Bombay High Court

S. N Naik And Brothers A Proprietary ... vs Union Of India Through, Senior ... on 3 April, 2024

2024:BHC-AUG:7246

1 AA 26.2023

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
BENCH AT AURANGABAD

ARBITRATION APPLICATION NO. 26 OF 2023

. S. N. Naik & Brothers
A proprietary concern, through its
Proprietor, Shri. Kumar S/o Namdeo Naik,
Age: 62 years, Occu.: Business,
Having its office at Herambh Building,
Flat No.003, New Exchange Oil,
Sector-13, New Panvel, Navi Mumbai,
Dist. Raigad - 410217 .. Applicant

Versus

. Union of India,
Through, Senior Divisonal
Engineer (Co-ord), Nanded Division,
South Central Railway,
Rail Vikas Sadan, Sangvi Naka,
Nanded - 431 605 .. Respondent
...
Advocate for Applicant :
Mr. Namit Sunil Muthiyan h/f. Mr. Shubham M. Agrawal
Standing Counsel for Respondent: Mr. Madhur A. Golegaonkar
...

CORAM : ARUN R. PEDNEKER, J.

Reserved on: 20.03.2024
Pronounced on: 03.04.2024

JUDGMENT:

1. Heard Mr. Namit Sunil Muthiyan, learned counsel for the

applicant and Mr. Madhur A. Golegaonkar, learned counsel for the

respondent.

2 AA 26.2023

2. The present arbitration application is filed under
section 11

(6)
of the Arbitration and Conciliation Act, 1996 (for short "the

Arbitration Act
") for appointment of an arbitrator in a dispute that arose

out of an agreement dated 23.09.2019. The said agreement provides for

the arbitration, at clause no.64(3)(b)(ii) of the Indian Railways Standard

General Conditions of Contract - November, 2018 (hereinafter referred

as "General Conditions of Contract").

3. The facts stated in the application for invocation of power of

this court under
section 11(6)
of the Arbitration Act are as under:-

"1. The applicant S. N. Naik & Brothers is a sole
proprietary concern having its office at the address specified
in the cause title.

2. The respondent is the Union of India, through its
Senior Divisional Engineer (Coord) Nanded Division, South
Central Railway having its office at the address specified in
the cause title.

3. The respondent had published e-tender No. T-201819-
1-117 dated 12.03.2019 for the work of "Nanded Division,
Parli - Parbhani Section :- Provision of limited height subway
in lieu of manned Level Crossing No. 18, 19, 21 and 22"

(hereinafter referred to as the "Work" or as the "said Work").
The applicant had submitted its offer for the work.

4. On 05.07.2019, the respondent awarded the said work
to the applicant vide Letter of Acceptance dated 05.07.2019,
for an amount of Rs.10,37,78,548.23/- (Rupees Ten Crore
Thirty-Seven Lakhs Seventy-Eight Thousand Five Hundred
Fourty-Eight and Paisa Twenty-Three only).

3 AA 26.2023

5. On 23.09.2019, that thereafter, formal contract
agreement bearing even date, was also entered into by and
between the applicant and the respondent.

6. Respondent contended that as there was constant
delay in completing the work and work was relating to
public safety at large as such a 7 day notice and 48 hours
notice was served upon petitioner by the respondent.

7. On 17.12.2022, the applicant was therefore
approached the Hon'ble District Judge at Nanded by filing an
Application under
section 9
of the Arbitration and
Conciliation Act bearing Miscellaneous Civil Application
No.489/2022 for interim protection against Termination of
Contract by the Respondent. The Hon'ble Court was pleased
to pass ad-interim order of status-quo in favour of the
applicant. On the same day the applicant vide letter dated
17.12.2022, invoked arbitration in respect of the disputes
and differences between the parties.

8. The respondent further directed the applicant to
submit forms towards waiver of
Section 12(5)
(ineligibility
of serving or retired officers of the respondent to act a an
arbitrator) and 31(A)(5) (payments of costs) of the

Arbitration and Conciliation Act, 1996
, as amended in 2015.

9. On 11.05.2023, as the applicant was not desirous of
deviating from the dispute resolution mechanism agreed
between the parties, to the extent of the procedure being in
consonance with the settled law, in response to the
Respondent's letter dated 26.04.2023, the applicant
addressed a letter to the respondent and clarified that in
accordance with the dispute resolution mechanism agreed
between the parties, the applicant had already referred the
disputes to the General Manager, Railways and that despite
sufficient time being passed since submission of said
disputes, the General Manager, respondent has failed to
render his decision in writing. The applicant further clarified
4 AA 26.2023

that, respondent is not entitled to appoint the arbitrator in
the matter despite the existence of any term to the contrary
in the contract. The applicant unequivocally refused to waive
the applicability of
Sections 12(5)
and
31(A)(5)
of the
Arbitration and Conciliation Act, 1996, as amended in 2015.

10. On 01.06.2023, the respondent addressed a letter
wherein, the respondent suggested four names of retired
officers of the respondent and directed the applicant to
select any two names therefrom to act as the nominee
arbitrator on behalf of the applicant in terms of request for
appointment of arbitrator dated 17.12.2022.

11. On 22.07.2023, the applicant nominated its arbitrator
and called upon the respondent to nominate its arbitrator
within the statutory period of 30 days.

12. On 18.08.2023, the respondent however failed to
either appoint its nominee arbitrator within the statutory
period of 30 days or prepare a panel of more than three
arbitrators within 60 days from invocation of arbitration by
the applicant vide letter dated 22.07.2023. The respondent
constituted an arbitral tribunal (including the nominee
arbitrator of the applicant) to decide the disputes and
differences between the parties.

13. On 13.09.2023, the applicant took objection to the act
of respondent to constitute an arbitral tribunal (including
the nominee arbitrator of the applicant) to decide the
disputes and differences between the parties in view of the
alleged request for appointment dated 17.12.2022.

14. On 01.08.2023, in furtherance to the respondent's
letter dated 27.07.2023, one of the arbitrators accepted his
appointment.

5 AA 26.2023

15. On 29.08.2023, in the meanwhile, the arbitral tribunal
entered into the reference and issued a letter to the
applicant and respondent.

16. On 19.10.2023, the respondent thereafter vide a letter,
directed the applicants to raise the objections it has before
the Arbitral Tribunal appointed by the respondent.

17. On 02.11.2023, the Hon'ble District Judge No.2 at
Nanded vide an order bearing even date was pleased to
partly allow the Miscellaneous Civil Application
No.489/2022 and grant status-quo for a period of 2 months
or till the first hearing before the arbitral tribunal constituted
in accordance with their agreement, whichever is earlier.

18. On 09.11.2023, as the respondent failed to appoint
their nominee arbitrator within the statutory period of 30
days, the applicant is left with no other alternative but to
approach this Hon'ble Court under
Section 11
and other
relevant provisions of the
Arbitration and Conciliation Act,
for the appointment of a sole arbitrator."

4. It is the case of the applicant that clause

64(3)(b)(ii) of the Indian Railways Standard General Conditions of

Contract - November, 2018, is applicable to the agreement dated

23.09.2019. Mr. Namit Sunil Muthiyan, learned counsel for the

applicant submits that the above clause 64(3)(b)(ii) of the General

Conditions of Contract, provides for a unilateral appointment of

arbitration tribunal and the same cannot be sustained in view of
section

12 (5)
read with Schedule 5 and 7 of the
Arbitration Act
. The

appointment of the arbitral tribunal in terms of clause 64(3)(b)(ii) of the
6 AA 26.2023

General Conditions of Contract is in violation of the law laid down in the

case of
TRF Ltd. Vs. Energo Engineering Projects Ltd.
reported in (2017)

8 SCC 377 and in the case of
Perkins Eastman Architects DPC and

another Vs. HSCC (India) Ltd.
reported in (2020) 20 SCC 760.

5. The learned counsel has also submitted that clause 64(3)(b)

(ii) of the General Conditions of Contract are in violation of law
laid

down in
the case of M/s.
Voestalpine Schienen GMBH Vs. Delhi Metro

Rail Corporation Ltd.
, (2017) 4 SCC 665.

