed by the respondent herein is an employee of the respondent herein itself. In fact, the allegedly appointed individual is the Chief Executive Officer (CEO) of the respondent herein, who on account of such position also has a controlling influence over theagainst whom the petitioner herein seeks to assert its claims. In such circumstances, the said allegedly appointed arbitrator would both in law and fact be unable to perform his functions as an Arbitrator in an independent or impartial manner.On the same day, another petition being Arbitration Petition No.136 of 2016 was filed by the Respondent under Section 11(6) of 1996 Act for appointing an independent arbitrator for adjudicating disputes between the parties. The cause of action, as pleaded, in the said petitionthe cause of action for filing the present petition arose on the various dates when requests were made by the petitioner to the respondent for issuance of long outstanding payments. The cause of action further arose on 29.07.2015 when arbitration was invoked by the petitioner. The cause of action further arose, when the respondent erroneously and illegally rejected the petitioners request for appointment of an independent Arbitral Tribunal, which cause of action is still subsisting and continuing since the respondent has failed to make the outstanding payment and to so appoint an independent Arbitral Tribunal.On 01.03.2016 the High Court issued notice and stayed further proceedings in arbitration. The matter was contested by the Appellant submitting, inter alia, that the petition under Section 14 of 1996 Act was not maintainable; that the Arbitrator was appointed strictly in terms of Clause 56 of the GCC; and that though the Respondent was informed about appointment of the Arbitrator on 19.08.2015, no steps to challenge the appointment were undertaken within the time specified and in the manner prescribed under 1996 Act.11. The High Court by its judgment and order under Appeal set aside the appointment of the Arbitrator and directed the Appellant to suggest names of three panel Arbitrators from different departments to the Respondent who could thereafter choose any one of them to be the Arbitrator in the matter. It was directed that in the event of failure by the Appellant, the Respondent would be at liberty to revive the petitions, in which case the Court would appoint a sole Arbitrator from the list maintained by Delhi International Arbitration Centre. It was also observed that the Arbitrator was CEO of the Appellant and was previously involved in cases/contract works similar to the one involved in the present case and it could not be disputed that the decisions of part cancellation were taken at the highest level of the Appellant. In the circumstances, the High Court found that the apprehension entertained by the Respondent was reasonable and not a vague or general objection. The observations of the High CourtThe Arbitrator, though the CEO of theand the Projectof the Indira Gandhi Super Thermal Power Project, P.O. Jharii, Distt. Jhajjar, Haryana, was not the Engineere of the work, which was to be performed by the petitioner under the contract in question. In fact, the Engineerfor this project is AGMwho is supported by Group of Engineers (Dy. Managers, Managers & Sr. Managers) working under him for execution of the work. Further, the AGMreports to AGM (ME/CCD) who in turn reports to CEO (APCPL).37. It is common parlanceaphorism "Not only must Justice be done; it must also be seen to be done." The reason is that rules are moral constructs that are meant to serve higher value. The amendment of 2015 emphasize that the existence of any relationship or interest of any kind is likely to give rise to justifiable doubts as to his neutrality is to be avoided or any employee, manager, director, or has past or present business or has a controlling influence, relationship with a party to the dispute should not be appointed as an Arbitrator. Similarly, it is rightly mandated in the Fifth Schedule of the Amended Act, 2015 (3 of 2016) that if the Arbitrator has within the past three years been appointed on two or more occasions by one of the parties and the Arbitrator has served within the three years in another arbitration on a related issue involving one of the parties, his appointment would give rise to justifiable doubts as to the independence or impartiality of arbitrators. No doubt, the invocation was about three months prior to amendment. But the Court has to keep in mind about the purpose and scope of the Act.In the present case, no doubt, the invocation was on the basis ofAct but still under Section 12 of the Act would give the similar indication. The sole Arbitrator appointed by the respondent admittedly is CEO and Executive of thewho is also from the same office/department. In order to maintain the neutrality, or to avoid any doubt in the mind of the petitioner and the reasons given in the petition, it would be appropriate that independent sole Arbitrator should be appointed as ultimately neutral person has merely to decide the dispute between the parties. Even, the object and scope of the Act says so, that an arbitration procedure should be fair and unbias. Thus, the appointment of Mr. S.K. Sinha, CEO of the respondent Company is terminated and once the Arbitrators appointment is terminated, the Court can consider the prayer of the

Reasoning:
17. The fact that the named arbitrator happens to be an employee of one of the parties to the Arbitration Agreement has not by itself, before the Amendment Act came into force, rendered such appointment invalid andthe present case, the Arbitrator undoubtedly is an employee of the Appellant but so long as there is no justifiable apprehension about his independence or impartiality, the appointment could not be rendered invalid andfacts on record and the hierarchy as mentioned do not show that the Arbitrator in the present matter was either the Dealing Authority in regard to the Contract or was directlysubordinate to theOfficer(s) whose decision is the subject matter of dispute. In fact, the decision, which could be subject matter of dispute, was that of his subordinates. He may have dealt with contracts of nature similar to the contract works in question but that by itself does not render the appointment invalid. Since there is nothing on record which could raise justifiable doubts about the independence or impartiality of the named Arbitrator, in the light of the observations of this Court in Indian Oil Corporation Ltd. (supra) the appointment of the Arbitrator could not in any way be termed to be illegal orcases referred to above show that once the conditions for exercise of jurisdiction under Section 11(6) were satisfied, in the exercise of consequential power under Section 11(8), the Court had on certain occasions gone beyond the scope of the concerned arbitration clauses and appointed independent arbitrators. What is clear is, for exercise of such power under Section 11(8), the case must first be made out for exercise of jurisdiction under Sectionis not the case of the Respondent that the provisions of Section 12 in unamended form stood violated on any count. In any case the provision contemplated clear and precise procedure under which the arbitrator could be challenged and the objections in that behalf under Section 13 could be raised within prescribed time and in accordance with the procedure detailed therein. The record shows that no such challenge was raised within the time and in terms of the procedure prescribed. As a matter of fact, the Respondent had participated in the arbitration and by its communication dated 04.12.2015, had sought extension of time to file its statement of claim.