Case: CENTRAL ORGANISATION FOR RAILWAY ELECTRIFICATION Vs. M/S ECI SPIC SMO MCML (JV) A JOINT VENTURE COMPANY

3. The appellant awarded work contract of Rs.165,67,98,570/- to the respondent-Company by an agreement dated 20.09.2010 which contains the arbitration clause. Subsequently, after coming into force of Arbitration and Conciliation (Amendment) Act, 2015 (w.e.f. 23.10.2015), the Government of India, Ministry of Railways made a modification to Clause 64 of the General Conditions of Contract and issued a notification dated 16.11.2016 for implementation of modification. The modified Clause 64(3)(a)(ii) (where applicability of Section 12(5) has been waived off) inter alia provided that in cases where the total value of all claims exceeds Rs. 1 crore, the Arbitral Tribunal shall consist of a panel of three gazetted Railway Officers not below JA (Junior Administrative) Grade or two Railway Gazetted Officers not below JA Grade and a retired Railway Officer, retired not below the rank of Senior Administrative (SA) Grade officer as arbitrators. The procedure for constitution of the Arbitral Tribunal is provided thereon. Clause 64(3)(b) deals with the appointment of arbitrator where applicability of Section 12(5) of the Arbitration and Conciliation Act has not been waived off. Clause 64(3)(b) stipulates that the Arbitral Tribunal shall consist of a panel of three retired railway officers not below the rank of Senior Administrative Officer as the arbitrators as per the procedure indicated thereon4. Since the respondent did not complete the work under the contract within the prescribed period, on 18.10.2017, the appellant issued Seven days notice under Clause 62 of the General Conditions of Contract to the respondent. Thereafter on 27.10.2017, the appellant issued a 48 hours notice to the respondent calling upon the respondent to make good the progress of work, failing which the contract will stand terminated. Since the respondent did not make adequate progress in the work, on 01.11.2017, the contract was terminated as per Clause 62 of the General Conditions of the Contract. The respondent was also informed that their security deposit has been forfeited and the performance guarantee submitted by it shall also be encashed5. The respondent filed a Petition No.760 of 2017 before the High Court challenging the termination of the contract which came to be dismissed by the High Court vide order dated 28.11.2017 and the High Court directed the respondent to avail the alternative remedy by invoking arbitration clause. The respondent vide its letter dated 27.07.2018 requested the appellant for appointment of an Arbitral Tribunal for resolving the disputes between the parties and settle the claims value of Rs.73.35 crores. In reply dated 24.09.2018, the appellant sent a list of four serving Railway Electrification Officers of JA Grade to act as arbitrators. The respondent was asked to select any two and communicate to the appellant for formation of the arbitration tribunal panel. Vide letter dated 25.10.2018, the respondent was sent a list of another panel comprising four retired Railway officers. In terms of Clause 63(3)(b) of Railways General Conditions of Contract, the respondent was asked to select any two from this list and communicate them to the appellant within thirty days for constitution of the arbitration tribunal6. The respondent did not send a reply to the above letters of the appellant; but filed Arbitration Petition No. 151 of 2018 before High Court under Section 11(6) of the Arbitration and Conciliation Act seeking appointment of a sole arbitrator for resolution of differences. In its petition, the respondent suggested the name of one Shri Ashwani Kumar Kapoor, retired member Electrical from Railway Board to be appointed as an arbitrator in the matter. According to the respondent, there exists a valid and binding arbitration clause between the parties being clause 1.2.54 of Part I of Chapter 2 and also 64 of the General Conditions of Contract; but since no neutral arbitrator is contemplated to be appointed in the General Conditions of Contract, the respondent has no other recourse except by filing the petition under Section 11(6) of the Arbitration and Conciliation Act, 19967. The High Court vide the impugned order dated 03.01.2019 rejected the argument of the appellant that the arbitrator ought to be appointed only from the panel of arbitrators in terms of General Conditions of Contract. The High Court observed that the powers of the Court to appoint arbitrator are independent of the contract between the parties and no fetters could be attached to the powers of the court. With those findings, the High Court appointed Shri Rajesh Dayal Khare, a retired judge of the Allahabad High Court as the sole arbitrator subject to his consent, under Section 11(8) of the Arbitration and Conciliation Act. Subsequently, vide order dated 29.03.2019, the High Court noted the consent of the arbitrator appointed by the court and directed the Arbitrator to proceed with the arbitration proceedings. Being aggrieved, the appellant has preferred these appeals.