6. The learned counsel has also placed reliance in the

judgments of the Delhi High Court in the case of
Gangotri Enterprises

Ltd. Vs. General Manager Northern Railways, Arbitration Petition No.366

of 2020, dated 31.10.2022 and in the case of M/s.
Ganesh Engineering

Works Vs. Northern Raiway and another
, Arbitration Petition NO.609 of

20023, dated 29.11.2023, to contend that application under
section

11(6)
of the Arbitration Act was allowed while interpreting the above

clause 64(3)(b)(ii) of the General Conditions of Contract.

7. In response to the notice the respondent has objected to the

appointment of the arbitrator under
section 11(6)
of the Arbitration Act.

The objections raised to the appointment to the arbitrator under
section

11(6)
of the Arbitration Act are as under:-

7 AA 26.2023

[I - Issue of Maintainability]

Mr. Madhur A. Golegaonkar, learned counsel for the

respondent - Union of India, Through, Senior Divisonal Engineer

(Co-ord), Nanded Division, South Central Railway, submits that

arbitration application under
section 11(6)
of the Arbitration Act cannot

be preferred after obtaining order under
section 9
of the Arbitration Act

and the party concerned has to proceed to constitute an arbitral tribunal

in accordance with the agreement and that there would be a deemed

waiver to challenge to the appointment of the arbitrator as stipulated

under the contract duly signed by both the parties.

[II] Once the court while exercising powers under
section 9(2)
of the

Arbitration Act provides both the parties to constitute an arbitral tribunal

in accordance with the agreement and directed both the parties to appear

before them, the parties are bound by it and the same cannot be

challenged under application 11 (6) of the
Arbitration Act
and the

Hon'ble High Court cannot sit as an appellate authority to the order

passed by the District Court under
section 9
of the Arbitration Act.

Section 9(2)
of the Arbitration Act would prevail and order dated

02.11.2023, passed by the District Court would be binding upon the

parties.

8 AA 26.2023

[III] The similar arbitration clause has already been upheld in the case

of Central Organization for
Railway Electrification Vs. ECI-SPIC-SMO-

MCML (JV) a Joint Venture company reported in (2020) 14 SCC 712

(hereinafter referred as "CORE") and, although, the law
laid down in

the

said judgment
is referred to a larger bench yet the judgment is still

holding the field and this court is bound by it.

8. From the submissions as canvassed by the petitioner the

following issues arise for consideration:-

{1} Whether clauses 64(3)(b)(ii) of the General

Conditions of Contract is in violation of
section 12(5)
read

with Schedule 5 and 7 of the
Arbitration Act
and also the

mandate of
TRF
(supra) and
Perkins
(supra) ?

{2} Whether the arbitration application under
section

11(6)
of the Arbitration Act can be preferred after obtaining

an interim order under
section 9
of the Arbitration Act

without following the process available for appointment of

Arbitral Tribunal as provided in the contract and as directed

by the court passing interim order under
section 9(2)
of the

Arbitration Act?

9 AA 26.2023

{3} In the fact situation, whether, this court can exercise

powers under
section 11(6)
of the Arbitration Act to appoint

an arbitrator ?

CONSIDERATION

9. On considering the rival submissions at the outset it is

necessary to quote the relevant clause 64(3)(b)(ii) of the Indian Railways

Standard General Conditions of Contract - November, 2018, as applicable

to the parties. The relevant clause reads as under:-

"64.(3)(b): Appointment of Arbitrator where applicability of

Section 12 (5)
of Arbitration and Conciliation Act has not
been waived off:

(i) ...

(ii) In cases where the total value of all claims in question
added together exceed Rs.50,00,000/- (Rupees Fifty Lakh),
the Arbitral Tribunal shall consist of a Panel of three (3)
retired Railway Officer, retired not below the rank of Senior
Administrative Grade Officer, as the arbitrators. For this
purpose, the Railway will send a panel of at least four (4)
names of retired Railway Officer(s) empanelled to work as
Railway Arbitrator duly indicating their retirement date to
the Contractor within 60 days from the day when a written
and valid demand for arbitration is received by the General
Manager.

Contractor will be asked to suggest to General Manager at
lest 2 names out of the panel for appointment as
Contractor's nominee within 30 days from the date of
dispatch of the request by Railway. The General Manager
shall appoint at least one out of them as the Contractor's
nominee and will, also simultaneously appoint the balance
number of arbitrators either from the panel or from outside
the panel, duly indicating the 'Presiding Arbitrator' from
10 AA 26.2023

amongst the 3 arbitrators so appointed. General Manager
shall complete this exercise of appointing the Arbitral
Tribunal within 30 days from the receipt of the names of
Contractor's nominees. While nominating the arbitrators, it
will be necessary to ensure that one of them has served in
the Accounts Department."

A. The analysis of the above clause would indicate that the

arbitral tribunal would consist of panel of 3 retired railway officers

not below the rank of senior administrative grade officer, as

arbitrators.

B. For this purpose, the railway will send a panel of at least 4

names of retired railway officers empanelled to work as railway

arbitrator duly indicating their retirement date to the contractor

within 60 days from the day when a written and valid demand for

arbitration is received by the General Manager.

C. The contractor is asked to select at least 2 names out of

the 4 names suggested by the General Manager for appointment as

Contractor's nominee within 30 days.

D. The General Manager shall appoint at least 1 out of the 2

names suggested by the contractor as the Contractor's nominee.

E. And will also simultaneously appoint the balance number of

arbitrators either from the panel or from outside the panel, duly
11 AA 26.2023

indicating the 'Presiding Arbitrator' from amongst the 3 arbitrators

so appointed.

10. Thus, from the above, it is clear that from the 3 arbitrators, 2 will

be appointed including the presiding arbitrator by the General Manager

and even in the case of third arbitrator, the General Manager will have a

final word, as 4 names are suggested by him of which the contractor is

required to choose 2 and even amongst the 2 chosen by the contractor

the General Manager will select one. Thus, in entirety, the entire tribunal

is constituted by the General Manager. The contractor having virtually

very little say, even as regards the contractor's nominee.

11. The law on the subject of appointment of arbitrators, i.e.

appointment of sole arbitrator or an arbitral tribunal by one of party to the

contract notwithstanding the contract to the contrary, is evolved in the

judgment of
Voestalpine
(supra),
TRF
(supra) and
Perkins
(supra) etc, wherein

the independence and impartiality of the sole arbitrator or the arbitral tribunal

is held sacrosanct. The law enunciated is that there cannot be unilateral

appointment of sole arbitrator or the majority members of the arbitral tribunal

by one of the party to the dispute notwithstanding the prior contract to the

contrary. This is to ensure impartiality and independence of the arbitrators. The

law as developed is discussed as under:-

12 AA 26.2023

12.
In the case of
Voestalpine
(supra), the Hon'ble Supreme

Court in paras 21 to 23, 30 and 31 has held as under:-

"21) Similarly, Cour de cassation, France, in a judgment
delivered in 1972 in the case of Consorts Ury, underlined
that "an independent mind is indispensable in the exercise of
judicial power, whatever the source of that power may be,
and it is one of the essential qualities of an arbitrator."

22) Independence and impartiality are two different
concepts. An arbitrator may be independent and yet, lack
impartiality, or vice versa. Impartiality, as is well accepted, is
a more subjective concept as compared to independence.
Independence, which is more an objective concept, may,
thus, be more straightforwardly ascertained by the parties at
the outset of the arbitration proceedings in light of the
circumstances disclosed by the arbitrator, while partiality
will more likely surface during the arbitration proceedings.

23) It also cannot be denied that the Seventh Schedule is
based on IBA guidelines which are clearly regarded as a
representation of international based practices and are based
on statutes, case law and juristic opinion from a cross-
section on jurisdiction. It is so mentioned in the guidelines
itself.

