Marine Services Pvt. Ltd. And ANR. v. The Hon'Ble Lieutenant Governor And ANR.

IN THE HIGH COURT AT CALCUTTA

[ CIRCUIT BENCH AT PORT BLAIR ] ...

AP/13/2021 IA No: CAN/1/2022 Marine Services Pvt. Ltd.

and another ... Petitioners Vs.

The Hon'ble Lieutenant Governor and another ... Respondents Mr.Mohammed Tabraiz ... for the petitioners Mr.Shatadru Chakraborty Mr.Ramendu Agarwal ... for the respondents April 28, 2022 [GNC] Item No.11 This is an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the said Act). The petitioners seek appointment of an arbitrator. Learned Advocate appearing for the petitioners submit that as per Clause 30 of the agreement dated July 4, 2019, the disputes and differences which arose between the parties should be settled in terms of the arbitration clause.

The petitioners invoked the arbitration clause by letter dated September 22, 2021. Such letter was addressed to the Chief Port Administrator, Port Management Board, Port Blair. The respondents failed to act within the stipulated period of thirty days. The request of the petitioners to appoint an arbitrator to adjudicate the

disputes and differences was not acted upon. Thereafter, this application was filed on November 29, 2021. Records reveal that when this application was moved on December 7, 2021, this Court permitted the respondents to file their affidavit-in-opposition.

Accordingly, the affidavit-in-opposition was affirmed on March 12, 2022. For the first time in the said opposition, it was disclosed before this Court by the Deputy Secretary (Shipping) in his order dated January 7, 2022, that the Hon'ble Lieutenant Governor (Administrator), Andaman and Nicobar Islands, in terms of Clause 30 of the agreement had appointed Shri Hari Kallikkat, IAS as the said Sole Arbitrator for settlement of the disputes.

The petitioners filed an affidavit-in-reply along with an application being CAN/1/2022 praying stay of the proceedings before the said Sole Arbitrator, appointed by the Administration. The said Sole Arbitrator was also approached by the petitioners with a prayer, requesting the said authority to withdraw from the said proceedings or to keep the proceedings in abeyance till the disposal of the matter by this Court. The Sole Arbitrator by an order dated March 24, 2022, kept the proceedings on hold till the disposal of this application, by this Court.

Mr. Tabraiz, learned Advocate appearing for the petitioners submit that the appointment of the Sole Arbitrator on January 7, 2022 after more than a month

from filing of the application under Section 11(6) of the said Act, was in violation of the provisions of Section 11 of the said Act of 1996. Reliance has been placed on the decision of Datar Switchgears Ltd. Vs. Tata Finance Ltd and another, reported in (2000) 8 SCC 151.

He next contends that the arbitration clause did not provide any particular mechanism, or qualifications or designations of the Arbitrators to be appointed to settle the disputes which have arisen out of the contract in issue. It only provides that the Hon'ble Lieutenant Governor (Administrator), Andaman and Nicobar Islands shall appoint the sole arbitrator. Accordingly, it is submitted that the petitioner approached the authority, but the Hon'ble Lieutenant Governor failed to appoint the arbitrator within the stipulated period in terms of Section 11 of the Act o 1996. Thus, subsequent appointment of an arbitrator after the period of 30 days and after the application under Section 11(6) of the Act had been filed before this Court, was bad in law and the appointment of Shri Hari Kallikkat, the said sole arbitrator must be set aside. This court must appoint an independent arbitrator.

Mr.Chakraborty, the learned Advocate appearing on behalf of the respondents submits that by entering into the contract and having signed the same, the petitioners were bound by clause 30 of the contract. The very fact that the petitioners approached the authority for appointment of the

arbitrator indicates that the petitioners had waived their right to seek appointment of an arbitrator, by any other mechanism other than as provided in clause 30 of the contract. According to him, only the Lieutenant Governor could appoint an arbitrator.

Next, Mr.Chakraborty submits that in view of the decisions of the Hon'ble Apex Court in the matters of Union of India Vs. Parmar Construction Company reported in (2019) 15 SCC 682 and Central Organisation for Railway Electrification Vs. ECI-SPIC-SMO-MCML (JV) A Joint Venture Company, reported in (2020) 14 SCC 712, this Court cannot appoint an independent arbitrator without asking the parties to resort to the mechanism as provided under clause 30 of the said contract.

Heard the parties. What falls for a decision by this court, is whether the appointment of the sole arbitrator by an order dated January 7, 2022 was in accordance with law and further, whether this court could appoint an independent arbitrator in view of the decisions which have been cited by the respondents.

Admittedly, the petitioner and the respondent No.2 had entered into a manning contract, on July 4, 2019. The contract was extended from time to time. The terms and conditions in the contract dated July 4, 2019 were made applicable to the extensions granted. The parties admit that there exists an arbitration clause between them. It is also

not in dispute that the clause provides that the Hon'ble Lieutenant Governor (Administrator), Andaman and Nicobar Islands shall appoint the sole arbitrator. The letter of request for appointment of an arbitration was issued on September 22, 2021. 30 days elapsed. No appointment was made. This application was filed on November 29, 2021. The matter was taken up by this court on December 7, 2021. Subsequent thereto, the sole arbitrator was appointed by the order dated January 7, 2022.

