M/S Ravi Realcons Private Limited v. The Chief Engineer And Another

IN THE HIGH COURT AT CALCUTTA

APPELLATE SIDE [CIRCUIT BENCH AT PORT BLAIR] PRESENT: THE HON'BLE JUSTICE SHEKHAR B. SARAF AP/14/2021 M/s Ravi Realcons Pvt. Ltd ...

Petitioner Vs.

The Chief Engineer and another ...

Respondents For the petitioner : Mr.Terence D'cruz For the respondent : Mr.Shatadru Chakraborty Heard on : March 21, 2022 Judgment on : March 25, 2022 SHEKHAR B. SARAF, J.

1.

The present application has been filed by the petitioner under Section 11

(6) of the Arbitration and Conciliation Act, 1996. The petitioner seeks appointment of a fair, neutral and independent person as an Arbitrator to adjudicate upon the disputes between the parties in an expeditious manner. The respondent is seeking dismissal of the above application on the ground thatit is not maintainable in the present case.For proper adjudication of the instant dispute, relevant facts of the matter to decide

this applicationneed to be presented and the same are delineated as follows:

a) The petitioner M/s Ravi Realcons Pvt. Ltd. is a government contractor enlisted as Class-I (Civil) with the Andaman Public Works Department. On July 11, 2008 the petitioner and the respondent entered into an Agreement No. 97/CD/DP/2008-09 for the work "Construction of Rural Road from Bahadur Tikrey to Gandhi Nagar - I, CD, Diglipur". The said work was awarded to the petitioner for an agreed amount of Rs. 2,56,51,650.00 (Rupees two crores fifty-six lakhs fifty-one thousand six hundred fifty only).The agreement contains clause 25 of General Conditions of Contract (hereinafter referred to as "GCC") that deals with appointment of an arbitrator.The work was foreclosed by the respondent on July 3, 2017.

b) On October 25, 2017, the Superintending Engineer, Construction Circle No. -I (CC-I) conveyed the post facto sanction/approval on the foreclosure of the agreement. On July 30, 2018, the Department vide a letter informed the petitioner that for clearing the Extension of Time (EOT) case an undertaking regarding nonclaiming of escalation for the work is required to be submitted. On August 16, 2018, the Extension of time was sanctioned by the department without levy of any compensation. Thereafter,on July 22, 2020, since the respondent did not take any steps to mitigate

the losses incurred by the petitioner on account of prolongation of contract, a representation was submitted by the petitioner to the Superintending Engineer, CC-I as per the agreed procedure by invoking Clause 25 of the Agreement. On September 25, 2020, no claims of the petitioner were settled by the respondent and therefore, in terms of Clause 25 of the agreement, the petitioner preferred an appeal to the Chief Engineer, APWD through a letter dated August 12, 2021.

c) On October 21, 2021, the Chief Engineer, APWD without settling the appeal on merit, reverted with the observation that as per the Limitation Act, 1963 the Petitioner did not act in time and as such claims cannot be considered under Clause 25 of the agreement. Thereafter, the petitioner submitted the notice for appointment of an arbitrator on November 8, 2021 and cited Section 35.18 of CPWD works manual in the notice. The Chief Engineer did not appoint an Arbitrator within 30 days, instead he himself decided the matter on his own and conveyed vide letter dated November 18, 2021 that the petitioner did not act in time and citing the Limitation Act, 1963 stated that there is no scope of appointment of an arbitrator.

2.