30) Time has come to send positive signals to the
international business community, in order to create healthy
arbitration environment and conducive arbitration culture in
this country. Further, as highlighted by the Law Commission
also in its report, duty becomes more onerous in
Government contracts, where one of the parties to dispute is
the Government or public sector undertaking itself and the
authority to appoint the arbitrator rests with it. In the instant
case also, though choice is given by DMRC to the opposite
party but it is limited to choose an arbitrator from the panel
prepared by the DMRC. It, therefore, becomes imperative to
have a much broad based panel, so that there is no
13 AA 26.2023

misapprehension that principle of impartiality and
independence would be discarded at any stage of the
proceedings, specially at the stage of constitution of the
arbitral tribunal. We, therefore, direct that DMRC shall
prepare a broad based panel on the aforesaid lines, within a
period of two months from today.

31) Subject to the above, insofar as present petition is
concerned, we dismiss the same, giving two weeks' time to
the petitioner to nominate its arbitrator from the list of 31
arbitrators given by the respondent to the petitioner.
No costs."

13. The Hon'ble Supreme Court in the case of
Perkins Eastman

Architects DPC and another Vs. HSCC (India) Ltd.
(supra), considered

TRF
(supra).

In
Perkins
(supra), the issues that arose for consideration

before the Hon'ble Supreme Court are as under:-

"(i) ...

(ii) Whether a case was made out for exercise of power by
the Court to make an appointment of an arbitrator i.e.:

(a) Whether Chairman and Managing Director failed to
appoint the sole arbitrator within 30 days of the requisition
dated 28-6-2019 and if so its consequences ?

(b) Whether Chairman and Managing Director was
ineligible to nominate an arbitrator i.e. whether a person
having an interest in the dispute or in the outcome or
decision thereof, must not only be ineligible to act as an
arbitrator but must also not be eligible to appoint anyone
else as an arbitrator ?

(c) Whether power can be exercised by the Supreme
Court under
Section 11
of the Act when the appointment of
an arbitrator has already been made by the respondent ?"

14 AA 26.2023

While answering the issue the Hon'ble Supreme Court at

paras 18, 20 and 21 has held as under:-

"18. The issue was discussed and decided by this Court as
under: (
TRF
case, SCC pp.403-04, paras 50-54)

50. First, we shall deal with Clause (d). There is no
quarrel that by virtue of
Section 12(5)
of the Act, if
any person who falls under any of the categories
specified in the Seventh Schedule shall be ineligible to
be appointed as the arbitrator. There is no doubt and
cannot be, for the language employed in the Seventh
Schedule, the Managing Director of the Corporation
has become ineligible by operation of law. It is the
stand of the learned Senior Counsel for the appellant
that once the Managing Director becomes ineligible,
he also becomes ineligible to nominate. Refuting the
said stand, it is canvassed by the learned Senior
Counsel for the respondent that the ineligibility cannot
extend to a nominee if he is not from the Corporation
and more so when there is apposite and requisite
disclosure. We think it appropriate to make it clear
that in the case at hand we are neither concerned with
the disclosure nor objectivity nor impartiality nor any
such other circumstance. We are singularly concerned
with the issue, whether the Managing Director, after
becoming ineligible by operation of law, is he still
eligible to nominate an arbitrator. At the cost of
repetition, we may state that when there are two
parties, one may nominate an arbitrator and the other
may appoint another. That is altogether a different
situation. If there is a clause requiring the parties to
nominate their respective arbitrator, their authority to
nominate cannot be questioned. What really in that
circumstance can be called in question is the
procedural compliance and the eligibility of their
arbitrator depending upon the norms provided under
the Act and the Schedules appended thereto. But, here
is a case where the Managing Director is the "named

15 AA 26.2023

sole arbitrator" and he has also been conferred with
the power to nominate one who can be the arbitrator
in his place. Thus, there is subtle distinction.
In this
regard, our attention has been drawn to a two-Judge
Bench decision in
State of Orissa v. Commr. of Land
Records & Settlement7
. In the said case, the question
arose, can the Board of Revenue revise the order
passed by its delegate. Dwelling upon the said
proposition, the Court held: (SCC p. 173, para 25)
...

53. The aforesaid authorities have been commended
to us to establish the proposition that if the
nomination of an arbitrator by an ineligible arbitrator
is allowed, it would tantamount to carrying on the
proceeding of arbitration by himself. According to the
learned counsel for the appellant, ineligibility strikes
at the root of his power to arbitrate or get it arbitrated
upon by a nominee.

54. In such a context, the fulcrum of the controversy
would be, can an ineligible arbitrator, like the
Managing Director, nominate an arbitrator, who may
be otherwise eligible and a respectable person. As
stated earlier, we are neither concerned with the
objectivity nor the individual respectability. We are
only concerned with the authority or the power of the
Managing Director. By our analysis, we are obligated
to arrive at the conclusion that once the arbitrator has
become ineligible by operation of law, he cannot
nominate another as an arbitrator. The arbitrator
becomes ineligible as per prescription contained in

Section 12(5)
of the Act. It is inconceivable in law that
person who is statutorily ineligible can nominate a
person. Needless to say, once the infrastructure
collapses, the superstructure is bound to collapse. One
cannot have a building without the plinth. Or to put it
differently, once the identity of the Managing Director
16 AA 26.2023

as the sole arbitrator is lost, the power to nominate
someone else as an arbitrator is obliterated. Therefore,
the view expressed by the High Court is not
sustainable and we say so."

"20. We thus have two categories of cases. The first, similar
to the one dealt with in TRF Limited4 where the Managing
Director himself is named as an arbitrator with an additional
power to appoint any other person as an arbitrator. In the
second category, the Managing Director is not to act as an
arbitrator himself but is empowered or authorised to appoint
any other person of his choice or discretion as an arbitrator.
If, in the first category of cases, the Managing Director was
found incompetent, it was because of the interest that he
would be said to be having in the outcome or result of the
dispute. The element of invalidity would thus be directly
relatable to and arise from the interest that he would be
having in such outcome or decision. If that be the test,
similar invalidity would always arise and spring even in the
second category of cases. If the interest that he has in the
outcome of the dispute, is taken to be the basis for the
possibility of bias, it will always be present irrespective of
whether the matter stands under the first or second category
of cases. We are conscious that if such deduction is drawn
from the decision of this Court in TRF Limited, all cases
having clauses similar to that with which we are presently
concerned, a party to the agreement would be disentitled to
make any appointment of an Arbitrator on its own and it
would always be available to argue that a party or an official
or an authority having interest in the dispute would be
disentitled to make appointment of an Arbitrator."

"21. But, in our view that has to be the logical deduction
from TRF Limited. Paragraph 50 of the decision shows that
this Court was concerned with the issue, "whether the
Managing Director, after becoming ineligible by operation of
law, is he still eligible to nominate an Arbitrator" The
ineligibility referred to therein, was as a result of operation

17 AA 26.2023

of law, in that a person having an interest in the dispute or in
the outcome or decision thereof, must not only be ineligible
to act as an arbitrator but must also not be eligible to
appoint anyone else as an arbitrator and that such person
cannot and should not have any role in charting out any
course to the dispute resolution by having the power to
appoint an arbitrator. The next sentences in the paragraph,
further show that cases where both the parties could
nominate respective arbitrators of their choice were found to
be completely a different situation. The reason is clear that
whatever advantage a party may derive by nominating an
arbitrator of its choice would get counter balanced by equal
power with the other party. But, in a case where only one
party has a right to appoint a sole arbitrator, its choice will
always have an element of exclusivity in determining or
charting the course for dispute resolution. Naturally, the
person who has an interest in the outcome or decision of the
dispute must not have the power to appoint a sole arbitrator.
That has to be taken as the essence of the amendments
brought in by the
Arbitration and Conciliation (Amendment)
Act, 2015
(Act 3 of 2016) and recognised by the decision of
this Court in TRF Limited."