Court's reasoning:
16. After coming into force of Arbitration and Conciliation (Amendment) Act, 2015, the Government of India, Ministry of Railways made a modification to Clause 64 of the General Conditions of Contract and the Railway Board issued a notification dated 16.11.2016 in this regard. The modified Clause 64(3)(a)(i) (where applicability of Section 12(5) of the Act has been waived off) inter alia provided that in case where the total value of all claims in question added together does not exceed rupees one crore, the arbitral tribunal shall consist of a sole arbitrator who shall be a Gazetted Officer of Railways not below JA Grade nominated by the General Manager. In terms of Clause 64(3)(a)(i), the sole arbitrator shall be appointed within sixty days from the day when a written and valid demand for arbitration is received by the General Manager. In the present case, since the value of the work contract is worth more than Rs.165 crores, Clause 64(3)(a)(i) is not applicable19. After coming into force of the Arbitration and Conciliation (Amendment) Act, 2015, when Clause 64 of the General Conditions of Contract has been modified inter alia providing for constitution of Arbitral Tribunal consisting of three arbitrators either serving or retired railway officers, the High Court is not justified in appointing an independent sole arbitrator without resorting to the procedure for appointment of the arbitrator as prescribed under Clause 64(3)(b) of the General Conditions of Contract20. It is pertinent to note that even in the application filed under Section 11(6) of the Arbitration and Conciliation Act, 1996, the respondent prayed for appointment of a sole arbitrator in terms of Clause 1.2.54(b)(i) of the Tender Agreement/Clause 64 of the General Conditions of Contract for adjudicating the disputes which have arisen between the parties. In the petition filed under Section 11(6) of the Act, the respondent prayed for appointment of one Shri Ashwani Kumar Kapoor to act as the arbitrator. Thus, the respondent itself sought for appointment of arbitrator in terms of Clause 64 of the General Conditions of Contract. The appointment of Shri Ashwani Kumar Kapoor as arbitrator, of course, was not agreeable to the appellant, since it was found that said Shri Ashwani Kumar Kapoor was not in the panel of arbitrators and therefore, could not be considered for appointment as arbitrator. As the value of the work contract was worth more than Rs.165 crores, the dispute can be resolved only by a panel of three arbitrators in terms of Clause 64(3)(b) of the General Conditions of Contract. The respondent was not right in seeking for appointment of a sole arbitrator in terms of Clause 1.2.54(b)(i) of the Tender Agreement/Clause 64 of the General Conditions of Contract22. Applying ratio of the Parmar Construction Company, in Pradeep Vinod Construction Company (2019) SCC Online SC 1467, the Supreme Court held that the appointment of arbitrator should be in terms of the agreement and the High Court was not right in appointing an independent arbitrator ignoring Clause 64 of the General Conditions of Contract. As held in Parmar Construction Company and Pradeep Vinod Construction Company, the High Court was not justified in appointing an independent arbitrator without resorting to the procedure for appointment of the arbitrators which has been prescribed under the General Conditions of ContractRE: Contention:- Retired Railway Officers are not eligible to be appointed as arbitrators under Section 12(5) read with Schedule VII of the Act and were statutorily made ineligible to be appointed as an arbitrator26. The same view was reiterated in Government of Haryana PWD Haryana (B and R) Branch v. G.F. Toll Road Private Limited and Others (2019) 3 SCC 505 wherein, the Supreme Court held that the appointment of a retired employee of a party to the agreement cannot be assailed on the ground that he is a retired/former employee of one of the parties to the agreement. Absolutely, there is no bar under Section 12(5) of the Arbitration and Conciliation (Amendment) Act, 2015 for appointment of a retired employee to act as an arbitrator27. By the letter dated 25.10.2018, the appellant has forwarded a list of four retired railway officers on its panel thereby giving a wide choice to the respondent to suggest any two names to be nominated as arbitrators out of which, one will be nominated as the arbitrator representing the respondent-Contractor. As held in Voestalpine Schienen Gmbh (2017) 4 SCC 665 , the very reason for empanelling the retired railway officers is to ensure that the technical aspects of the dispute are suitably resolved by utilising their expertise when they act as arbitrators. Merely because the panel of the arbitrators are the retired employees who have worked in the Railways, it does not make them ineligible to act as the arbitratorsRE: Contention:- Failure to act in terms of the Contract in not responding within thirty days from the date of the request30. As discussed earlier, as per the modified Clause 64(3)(b) of GCC, when a written and valid demand for arbitration is received by the General Manager, the Railway will send a panel of at least four names of retired railway officers empanelled to work as arbitrators. The contractor will be asked to suggest to the General Manager at least two names out of the panel for appointment as contractors nominee within thirty days from the date of dispatch of the request by the Railway. Vide letter dated 27.07.2018, the respondent has sought for appointment of an arbitrator for resolving the disputes. The appellant by its letter dated 24.09.2018 (which is well within the period of sixty days) in terms of Clause 64(3)(a)(ii) (where applicability of Section 12(5) of the Act has been waived off) sent a panel of four serving railway officers of JA Grade to act as arbitrators and requested the respondent to select any two from the list and communicate to the office at the earliest for formation of Arbitration Tribunal. By the letter dated 26.09.2018, the respondent conveyed their disagreement in waiving the applicability of Section 12(5) of the Amendment Act, 2015. By the letter dated 25.10.2018, in terms of Clause 64(3)(b) of GCC (where applicability of Section 12(5) has not been waived off) the appellant has nominated a panel of four retired railway officers to act as arbitrators and requested the respondent to select any two from the list and communicate to the appellant within thirty days from the date of