The counsel appearing for the petitioner made the following arguments: a) The subject matter of the disputes involved under the Agreement No. 97/CD/DP/2008-09 for the work "Construction of Rural Road

from Bahadur Tikrey to Gandhi Nagar I, CD, Diglipur, Sub work:- Construction of Rural Road from Bahadur Tikrey towards Gandhi Nagar No. I (Phase -I)" which was executed within the jurisdiction of this Hon'ble Court, and as such this Hon'ble Court has the exclusive jurisdiction to entertain the instant application under Section 11 (6) of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator.

b) The respondent authorities have miserably failed to appoint the Arbitrator as per the agreed procedure in terms of the Agreement, and therefore, this Hon'ble Court under Section 11(6)(a) of the Arbitration and Conciliation Act, 1996 may kindly appoint the Arbitrator.

c) Clause 2 of Section 35.18 of CPWD Works Manual, 2014 states that in spite of the specific limitation period given in the provision of the arbitration clause, the Chief Engineer should not withhold appointment of Arbitrator on the ground of limitation. But in the letter of appointment of the Arbitrator the question of limitation before the Arbitrator can be kept open.

3.

Counsel appearing for the respondent authorities made the following arguments: - (a) According to Clause 25 of the General Clauses of Contractor no person other than a person appointed by the Chief Engineer, CPWD should act as arbitrator and if for any reason that is not

possible, the matter shall not be referred to arbitration at all. Reliance has been placed on the judgment passed by the Hon'ble Supreme Court in Perkins Eastman Architects DPC v. HSCC (India) Ltd. reported in 2019 SCC Online SC 1517. Hence, based on the above clause there is no valid operative arbitration agreement between the parties.

(b) According to the Limitation Act, 1963, the petitioner had three years after the work was foreclosed on July 3, 2017 and if the contractor does not make any demand in respect of any claim(s) in writing within three years after the work was foreclosed, the claim of petitioner will be deemed to have been waived as absolutely barred from the liabilities under the contract in respect of such claims. Hence, the claims raised by the petitioner were time barred.

(c) The petitioner has the right to seek remedy by filing a Civil Suit for the claims made by him against the authority. 4.

For deciding the present case it is pertinent to reproduce Clause 25 of the General Clauses of Contract for CPWD Works, 2008. This clause deals with settlement of disputes and arbitration that arises out of the Contracts entered into by the CPWD. The relevant portion of the clause is extracted below:

"Clause 25 (Settlement of Disputes & Arbitration) .....

.....

ii) Except where the decision has become final, binding and conclusive in terms of Sub Para (i) above, disputes or difference shall be referred for adjudication through arbitration by a sole arbitrator appointed by the Chief Engineer, CPWD, in charge of the work or if there be no Chief Engineer, the Additional Director General of the concerned region of CPWD or if there be no Additional Director General, the Director General of Works, CPWD. if the arbitrator so appointed is unable or unwilling to act or resigns his appointment or vacates his office due to any reason whatsoever, another sole arbitrator shall be appointed in the manner aforesaid. Such person shall be entitled to proceed with the reference from the siage at which it was left by his predecessor.

It is a term of this contract that the party invoking arbitration shall give a list of disputes with amounts claimed in respect of each such dispute along with the notice for appointment of arbitrator and giving reference to the rejection by the Chief Engineer of the appeal. It is also a term of this contract that no person, other than a person appointed by such Chief Engineer CPWD or the administrative head of the CPWD, as aforesaid, should act as arbitrator and if for any reason that is not possible, the matter shall not be referred to arbitration at all.

It is also a term of this contract that if the contractor does not make any demand for appointment of arbitrator in respect of any claims in writing as aforesaid within 120 days of receiving the intimation from the Engineer-in-charge that the final bill is ready for payment, the claim of the contractor shall be deemed to have been waived and absolutely barred and the Government shall be discharged and released of all liabilities under the contract in respect of these claims. The arbitration shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) or any statutory modifications or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this clause.

It is also a term of this contract that the arbitrator shall adjudicate on only such disputes as are referred to him by the appointing authority

and give separate award against each dispute and claim referred to him and, in all cases, where the total amount of the claims by any party exceeds Rs. 1,00,000/-, the arbitrator shall give reasons for the award. It is also a term of the contract that if any fees are payable to the arbitrator, these shall be paid equally by both the parties. It is also a term of the contract that the arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties calling them to submit their statement of claims and counter statement of claims. The venue of the arbitration shall be such place as may be fixed by the arbitrator in his sole discretion. The fees, if any, of the arbitrator shall, if required to be paid before the award is made and published, be paid half and half by each of the parties.