14. The Hon'ble Supreme Court in the case of
Lombard

Engineering Limited Vs. Uttarakhand Jal Vidyut Nigam Limited
, dated

06.11.2023, Arbitration Petition No.43 of 2022, considered whether

clause 55 of the GCC containing condition of 7% deposit of the total

amount of claim and second relating to the stipulation empowering the

Principal Secretary (Irrigation) Government of Uttarakhand to appoint a

sole arbitrator was considered and was striked out and the Hon'ble

Supreme court held that the appointment of arbitrator notwithstanding

the contract to the contrary would be void and that the one of the parties
18 AA 26.2023

did not have a bargaining power to modify the contract. The arbitration

agreement has to be in confirmity with the
Contract Act
and should

satisfy core contractual requirements.

15.
In the case of
Lombard Engineering Limited Vs. Uttarakhand

Jal Vidyut Nigam Limited
, dated 06.11.2023, Arbitration Petition No.43

of 2022, the 3 Judges bench of the Hon'ble Supreme Court has at paras

81, 82, 83, 84, 88, 93 and 102 has observed as under:-

"81. Thus, in the context of the Arbitration Agreement, the
layers of the Grundnorm as per Kelsen's theory would be in
the following hierarchy:

(i) Constitution of India, 1950;

(ii)
Arbitration and Conciliation Act, 1996
& any other
Central/State Law;

(iii) Arbitration Agreement entered into by the parties in
light of
s. 7
of the Arbitration and Conciliation Act, 1996.

82. Thus, the Arbitration Agreement, has to comply with the
requirements of the following and cannot fall foul of:

(i)
Section 7
of the Arbitration and Conciliation Act;

(ii) any other provisions of the
Arbitration and Conciliation
Act, 1996
& Central/State Law;

(iii) Constitution of India, 1950.

83. The observations of this Court in para 236 of Vidya
Drolia (supra) should clinch the issue. Para 236 reads thus:

"236. Having established the threshold standard for the
court to examine the extent of validity of the arbitration
agreement, as a starting point, it is necessary to go back to

Duro Felguera [Duro Felguera, S.A. v. Gangavaram Port Ltd.
,
(2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764], which laid
down : (SCC p. 759, para 48)
19 AA 26.2023

"48. ... From a reading of
Section 11
(6-A), the intention of
the legislature is crystal clear i.e. the court should and need
only look into one aspect--the existence of an arbitration
agreement. What are the factors for deciding as to whether
there is an arbitration agreement is the next question. The
resolution to that is simple--it needs to be seen if the
agreement contains a clause which provides for arbitration
pertaining to the disputes which have arisen between the
parties to the agreement." At first blush, the Court seems to
have read the existence of the arbitration agreement by
limiting the examination to an examination of its factual
existence. However, that is not so, as the existence of
arbitration agreement does not mean anything unless such
agreement is contractually valid.

This view is confirmed by

Duro Felguera
case [
Duro Felguera, S.A. v. Gangavaram Port
Ltd.
, (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764], wherein
the reference to the contractual aspect of arbitration
agreement is ingrained under
Section 7
analysis. A mere
agreement is not legally binding, unless it satisfies the core
contractual requirements, concerning consent, consideration,
legal relationship, etc." (Emphasis supplied)

84. The concept of "party autonomy" as pressed into service
by the respondent cannot be stretched to an extent where it
violates the fundamental rights under the Constitution. For
an arbitration clause to be legally binding it has to be in
consonance with the "operation of law" which includes the
Grundnorm i.e. the Constitution. It is the rule of law which
is supreme and forms parts of the basic structure. The
argument canvassed on behalf of the respondent that the
petitioner having consented to the pre-deposit clause at the
time of execution of the agreement, cannot turn around and
tell the court in a
Section 11(6)
petition that the same is
arbitrary and falling foul of
Article 14
of the Constitution is
without any merit.

88. In the aforesaid context, we must look into the amended

Section 12
of the 1996 Act.
Section 12
reads thus:

20 AA 26.2023

"12. Grounds for challenge.

(1) When a person is approached in connection with his
possible appointment as an arbitrator, he shall disclose in
writing any circumstances,--

(a) such as the existence either direct or indirect, of any past
or present relationship with or interest in any of the parties
or in relation to the subject-matter in dispute, whether
financial, business, professional or other kind, which is likely
to give rise to justifiable doubts as to his independence or
impartiality; and

(b) which are likely to affect his ability to devote sufficient
time to the arbitration and in particular his ability to
complete the entire arbitration within a period of twelve
months.

Explanation 1.--The grounds stated in the Fifth Schedule
shall guide in determining whether circumstances exist
which give rise to justifiable doubts as to the independence
or impartiality of an arbitrator.

Explanation 2.--The disclosure shall be made by such person
in the form specified in the Sixth Schedule.]
(3) An arbitrator may be challenged only if--

(a) circumstances exist that give rise to justifiable doubts as
to his independence or impartiality, or

(b) he does not possess the qualifications agreed to by the
parties.

(4) A party may challenge an arbitrator appointed by him, or
in whose appointment he has participated, only for reasons
of which he becomes aware after the appointment has been
made.

(5) Notwithstanding any prior agreement to the contrary,
any person whose relationship, with the parties or counsel or
the subject-matter of the dispute, falls under any of the
categories specified in the Seventh Schedule shall be
ineligible to be appointed as an arbitrator:

Provided that parties may, subsequent to disputes having
arisen between them, waive the applicability of this sub-
section by an express agreement in writing."

21 AA 26.2023

89. The Amendment 2015 is also based on the
recommendation of the Law Commission which specifically
dealt with the issue of "Neutrality of Arbitrators" and a
discussion in this behalf is contained in paras 53 to 60 of the
Law Commission's Report No. 246 published in the August
2004. We reproduce the entire discussion hereinbelow:

"NEUTRALITY OF ARBITRATORS

53. It is universally accepted that any quasi-judicial process,
including the arbitration process, must be in accordance with
principles of natural justice. In the context of arbitration,
neutrality of arbitrators viz. their independence and
impartiality, is critical to the entire process.

54.
In the Act
, the test for neutrality is set out in
Section
12(3)
which provides--

'12. (3) An arbitrator may be challenged only if--

(a) circumstances exist that give rise to justifiable doubts as
to his independence or impartiality....'

55.
The Act
does not lay down any other conditions to
identify the "circumstances" which give rise to "justifiable
doubts", and it is clear that there can be many such
circumstances and situations. The test is not whether, given
the circumstances, there is any actual bias for that is setting
the bar too high; but, whether the circumstances in question
give rise to any justifiable apprehensions of bias.

56. The limits of this provision has been tested in the Indian
Supreme Court in the context of contracts with State entities
naming particular persons/designations (associated with
that entity) as a potential arbitrator. It appears to be settled
by a series of decisions of the Supreme Court (see
Executive
Engineer, Irrigation Division v. Gangaram Chhapolia
[Executive Engineer
,
Irrigation Division v. Gangaram
Chhapolia
, (1984) 3 SCC 627] , Transport Deptt. v.

Munuswamy Mudaliar [Transport Deptt. v. Munuswamy
Mudaliar, 1988 Supp SCC 651] , International Airports
Authority v. K.D. Bali [International Airports Authority v.
K.D. Bali, (1988) 2 SCC 360] , S. Rajan v. State of Kerala [S.
Rajan v. State of Kerala, (1992) 3 SCC 608] , Indian Drugs &
22 AA 26.2023

Pharmaceuticals Ltd. v. Indo Swiss Synthetics Gem Mfg. Co.
Ltd. [Indian Drugs & Pharmaceuticals Ltd.
v. Indo Swiss
Synthetics Gem Mfg. Co. Ltd., (1996) 1 SCC 54] , Union of
India v. M.P. Gupta [Union of India v. M.P. Gupta, (2004) 10
SCC 504] and ACE Pipeline Contracts (P) Ltd. v. Bharat
Petroleum Corpn. Ltd. [ACE Pipeline Contracts (P) Ltd. v.
Bharat Petroleum Corpn. Ltd., (2007) 5 SCC 304] that
arbitration agreements in government contracts which
provide for arbitration by a serving employee of the
department, are valid and enforceable.