For convenience provisions of Section 11(4) of the Act of 1996 is quoted below:- "(4) If the appointment procedure in sub-section (3) applies and - (a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or (b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, [the appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitrations other than international commercial arbitration, as the case me be.] In this case, the respondents failed to appoint the arbitrator within thirty days from the receipt of the request and the application under Section 11(6) was filed before this Court. In the affidavit-in-opposition which was filed

sometime in March, 2022, the appointment of the sole arbitrator was disclosed before the Court. The order of appointment is dated January 7, 2022. The appointment, admittedly, was made after the application under Section11(6) of the said Act had been filed before this Court.

In Datar Switchgears Ltd. Vs. Tata Finance Ltd and another (supra), the Hon'ble Apex Court held that if the opposite party who has been asked to appoint an arbitrator does not make an appointment within thirty days of the demand, the right to make an appointment may not be forfeited, but the appointment has to be made before the party seeks invocation of the arbitration clause by filing an application under Section 11 (6). The right to appoint an arbitrator is forfeited after such application under Section 11(6) is filed before the High Court.

Relevant portion of the said decision is quoted below for convenience:- "19. So far as cases falling under Section 11(6) are concerned - such as the one before us - no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30

days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited."

The said decision was subsequently followed by the Hon'ble Apex Court in Punj Lloyd Ltd vs. Petronet MHB Ltd reported in (2006) 2 SCC 638, Deep Trading Company vs. Indian Oil Corporation and others reported in (2013) 4 SCC 35 and Walter Bau AG vs. Municipal Corporation of Greater Mumbai and another reported in (2015) 3 SCC 800. The proposition of law laid down in Datar Switchgears Ltd. Vs. Tata Finance Ltd and another (supra) is a settled position in this regard.

Now, coming to the decisions relied upon by Mr. Chakraborty, a discussion on them is required. In the decision of Union of India Vs. Parmar Construction Company (supra), the issues before the Hon'ble Apex Court could be broadly summarized as follows:- (a) Whether the concerned High Court was justified in invoking the amended provision of Section 12 which was introduced by the Arbitration and Conciliation (Amendment) Act, 2015 with effect from 23-10-2015.

(b) Whether the arbitration agreement stood discharged on acceptance of the amount and signing no claim/discharge certificate.

(c) Whether it was permissible for the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (prior to the 2015 Amendment Act), to appoint a third party or an independent arbitrator when the parties had mutually agreed to a particular procedure mechanism and qualifications of designated arbitrators.

In this case, the issue was not with regard to section 11 of the said Act. In paragraph No. 43, the Hon'ble Apex Court observed that the decision of Datar Switchgears Ltd. Vs. Tata Finance Ltd and another (supra) which were relied upon by the contractor would not be any assistance for the respondents because in the matter before the Hon'ble Apex Court, the question for consideration was whether the Chief Justice or his designate in exercise of power under Section 11(6) of the Act should directly make an appointment of an independent arbitrator without in the first instance resorting to ensure that the remedies provided under the arbitration agreement were exhausted.

Paragraph 43 of the said decision is set out herein below, for convenience:- "43. The judgments in Datar Switchgears Ltd. case; Punj Lloyd case and Union of India v. Bharat Battery Mfg. Co.

(P) Ltd case on which reliance has been placed by the learned counsel for the respondents/contractors may not be of assistance for the reason that the question for consideration before this Court was that if one party demands the opposite party to appoint an arbitrator and the other party fails to appoint an arbitrator within 30 days what will be its legal consequence and it was held in the cases (supra) that if one party demands the opposite party to appoint an arbitrator and if the opposite party has failed to make an appointment within 30 days, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former makes an application under Section 11 seeking appointment of an arbitrator.

In the case before the Hon'ble Apex Court, the arbitration clause which was sought to be invoked was in terms of Clause 64(3) of the General Conditions of Contract (GCC) of the Indian Railways. Clause 64.1 of the GCC provided the procedure for demand of arbitration. Clause 64.2 provided the obligation during the pendency of the arbitration and Clause 64.3 provided for the appointment of the arbitrator. Clause 64.3(a)(i) provided that if the total value of all claims in question added together did not exceed Rs.25,00,000/-, the Arbitral Tribunal would consist

of a sole arbitrator who should be a gazetted officer of the Railways not below JA Grade, nominated by the General Manager. The sole arbitrator would be appointed within 60 days from the day when a written and valid demand for arbitration was received by General Manager.

64.(3)(a)(ii) provided that for all other claims an Arbitral Tribunal consisting of a Panel of three gazetted railway officers not below JA Grade or two railway gazetted officers not below JA Grade and a retired railway officer, not below the rank of SAG officer, would be appointed. For this purpose, the Railways was to send a panel of more than three names of gazetted railway officers of one or more departments of the Railways which would include the name(s) of retired railway officer(s) empanelled to work as Railway Arbitrators, to the contractor within 60 days from the day when a written and valid demand for arbitration was received by the General Manager.