The cost of the reference and of the award (including the fees, if any, of the arbitrator) shall be in the discretion of the arbitrator who may direct to any by whom and in what manner, such costs or any part thereof shall be paid and fix or settle the amount of costs to be so paid." The respondent authority has relied on the above clause to dismiss the petitioner's claim for referring the instant dispute to arbitration as per the terms of the agreement entered into by both the parties. In response to the above argument, the petitioner has citedSection 35.18 Clause 2 as provided in the CPWD Works Manual for stating that though the petitioner had not acted in time for the claims submitted, the Chief Engineer should not withhold the appointment of arbitrator on the ground of limitation as per the Limitation Act, 1963.

"35.18 Period of Limitation

(1) It is a term of the contract in the relevant arbitration clause that if thecontractordoesnot make any demand for arbitration in respect of any claim (s) in writing within 120 days of receiving of intimationfrom the Government that the bill is ready for payment, the claim of the contractor (s) will be deemedto have been waived and absolutely barred from the liabilities under the contract in respect of these claims.

(2) In spite of the above specific provision in the arbitration clause, the Chief Engineer should not withhold appointment of Arbitrator on the ground that the request was received after the expiry of the specified period mentioned in the relevant arbitration clause of the agreement, but should appoint the Arbitrator clarifying in the letter of appointment of the Arbitrator that the reference is without prejudice to the defence that may be raised by the Government regarding the tenability of the claim on all necessary and available grounds including those of limitation, and the parties to the agreement will be free toraise the question of limitation before the Arbitrator...."

5.

In the case of Indian Oil Corporation Ltd. & Others v. M/s Raja Transport (P) Ltd. reported in (2009) 8 SCC 520 it was held by the Hon'ble Supreme Court that if an arbitration agreement has a condition which prevents the Chief Justice and his designate under Section 11(8) of the Act to appoint an arbitrator in appropriate cases, such portion of the arbitration agreement should be ignored as being contrary to the Act. The relevant paragraphs of the judgement are delineated below: "46. This takes us to the effect of the condition in the arbitration agreement that "it is also a term of this contract that no person other than the Director, Marketing or a person nominated by such Director, Marketing of the Corporation as aforesaid shall act as the arbitrator." Such a condition interferes with the power of the Chief Justice and his designate under Section 11(8) of the Act to appoint a suitable person as arbitrator in appropriate cases. Therefore, the said portion of the arbitration clause is liable to be ignored as being contrary to the Act.

47. But the position will be different where the arbitration agreement names an individual (as contrasted from someone referred to by designation) as the arbitrator. An example is an arbitration clause in a partnership deed naming a person enjoying the mutual confidence and respect of all the parties, as the arbitrator. If such an arbitration agreement provides that there shall be no arbitration if such person is no more or not available, the person named being inextricably linked to the

very provision for arbitration, the non-availability of the named arbitrator may extinguish the very arbitration agreement. Be that as it may." 6.

In the case of M/s T.K. Engineering Consortium Pvt. v. The Director (Projects) Rites Ltd. reported in(2021) 280 DLT 11it was held by the Hon'ble Delhi High Court that an exclusive term of the arbitration agreement that bestows power upon a particular individual to appoint an arbitrator was liable to be ignored. The relevant paragraphs of the judgement are extracted below:

"44. It is material to note that the arbitration agreement which fell for consideration before the Supreme Court in that case also provided that "no person other than the Director, Marketing or a person nominating by such Director, Marketing of the Corporation as aforesaid shall act as Arbitrator". The Court held that the said condition would interfere with the power of the Chief Justice under Section 11(8) of the A&C Act to appoint a suitable person as an arbitrator in appropriate cases. Therefore, the said portion of the clause was liable to be ignored as being contrary to the A&C Act.

....

....