While the Supreme
Court, in
Indian Oil Corpn. Ltd. v. Raja Transport (P) Ltd.
[Indian Oil Corpn. Ltd.
v. Raja Transport (P) Ltd., (2009) 8
SCC 520 : (2009) 3 SCC (Civ) 460], carved out a minor
exception in situations when the arbitrator 'was the
controlling or dealing authority in regard to the subject
contract or if he is a direct subordinate (as contrasted from
an officer of an inferior rank in some other department) to
the officer whose decision is the subject-matter of the
dispute' (SCC p. 533, para 34) and this exception was used
by the Supreme Court in Denel (Proprietary) Ltd. v. Ministry
of Defence [Denel (Proprietary) Ltd. v. Ministry of Defence,
(2012) 2 SCC 759 : (2012) 2 SCC (Civ) 37 : AIR 2012 SC
817] and Bipromasz Bipron Trading Sa v. Bharat Electronics
Ltd. [Bipromasz Bipron Trading Sa v. Bharat Electronics Ltd.,
(2012) 6 SCC 384 : (2012) 3 SCC (Civ) 702] , to appoint an
independent arbitrator under
Section 11
, this is not enough.

57. The balance between procedural fairness and binding
nature of these contracts, appears to have been tilted in
favour of the latter by the Supreme Court, and the
Commission believes the present position of law is far from
satisfactory. Since the principles of impartiality and
independence cannot be discarded at any stage of the
proceedings, specifically at the stage of constitution of the
Arbitral Tribunal, it would be incongruous to say that party
autonomy can be exercised in complete disregard of these
principles -- even if the same has been agreed prior to the
disputes having arisen between the parties. There are certain
23 AA 26.2023

minimum levels of independence and impartiality that
should be required of the arbitral process regardless of the
parties' apparent agreement. A sensible law cannot, for
instance, permit appointment of an arbitrator who is himself
a party to the dispute, or who is employed by (or similarly
dependent on) one party, even if this is what the parties
agreed. The Commission hastens to add that Mr P.K.
Malhotra, the ex officio member of the Law Commission
suggested having an exception for the State, and allow State
parties to appoint employee arbitrators. The Commission is
of the opinion that, on this issue, there cannot be any
distinction between State and non-State parties. The concept
of party autonomy cannot be stretched to a point where it
negates the very basis of having impartial and independent
adjudicators for resolution of disputes. In fact, when the
party appointing an adjudicator is the State, the duty to
appoint an impartial and independent adjudicator is that
much more onerous -- and the right to natural justice
cannot be said to have been waived only on the basis of a
"prior" agreement between the parties at the time of the
contract and before arising of the disputes.

58. Large-scale amendments have been suggested to address
this fundamental issue of neutrality of arbitrators, which the
Commission believes is critical to the functioning of the
arbitration process in India. In particular, amendments have
been proposed to
Sections 11
,
and
of the Act.

59. The Commission has proposed the requirement of having
specific disclosures by the arbitrator, at the stage of his
possible appointment, regarding existence of any
relationship or interest of any kind which is likely to give rise
to justifiable doubts. The Commission has proposed the
incorporation of the Fourth Schedule, which has drawn from
the red and orange lists of the IBA Guidelines on Conflicts of
Interest in International Arbitration, and which would be
treated as a "guide" to determine whether circumstances
exist which give rise to such justifiable doubts. On the other
hand, in terms of the proposed
Section 12(5)
of the Act and
the Fifth Schedule which incorporates the categories from
24 AA 26.2023

the red list of the IBA Guidelines (as above), the person
proposed to be appointed as an arbitrator shall be ineligible
to be so appointed, notwithstanding any prior agreement to
the contrary. In the event such an ineligible person is
purported to be appointed as an arbitrator, he shall be de
jure deemed to be unable to perform his functions, in terms
of the proposed Explanation to
Section 14
. Therefore, while
the disclosure is required with respect to a broader list of
categories (as set out in the Fourth Schedule, and as based
on the red and orange lists of the IBA Guidelines), the
ineligibility to be appointed as an arbitrator (and the
consequent de jure inability to so act) follows from a smaller
and more serious sub-set of situations (as set out in the Fifth
Schedule, and as based on the red list of the IBA Guidelines).

60. The Commission, however, feels that real and genuine
party autonomy must be respected, and, in certain
situations, parties should be allowed to waive even the
categories of ineligibility as set in the proposed Fifth
Schedule. This could be in situations of family arbitrations or
other arbitrations where a person commands the blind faith
and trust of the parties to the dispute, despite the existence
of objective "justifiable doubts" regarding his independence
and impartiality. To deal with such situations, the
Commission has proposed the proviso to
Section 12(5)
,
where parties may, subsequent to disputes having arisen
between them, waive the applicability of the proposed

Section 12(5)
by an express agreement in writing. In all
other cases, the general rule in the proposed
Section 12(5)

must be followed. In the event the High Court is approached
in connection with appointment of an arbitrator, the
Commission has proposed seeking the disclosure in terms of

Section 12(1)
and in which context the High Court or the
designate is to have "due regard" to the contents of such
disclosure in appointing the arbitrator." (Emphasis supplied)

93. There was clearly inequality of bargaining power
between Uber and Mr. Heller. The arbitration agreement was
part of a standard form contract. Mr. Heller was powerless to
25 AA 26.2023

negotiate any of its terms. His only contractual option was to
accept or reject it..."

"102. In view of the aforesaid discussion, we have reached
to the conclusion that we should ignore the two conditions
contained in Clause 55 of the GCC, one relating to 7%
deposit of the total amount claimed and the second one
relating to the stipulation empowering the Principle
Secretary (Irrigation) Government of Uttarakhand to appoint
a sole arbitrator and proceed to appoint an independent
arbitrator."

16. Before I apply the law enunciated in the case of
Voestalpine

(supra), TRF (surpa),
Perkins
(supra) and
Lombard
(supra) to the facts of

this case it is necessary to consider the judgment of the Hon'ble Supreme

Court in the case of Central Organization for
Railway Electrification Vs.

ECI-SPIC-SMO-MCML (JV
) a Joint Venture company reported in (2020)

14 SCC 712, [CORE], where the application of the above clause 64(3)(b)

(ii) of the General Conditions of Contract came for consideration. The

issues before the Hon'ble Supreme Court in the case of CORE (supra)

were as under:-

"The issues involved in this appeal were:

1. Whether the High Court could have appointed an
independent arbitrator without reference to the Clauses of
General Conditions of Contract (GCC) ?

2. Whether retired railway officers are not eligible to be
appointed as arbitrators under
Section 12(5)
read with

Schedule VII of the Act
[as amended w.e.f. 23-10-2015] ?

3. Whether General Manager was not eligible to
nominate the arbitrator ?

26 AA 26.2023

The Hon'ble Supreme Court in the case of CORE (supra), at

paras 26 and 27 observed as under:

"26. 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 arbitrator.

27. 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 arbitrators.

The Hon'ble Supreme Court in the case of CORE (supra) at

paras 36, 37, 38 and 39 further observed as under:

" 36. 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
27 AA 26.2023

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 contractor's nominees within thirty days
from the date of dispatch of the request from the Railway.

The General Manager shall appoint at least one out of them
as the contractor's 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 contractor's nominees.

37. 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
contractor's 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 contractor's
nominee and will simultaneously appoint the remaining
28 AA 26.2023

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
contractor's nominees. Thus, the right of the General
Manager in formation of Arbitral Tribunal is counter-
balanced by respondent's 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 contractor's nominee.

38. 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 respondent's 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 case.

29 AA 26.2023

39. 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."

17. The view taken in the case of CORE (supra) is subsequently

doubted by the Hon'ble Supreme Court in the case of Union of India Vs.

M/s. Tantia Constructions Limited, SLP No.12670/2010, vide order dated

11.01.2021 and is referred to the larger bench, the order of reference is

quoted below:-

"Having heard Mr. K. M. Nataraj, learned ASG for sometime,
it is clear that on the facts of this case, the judgment of the
High Court cannot be faulted with. Accordingly, the Special
Leave Petition is dismissed. However, reliance has been
placed upon a recent three-Judge Bench decision of this
court delivered on 17.12.2019 in Central Organisation for
Railway Electrification vs. M/s ECI-SPIC-SMO-MCML (JV) A
Joint Ventrure Company, 2019 SCC OnLine 1635. We have
perused the aforesaid Judgment and prima facie disagree
with it for the basic reason that once the appointing
authority itself is incapacitated from referring the matter to
30 AA 26.2023

arbitration, it does not then follow that notwithstanding this
yet appointments may be valid depending on the facts of the
case.