the letter for formation of Arbitration Tribunal. The respondent has neither sent its reply nor selected two names from the list and replied to the appellant. Without responding to the appellant, the respondent has filed petition under Section 11(6) of the Arbitration and Conciliation Act before the High Court on 17.12.2018. When the respondent has not sent any reply to the communication dated 25.10.2018, the respondent is not justified in contending that the appointment of Arbitral Tribunal has not been made before filing of the application under Section 11 of the Act and that the right of the appellant to constitute Arbitral Tribunal is extinguished on filing of the application under Section 11(6) of the ActRE: Contention:- General Manager himself becoming ineligible by operation of law to be appointed as arbitrator, is not eligible to nominate the arbitrator35. As discussed earlier, after Arbitration and Conciliation (Amendment) Act, 2015, the Railway Board vide notification dated 16.11.2016 has amended and notified Clause 64 of the General Conditions of Contract. As per Clause 64(3)(a)(ii) [where applicability of Section 12(5) of the Act has been waived off], in a case not covered by Clause 64(3)(a)(i), the Arbitral Tribunal shall consist of a panel of three Gazetted Railway Officers not below the rank of Junior Administrative Grade or two Railway Gazetted Officers not below the rank of Junior Administrative Grade and a retired Railway Officer retired not below the rank of Senior Administrative Grade Officer, as the arbitrators. For this purpose, the General Manager, Railway will send a panel of at least four names of Gazetted Railway Officers of one or more departments of the Railway within sixty days from the date when a written and valid demand for arbitration is received by the General Manager. The contractor will be asked to suggest to General Manager at least two names out of the panel for appointment as contractors nominees within thirty days from the date of dispatch of the request from the Railway. The General Manager shall appoint at least one out ofthem as the contractors nominee and will also simultaneously appoint balance number of arbitrators from the panel or from outside the panel duly indicating the Presiding Officer from amongst the three arbitrators so appointed. The General Manager shall complete the exercise of appointing the Arbitral Tribunal within thirty days from the date of the receipt of the names of contractors nominees36. Clause 64(3)(b) of GCC deals with appointment of arbitrator where applicability of Section 12(5) of the Act has not been waived off. In terms of Clause 64(3)(b) of GCC, the Arbitral Tribunal shall consist of a panel of three retired Railway Officers retired not below the rank of Senior Administrative Grade Officers as the arbitrators. For this purpose, the Railway will send a panel of at least four names of retired Railway Officers empanelled to work as arbitrators indicating their retirement date to the contractor within sixty days from the date when a written and valid demand for arbitration is received by the General Manager. The contractor will be asked to suggest the General Manger at least two names out of the panel for appointment of contractors nominees within thirty days from the date of dispatch of the request of the Railway. The General Manager shall appoint at least one out of them as the contractors nominee and will simultaneously appoint the remaining arbitrators from the panel or from outside the panel, duly indicating the Presiding Officer from amongst the three arbitrators. The exercise of appointing Arbitral Tribunal shall be completed within thirty days from the receipt of names of contractors nominees. Thus, the right of the General Manager in formation of Arbitral Tribunal is counterbalanced by respondents power to choose any two from out of the four names and the General Manager shall appoint at least one out of them as the contractors nominee37. In the present matter, after the respondent had sent the letter dated 27.07.2018 calling upon the appellant to constitute Arbitral Tribunal, the appellant sent the communication dated 24.09.2018 nominating the panel of serving officers of Junior Administrative Grade to act as arbitrators and asked the respondent to select any two from the list and communicate to the office of the General Manager. By the letter dated 26.09.2018, the respondent conveyed their disagreement in waiving the applicability of Section 12(5) of the Amendment Act, 2015. In response to the respondents letter dated 26.09.2018, the appellant has sent a panel of four retired Railway Officers to act as arbitrators giving the details of those retired officers and requesting the respondent to select any two from the list and communicate to the office of the General Manager. Since the respondent has been given the power to select two names from out of the four names of the panel, the power of the appellant nominating its arbitrator gets counter-balanced by the power of choice given to the respondent. Thus, the power of the General Manager to nominate the arbitrator is counter-balanced by the power of the respondent to select any of the two nominees from out of the four names suggested from the panel of the retired officers. In view of the modified Clauses 64(3)(a)(ii) and 64(3)(b) of GCC, it cannot therefore be said that the General Manager has become ineligible to act as the arbitrator. We do not find any merit in the contrary contention of the respondent. The decision in TRF Limited is not applicable to the present case38. There is an express provision in the modified clauses of General Conditions of Contract, as per Clauses 64(3)(a)(ii) and 64(3)(b), the Arbitral Tribunal shall consist of a panel of three Gazetted Railway Officers [Clause 64(3)(a)(ii)] and three retired Railway Officers retired not below the rank of Senior Administrative Grade Officers [Clause 64(3)(b)]. When the agreement specifically provides for appointment of Arbitral Tribunal consisting of three arbitrators from out of the panel serving or retired Railway Officers, the appointment of the arbitrators should be in terms of the agreement as agreed by the parties. That being the conditions in the agreement between the parties and the General Conditions of the Contract, the High Court was not justified in appointing an independent sole arbitrator ignoring Clauses 64(3)(a)(ii) and 64(3) (b) of the General Conditions of Contract and the impugned orders cannot be sustained.