The interpretation of this clause was before the Hon'ble Apex Court. The Rajasthan High Court had appointed a retired Judge as the sole arbitrator. The department went up in appeal before the Hon'ble Apex Court, against such appointment. Upon considering the fact that notice of arbitration in the case before the Apex Court was prior to amendment and upon consideration several decisions of Hon'ble Apex Court in the matter of Union of India and others Vs. M.P.Gupta reported

in (2004) 10 SCC 504 and Northern Railways vs. Patel Engineering Co. Ltd, reported in (2008) 10 SCC 240, the Hon'ble Apex Court was of the view that the Rajasthan High Court had erred on two grounds. First, that the question of disqualification of the arbitral tribunal under section 12(5) would not come into operation in this case, as the arbitration was pre-amendment arbitration and secondly, that in view of the fact that the agreement between the parties had specifically provided the designation and qualification of the members of the arbitral tribunal, such agreed procedure had to be followed by the High Court, instead of appointing a retired judge.

The Hon'ble Apex Court was of the view that the panel of three gazetted railways officers not below the rank of JA Grade or two railways officers not the below the JA grade and a retired railway officer, not below the rank of SAG officer, was the agreed mechanism for the arbitration and the High Court should have resorted to such procedure. The facts of this case are distinguishable with those in the present case. In this case, Clause 30 of the contract merely provides that the sole arbitrator shall be appointed by the Hon'ble Lieutenant Governor.

Neither any qualifications nor any designation nor a procedure has been provided. There is no mechanism prescribed. The above decision shall not be applicable. The Hon'ble Apex Court was not considering section 11 of the said Act.

In the decision of Central Organisation for Railway Electrification Vs. ECI-SPIC-SMO-MCML (JV) A Joint Venture Company (supra). Clause 64 of the GCC had again fallen for interpretation.

The issues which fell for decision before the Hon'ble Apex Court :- a) Whether the Allahabad High Court could have appointed an independent arbitrator without reference to the clauses of the GCC.

b) Whether retired railways officers were eligible to be appointed as arbitrators in view of section 12 (5) read with schedule 7 of the Act (as amended with effect October 23, 2015).

c) Whether the General Manager was eligible to nominate the arbitrators.

The Apex Court held that after amendment of 2015 the Railway Board vide notification dated November 16, 2016 had amended clause 64 of the GCC and as per section 64(3) (a)(ii) (where applicability of Section 12(5) of the Act had been waived off), the Arbitral Tribunal as provided in the said clause should be appointed and allowed to function as arbitrators. The High Court could not have appointed the sole arbitrator in this case. Moreover, in this case the respondents had already sent names of four railways officers of their choice to the contractor and the contractor

was asked to suggest at least two names out of the panel for appointment of contractor's nominees in terms of the mechanism provided under the contract. The contractor did not respond to such request and instead filed an application under section 11(6) of the said Act. Accordingly, the Allahabad High Court appointed a retired Judge as a sole arbitrator by holding that the General Manager was disqualified to appoint an arbitrator in terms of section 12(3) of the said Act. The Hon'ble Apex Court held that the applicability of section 12(5) had been waived by the parties and the parties had signed the agreement, there was no disqualification.

Relying on the decision of Union of India Vs. Parmar Construction Company (supra), the Hon'ble Apex Court also went on to hold that in view of the specific mechanism provided for constitution of an arbitral tribunal of specialized, qualified and technical persons, such procedure should have been followed and the High Court should not have resorted to appointing a sole arbitrator by giving a gobye to the said mechanism.

In this case too, the facts are distinguishable as already been discussed earlier.

The contentions of Mr.Chakraborty are not accepted in the facts situation of this case. The other point raised by Mr. Chakraborty with regard to extension of limitation by the Apex Court for filing cases before courts and tribunals, is not relevant in the

context of the ratio laid down in Datar Switchgears Ltd. (supra).

The Hon'ble Lieutenant Governor had lost his power under law, to appoint the arbitrator after this application was filed. Moreover, in this case there is no waiver of clause 12(5) of the Act.

This is a clear case of forfeiture of the right of the Hon'ble Lieutenant Governor, to appoint an arbitrator in terms of Clause 30 of the Contract, as the contractor had already filed an application under Section 11(6) of the said Act, prior to the appointment made on January 7, 2022. Under such circumstances, Justice Pradipta Roy (Retired) a former Judge of this Court is appointed as the Sole Arbitrator to enter upon the reference and decide the issues. Remuneration of the Arbitrator shall be borne equally by the parties in terms of Schedule-IV of the said Act. The other miscellaneous costs of the learned Arbitrator including the administrative costs etc shall be borne equally by the parties. The proceedings may be held physically, virtually or by hybrid mode, as per the direction of the Arbitrator.

The order dated January 7, 2022 by which the sole arbitrator Shri Hari Kallikkat, IAS was appointed cannot be sustained in law. The appointment is set aside.

The application being AP/13/2021 and the connected stay application being CAN/1/2022, are disposed of accordingly.

Parties to act on the server copy of this order. ( Shampa Sarkar, J. )