We therefore request the Hon'ble Chief Justice to
constitute a larger Bench to look into the correctness of this
judgment.

Pending application stands disposed of."

18. Thus, in the case of CORE (supra), the Hon'ble Supreme

Court has applied the above clause 64(3)(b)(ii) and held that the High

Court could have not appointed independent sole arbitrator.
However, in

the case of CORE (supra)as discussed hereinafter, the Hon'ble Supreme

Court was not called upon to decide whether clause 64(3)(b)(ii) is in

confirmity of principles laid down in
TRF
(supra) i.e. whether the arbitral

panel is broad based and in
Perkins
(supra), more particularly, whether

the counter balance is achieved in appointing the arbitral panel.

The

Hon'ble Supreme Court in the case of CORE (supra) has not whittled

down the principles laid down in
TRF and Perkins
(supra).
The issues

answered in the judgment of CORE (supra) are, whether the retired

railway officers are eligible to be appointed as arbitrators and whether

the General Manager is eligible to nominate the arbitrators.

19 In Tantia Constructions (supra) the Hon'ble Supreme Court has

doubted the view taken in the case of CORE (supra) observing that once

the appointing authority itself is incapcity from referring the matter to

arbitrator it does not follow that notwithstanding this yet appointments
31 AA 26.2023

may be valid depending upon the facts of the case.
However, CORE

(supra), has not dealt with the issue of counter balance achieved in terms

of
Perkins
(supra).
As such, the law
laid down in
the judgment of CORE

(supra) is limited to the issues answered in CORE (supra). The same is

the view taken by the Delhi High Court in the below discussed

judgments.

20. The Delhi High Court in the case of
Gangotri Enterprises

(supra) has considered the judgment of the CORE (supra) at para 23, 24

and 25, as under:-

"23. Judgment in the case of Central Organisation for

Railways Electrification
(supra), as relied upon by
respondent, cannot come to the aid of respondent. It is
pertinent to note here that
the said judgment
has been
referred to larger Bench in order to look into the correctness
of
the said judgment
in the case of Union of India vs. M/s
Tantia Constructions Ltd., SLP (Civil) No. 12670/2020. ...."

24. Perusal of the aforesaid order dated 11.01.2021 passed
by the Supreme Court in the case of Union of India vs. M/s
Tantia Constructions Ltd., (2021) SCC Online SC 271, shows
that Supreme Court has given a prima facie view, wherein it
has disagreed with the judgment in the case of Central
Organisation for
Railways Electrification
(supra).

25. Similarly, in a recent case, in the case of
Steel Ltd. vs.
South Western Railway and Anr., Special Leave to Appeal
(C)No.
9462/2022, by order dated 16.08.2022, Supreme
Court by a Bench headed by Chief Justice of India directed
for constitution of a larger Bench to consider the correctness
of the judgment in the case of Central Organisation for
32 AA 26.2023

Railways Electrification
(supra). Thus, Supreme Court held
as follows:

"1. The basic issue involved in the instant matter is whether
the appointment of the Arbitrator was in conformity with the
law
laid down by
this Court in
TRF Ltd. V. Energo
Engineering Projects Ltd
, (2017) 8 SCC 377; and,
Perkins
Eastman Architects DPC v. HSCC (India) Ltd.
, (2020) 20 SCC

760.

2. The High Court has gone by the decision rendered by a
Bench of three-judges of this Court in
Central Organisation
For Railway Electrification v. ECL- SPIC-SMO-MCML (JV), A
Joint Venture Company
, (2020) 14 SCC 712, which decision
had distinguished the applicability of
TRF Ltd.
(supra) and

Perkins Eastman Architects DPC
(supra) to the fact situation
involved therein.

3. It has been brought to our notice that subsequently, a
Bench of three-Judges of this Court in Union of India v. M/s.
Tantia Constructions Ltd., [SLP (Civil) No. 12670 of 2020],
vide its order dated 11.01.2021, prima facie expressed its
disagreement with the view taken in
Central Organisation
For Railway Electrification
(supra) and requested the
Hon'ble the Chief Justice of India to constitute a larger
Bench to look into the correctness of the decision in
Central
Organisation For Railway Electrification
(supra).

4. ...

5. ...

6. ...It is however, quite clear that the correctness of the
decision in
Central Organisation For Railway Electrification

(supra), based on which the appointment of the Arbitrator
was made and the matter had proceeded before the
Arbitrator, was doubted by a subsequent Bench of three
Judges.

33 AA 26.2023

7. In the circumstances, we direct that the papers of the
present matter be placed before the Hon'ble the Chief Justice
of India for constituting a larger Bench.

8. Since the issue has been re-occurring, we may observe
that it would be in the fitness of things that the question is
resolved at an early date.

9. Pending such consideration, the effect and operation of
the Award dated 30.03.2022 shall remain stayed."

21. The Delhi High Court in the case of
Gangotri Enterprises

(supra) at para 31 has further held as under:-

"31. In the present cases, it is seen that the panel of
arbitrators as sent by the respondent contained only four
names, which cannot be considered to be broad based by
any extent of imagination. Thus, the said panel as given by
the respondent does not satisfy the concept of neutrality of
arbitrators as held by Supreme Court in the case of

Voestalpine Schienen GMBH
(supra).

Further, as already
noted, Supreme Court has already given a prima facie view
with respect to correctness of the judgment in the case of
Central Organisation for
Railway Electrification
(supra),
wherein a similar clause was considered and has passed
reference order for constituting a larger Bench to look into
the correctness of
the said judgment
. In view thereof, it is
held that the petitioner herein was within its right to
nominate its Arbitrator."

22. The Delhi High Court in the case of M/s.
Ganesh

Engineering Works Vs. Northern Raiway and another
, Arbitration Petition

NO.609 of 2023, dated 29.11.2023, considering the same clause 64(3)(b)

and after considering the judgment of
TRF
(supra) and
Perkins
(supra)
34 AA 26.2023

and also the judgment of CORE (supra), held at paras 21 and 22 as

under:-

"21. Question No.(iv), as noted above, i.e. eligibility of the
General Manager to nominate an arbitrator is really the
heart of the dispute in the present case. Having noted the
questions arising in CORE, the Co-ordinate Bench in Margo
(supra), observed that although the CORE judgment has
been referred to a Larger Bench of the Supreme Court, but
the operation of the judgment has not been stayed and
continues to hold the field but observed further that the
judgment in CORE is an authority only in respect of the
propositions identified and carved out therein and its
applicability cannot ipso facto be extended for the purpose
of adjudication of other aspects which have not been
purported to be answered in CORE. Two fundamental issues
arising for its consideration were flagged by the Court and
answered as follows:-

"20. Two fundamental issues which fall for consideration in
this case and which were not specifically answered in CORE,
are as under:--

i. When appointment of arbitrator/s is to be made out of a
panel prepared by one of the parties, whether the said panel
is required to be "broad- based", in conformity with the
principle laid down in
Voestalpine
(supra), and if so, what is
the consequence where the panel is not sufficiently "broad
based"?

ii. Whether "counter balancing" [as contemplated in
Perkins

(supra)] is achieved in a situation where one of the parties
has a right to choose an arbitrator from a panel whereas the
remaining (2 out of 3) members of the arbitral tribunal are
appointed by the other party?

xxxx xxxx xxxx

25. Thus, it was held by the Supreme Court in
Voestalpine

(supra) that:

i. Affording a panel of five names to the petitioner from
which the petitioner was required to nominate its nominee

35 AA 26.2023

arbitrator, was restrictive in nature; the same created room
for suspicion that DMRC may have picked up its own
favourite;

ii. Choice should be given to the concerned party to
nominate any person from the entire panel of arbitrators;
iii. The two arbitrators nominated by the parties should be
given full freedom to choose the third arbitrator;
iv. The panel ought not to be restricted/limited to retired
engineers and/or retired employees but should be broad
based and apart from serving or retired employees of
government departments and public sector undertakings, the
panel should include lawyers, judges, engineers of
prominence from the private sector etc.

26. CORE does not in any manner overrule
Voestalpine

(supra) or narrow down the scope thereof, although it does
not deal specifically with the issue as to whether the panel
afforded by the Railways
in that case
was in conformance
with the principles
laid down in

Voestalpine
(supra).

27. The difficulties which were found to have inflicted the
panel afforded to the petitioner in
Voestalpine
(supra) also
squarely apply to the present case.

29. The principle
laid down in

Voestalpine
(supra) has been
followed in a large number of cases to adjudge upon validity
of appointment procedure involving appointment from a
panel.

Thus, In
SMS Ltd. v. Rail Vikas Nigam Limited
, out a
panel of 37 names, only eight names had no connection with
the Railways. It was held that even though the panel
comprised as many as 37 names, it was not sufficiently
broadbased.

In that case, a previous judgment in the case of

Simplex Infrastructures Ltd. v. Rail Vikas Nigam Limited
was
also taken note of, in which a panel of 26 names (out of
which only 9 were unconnected with the Railways) was held
to be not sufficiently broad based inasmuch as the same did
not comprise independent persons such as judges, lawyers,
engineers of prominence from the private sector etc.

The
said judgments were relied upon in the case of Overnite
36 AA 26.2023

Express Limited v. Delhi Metro Rail Corporation
, this court
went to the extent of holding that "the procedure of
forwarding a panel of five names to the other contracting
party to choose its nominee Arbitrator is now held to be no
longer a valid procedure."

...

35. Thus, in an appointment procedure involving
appointment from a panel made by one of the contracting
parties, it is mandatory for the panel to be sufficiently broad
based, in conformity with the principle
laid down in

Voestalpine
(supra), failing which, it would be incumbent on
the Court, while exercising jurisdiction under
Section 11
, to
constitute an independent and impartial Arbitral Tribunal as
mandated in
TRF
(supra) and
Perkins
(supra). The judgment
of the Supreme Court in CORE does not alter the position in
this regard.

...

37. This brings us to the next issue that arises in the context
of the arbitration clause in the present case, viz. whether
"counter balancing" is achieved in a situation where one of
the parties has a right to choose an arbitrator from a panel
whereas 2/3rd of the members of the arbitral tribunal are
appointed by the other party.

41. The fulcrum of CORE is that the right of one of the
parties to prescribe a panel of persons from which the parties
would appoint their nominee arbitrators is counter balanced
by the power of other contracting party to choose therefrom.
However, whether counter balancing can be achieved in a
situation where one of the contracting parties has a right to
appoint the remaining 2/3rd of the members of the arbitral
tribunal, was not specifically considered in CORE....

"........

21. The other anomaly which merits consideration is that the
Managing Director of the Respondent, who has a direct
interest in the outcome of the case, is directly appointing
2/3rd of the members of the Arbitral Tribunal. And also
plays a role in the appointment of the 3rd arbitrator i.e., the
37 AA 26.2023

contractor's nominee. This is against the spirit of the
judgment in
Perkins Eastman
(supra).
This argument was
perhaps not raised in CORE (supra).

22. In cases where the arbitration clause provides a genuine
counterbalancing of power of appointment between the two
parties i.e., when one party appoints its nominee and the
other party does the same and the two nominees together
decide the presiding arbitrator the Court would not find any
imbalance impinging upon the concept of party autonomy.
This was the sentiment expressed by the Supreme Court in

TRF Limited v. Energo Engineering Projects Limited
,
particularly para 50 which reads as under:--

"50....................We are singularly concerned with the issue,
whether the Managing Director, after becoming ineligible by
operation of law, is he still eligible to nominate an arbitrator.
At the cost of repetition, we may state that when there are
two parties, one may nominate an arbitrator and the other
may appoint another. That is altogether a different situation.
If there is a clause requiring the parties to nominate their
respective arbitrator, their authority to nominate cannot be
questioned. What really in that circumstance can be called in
question is the procedural compliance and the eligibility of
their arbitrator depending upon the norms provided under
the Act and the Schedules appended thereto."

...

The clause in the present case does not provide for any
effective counter balancing. The process starts with selection
of a panel by the Respondent and this restricts the element
of choice that the contractor may exercise in choosing its
nominee. Nonetheless, it allows the Respondent to
ultimately choose the contractor's nominee from the two
names suggested by the contractor. However, the clause also
entitles the Respondent to choose the balance two
arbitrators from the panel or even outside. This undeniably
indicates that the scales are tipped in favour of the
Respondent when it comes to the appointment process. In
38 AA 26.2023

effect, 2/3rd strength of the Arbitral Tribunal is nominated
by the Respondent. This leads to the inexorable conclusion
that the clause in its current state may not be workable.
Thus, the reliance of the Respondent upon the judgment in
CORE (supra) is misplaced.

..............."

42. The reasoning and the conclusion in CMM (supra) on the
above aspect was followed by this court in
Pankaj Mittal v.
Union of India, Order
dated 16.12.2021 in ARB.P. 607/2021
where in it was observed as under:

"..........

4. This Court has considered the afore-noted clause in a
recent judgment passed in ARB.P. 407/2020 dated 23rd
August, 2021 titled -
'CMM Infraprojects Ltd. v. IRCON
International Ltd.
', wherein an identical clause has been
considered by this Court. The clause herein as worded,
permits the Respondent to make nomination of 2/3rd
strength of the Arbitral Tribunal, which tilts the scales in
favour of the Respondent in the appointment process.

For
this reason and others as noted in the afore-noted judgment,
the Court found the case of Central Organisation for
Railway
Electrification
(supra) distinguishable. The said reasons
apply to this case as well.

.............."

22. Therefore, from a reading of the aforementioned
judgments, it palpably emerges that the judgment of the
Supreme Court in CORE, did not deal with two specific
questions i.e. (a) when appointment of an Arbitrator(s) is
made out of a panel prepared by one of the parties, whether
the said panel is required to be 'broad-based' in conformity
with the principles
laid down in

Voestalpine
(supra) and if
so, what is the consequence where the panel is not
sufficiently 'broad-based'; and (b) whether counter
balancing, as contemplated in
Perkins
(supra) is achieved in
a situation where one of the parties has a right to choose an
arbitrator from a panel where 2/3rd members of the Arbitral
Tribunal are appointed by the other party and these
39 AA 26.2023

questions have been answered in Margo (supra), relying on
the judgments of the Supreme Court in
Voestalpine
(supra),

TRF Limited
(supra) and
Perkins
(supra), by holding that the
said appointment procedure fails to pass muster.

It was held
that the 'counter balancing' contemplated in
Perkins
(supra)
cannot be said to be achieved in a situation where one of the
parties has a right to choose an arbitrator from a panel
where the remaining 2 out of 3 arbitrators are appointed by
the other party.

To come to this conclusion, Court referred to
the judgments of this Court in
SMS Limited v. Rail Vikas
Nigam Limited
, 2020 SCC OnLine Del 77;
BVSR-KVR (Joint
Ventures) v. Rail Vikas Nigam Ltd.
, 2020 SCC OnLine Del
456;
Consortium of Autometers Alliance Ltd. and Canny
Elevators Co. Ltd. v. Chief Electrical Engineer/Planning,
Delhi Metro Rail Corporation and Others
, 2021 SCC OnLine
Del 4042 and Gangotri Enterprises Ltd. (supra)."

23. I am in respectful agreement with the view expressed by the

Delhi High Court in the case of
Gangotri
(supra) and
Ganesh Engineering

(supra) that the judgment of CORE (supra) of the Hon'ble Supreme Court

does not deal with the issue, whether the arbitral panel appointed is

broad based in confirmity with voelstapine (supra) and whether the

counter balancing is achieved as laid down in
Perkins
(supra). Coming to

the facts of the present case, 2/3 arbitral panel is appointed by the

respondent so also for the 3rd member of the arbitral tribunal 4 names are

suggested by the respondent from which the petitioner is required to

choose 2 names and from the 2 names chosen by the petitioner, the

respondent will appoint one. Thus, the respondent has a complete say in

the appointment of the tribunal.

40 AA 26.2023

24. Having considered the law on the subject the question as

raised at para 8(1) can be answered as under:-

Clause 64(3)(b)(ii) of the General Conditions of Contract

provides for unilateral appointment of arbitral tribunal at the hands of

one of the parties and, thus, is in violation of the principles
laid down in

Voestalpine
(supra),
TRF
(supra) and
Perkins
(supra) and also in

violation of the law
laid down in
the case of
Lombard
(supra) and the

said clause is ex-faice invalid and the tribunal constituted thereunder is

non-est and void ab initio.

25. Coming to the next question, whether in arbitration

application under
section 11(6)
of the Arbitration Act can be granted

after the party has obtained an interim order under
section 9
of the

Arbitration Act without following the process available for appointment

of arbitral tribunal as provided in the contract and as directed by the

court granting interim order under
Section 9(2)
of the Arbitration Act. As

discussed above, the arbitral tribunal appointed under clause 64 (3)(b)

(ii) of the General Conditions of Contract would be ineligible to conduct

arbitration. Clause 64 (3)(b)(ii) of the General Conditions of Contract

being invalid, whether this court can invoke the powers under
section

11(6)
of the Arbitration Act to appoint an arbitrator.

41 AA 26.2023

26.
In the case of
Perkins
(supra) at para 21, 22 and 23, the

Hon'ble Supreme Court has observed as under:-

"21. The further question that arises is whether the power
can be exercised by this Court under
Section 11
of the Act
when the appointment of an arbitrator has already been
made by the respondent and whether the appellant should
be left to raise challenge at an appropriate stage in terms of
remedies available in law. Similar controversy was gone into
by a Designated Judge of this Court in Walter Bau AG3 and
the discussion on the point was as under:-

"9. While it is correct that in Antrix16 and Pricol Ltd.17, it
was opined by this Court that after appointment of an
arbitrator is made, the remedy of the aggrieved party is not
under
Section 11(6)
but such remedy lies elsewhere and
under different provisions of the
Arbitration Act
(
Sections 12

and
), the context in which the aforesaid view was
expressed cannot be lost sight of. In Antrix16, appointment
of the arbitrator, as per the ICC Rules, was as per the
alternative procedure agreed upon, whereas in Pricol
Ltd.17., the party which had filed the application under

Section 11(6)
of the Arbitration Act had already submitted
to the jurisdiction of the arbitrator. In the present case, the
situation is otherwise.

10. Unless the appointment of the arbitrator is ex facie valid
and such appointment satisfies the Court exercising
jurisdiction under
Section 11(6)
of the Arbitration Act,
acceptance of such appointment as a fait accompli to debar
the jurisdiction under
Section 11(6)
cannot be countenanced
in law. In the present case, the agreed upon procedure
between the parties contemplated the appointment of the
arbitrator by the second party within 30 days of receipt of a
notice from the first party. While the decision in Datar
Switchgears Ltd.18 may have introduced some flexibility in
the time frame agreed upon by the parties by extending it till
a point of time anterior to the filing of the application under

Section 11(6)
of the Arbitration Act, it cannot be lost sight of
that in the present case the appointment of Shri Justice A.D.
42 AA 26.2023

Mane is clearly contrary to the provisions of the Rules
governing the appointment of arbitrators by ICADR, which
the parties had agreed to abide by in the matter of such
appointment. The option given to the respondent
Corporation to go beyond the panel submitted by ICADR and
to appoint any person of its choice was clearly not in the
contemplation of the parties. If that be so, obviously, the
appointment of Shri Justice A.D. Mane is non est in law.
Such an appointment, therefore, will not inhibit the exercise
of jurisdiction by this Court under
Section 11(6)
of the
Arbitration Act. It cannot, therefore, be held that the present
proceeding is not maintainable in law. The appointment of
Shri Justice A.D. Mane made beyond 30 days of the receipt
of notice by the petitioner, though may appear to be in
conformity with the law
laid down in
Datar Switchgears
Ltd18., is clearly contrary to the agreed procedure which
required the appointment made by the respondent
Corporation to be from the panel submitted by ICADR. The
said appointment, therefore, is clearly invalid in law."

22. It may be noted here that the aforesaid view of the
Designated Judge in Walter Bau AG3 was pressed into
service on behalf of the appellant in TRF Limited4 and the
opinion expressed by the Designated Judge was found to be
in consonance with the binding authorities of this Court. It
was observed:-

"32. Mr Sundaram, learned Senior Counsel for the appellant
has also drawn inspiration from the judgment passed by the
Designated Judge of this Court in Walter Bau AG3, where
the learned Judge, after referring to Antrix Corpn. Ltd16. ,
distinguished the same and also distinguished the authority
in
Pricol Ltd. v. Johnson Controls Enterprise Ltd.17
and came
to hold that: (Walter Bau AG case3, SCC p. 806, para 10)
"10. Unless the appointment of the arbitrator is ex facie valid
and such appointment satisfies the Court exercising
jurisdiction under
Section 11(6)
of the Arbitration Act,
acceptance of such appointment as a fait accompli to debar
43 AA 26.2023

the jurisdiction under
Section 11(6)
cannot be countenanced
in law. ..."

33. We may immediately state that the opinion expressed in
the aforesaid case is in consonance with the binding
authorities we have referred to hereinbefore."

23. In TRF Limited4, the Managing Director of the
respondent had nominated a former Judge of this Court as
sole arbitrator in terms of aforesaid Clause 33(d), after
which the appellant had preferred an application under

Section 11(5)
read with
Section 11(6)
of the Act. The plea
was rejected by the High Court and the appeal therefrom on
the issue whether the Managing Director could nominate an
arbitrator was decided in favour of the appellant as stated
hereinabove. As regards the issue about fresh appointment,
this Court remanded the matter to the High Court for fresh
consideration as is discernible from para 55 of the
Judgment. In the light of these authorities there is no
hindrance in entertaining the instant application preferred
by the Applicants."

27. The Hon'ble Supreme Court in the case of
Perkins
(supra)

has considered the argument, whether it can exercise jurisdiction

under
section 11(6)
of the Arbitration Act, when the clause providing for

appointment of arbitrator is ex-facie invalid or direct the parties to invoke

the remedies available within the
Arbitration Act
by raising the

appropriate defense as available in the
Arbitration Act
. The Hon'ble

Supreme Court has held that prima facie when the court is safisfied that

the clauses for appointment of arbitrator are ex-facie invalid, the court

can exercise powers under
section 11(6)
of the Arbitration Act and

appoint an arbitrator.

44 AA 26.2023

28. In the instant case, I have held that the agreement 64(3)(b)

(ii) of the General Conditions of Contract is in violation of the principles

laid down in

TRF
(supra),
Perkins
(supra) and
Lombard Engineering

(supra) and that clause 64 (3)(b)(ii) of the General Conditions of

Contract provides for unilateral appointment of arbitrator at the hands of

one party and it breaches the principle of impartiality and neutrality of

the arbitrators. Thus, this court under
section 11(6)
of the Arbitration Act

can exercise it's powers of appointment of arbitrator and need not

relegate the parties to raise such defences before the arbitral tribunal

constituted under the aforesaid clause 64(3)(b)(ii) of the General

Conditions of Contract.

29. In view of this, in exercise of the powers under
section 11(6)

of the Arbitration Act, I appoints Hon'ble Shri Naresh H. Patil (Retired

Chief Justice, Bombay High Court) as sole arbitrator in the matter to

decide the disputes arising between the parties in terms of agreement

dated 23.09.2019. The sole arbitrator's fees shall be governed by the

Bombay High Court (Fee Payable to Arbitrators) Rules, 2018.

30. The Arbitration Application stands allowed and disposed of

accordingly.

[ARUN R. PEDNEKER, J.]
marathe