47. Thus, the very term which provides that no other person other than the one appointed by the Appointing Authority should act as an arbitrator and in absence of the same, the disputes would not be referred to arbitration, must be held contrary to the basic principles on which an arbitration agreement is founded and therefore, is liable to be ignored." 7.

Based on examination of the rules and the judgments cited by the petitioner, one may derive that if an arbitration clause of an agreement stipulates conferment of the power to appoint an arbitrator solely on a specific appointing authority and takes away power of the courts under Section 11(6) of the Arbitration and Conciliation Act, 1996 then in that

case, such clause should be ignored. Moreover, the very clause in the arbitration agreement which provides that no other person other than the one appointed by the appointing authority should act as an arbitrator and in absence of the same, the dispute would not be referred arbitration, must be held contrary to the basic principles on which an arbitration agreement is founded and therefore, it is liable to be ignored. Furthermore, the rules (CPWD Works Manual, 2014) specifically provide for a situation where even the party issues a notice requesting for appointment of an arbitrator after the expiry of the limitation period as per terms of the contract, the authority should still appoint an arbitrator as per 35.18 Clause 2 of the CPWD Works Manual, 2014. 8.

The next question with regard to appointment of an arbitrator in terms of the contract between the parties is required to be answered while discussing the applicable case laws on this issue. Whether the appointment of an arbitrator should take place as per the terms of the contract or the court can appoint an independent person as the arbitrator to adjudicate upon the issues raised by the parties has been discussed in the cases being discussed below. 9.

In the case of Union of India v. Parmar Construction Company reported in (2019) 15 SCC 682 it was held that if one party demands the opposite party to appoint an arbitrator and the other party fails to appoint an arbitrator 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. The relevant paragraphs of the judgment are extracted below:

"42. This Court has put emphasis to act on the agreed terms and to first resort to the procedure as prescribed and open for the parties to the agreement to settle differences/disputes arising under the terms of the contract through appointment of a designated arbitrator although the name in the arbitration agreement is not mandatory or must but emphasis should always be on the terms of the arbitration agreement to be adhered to or given effect as closely as possible.

43. The judgments in Datar Switchgears Ltd. case [Datar Switchgears Ltd. v. Tata Finance Ltd., (2000) 8 SCC 151] ; Punj Lloyd case [Punj Lloyd Ltd. v. Petronet MHB Ltd., (2006) 2 SCC 638] and Union of India v. Bharat Battery Mfg. Co. (P) Ltd. [Union of India v. Bharat Battery Mfg. Co. (P) Ltd.

, (2007) 7 SCC 684] 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 instant cases, the question for consideration is as to 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 are exhausted.

44. In the present batch of appeals, independence and impartiality of the arbitrator has never been doubted but where the impartiality of the arbitrator in terms of the arbitration agreement is in doubt or where the Arbitral Tribunal appointed in terms of the arbitration agreement has not functioned, or has failed to conclude the proceedings or to pass an award without assigning any reason and it became necessary to make a fresh appointment, the Chief Justice or his designate in the given

circumstances after assigning cogent reasons in appropriate cases may resort to an alternative arrangement to give effect to the appointment of independent arbitrator under Section 11(6) of the Act

45. In North Eastern Railway v. TrippleEngg. Works [North Eastern Railway v. TrippleEngg. Works, (2014) 9 SCC 288 : (2014) 5 SCC (Civ) 30] , though the panel of arbitrators as per Clauses 64(3)(a)(ii) and (iii) of the general conditions of contract under GCC was appointed in the year 1996 but for two decades, the arbitrator failed to pass the award and no explanation came forward. In the given situation, this Court observed that general conditions of the contract do not prescribe any specific qualification of the arbitrators to be appointed under the agreement except that they should be railway officers further held that even if the arbitration agreement was to specifically provide for any particular qualification(s) of an arbitrator the same would not denude the power of the court acting under Section 11(6) to depart therefrom and accordingly, confirmed the appointment of an independent arbitrator appointed by the High Court in exercise of Section 11(6) of the 1996 Act.

46. Almost the same situation was examined by this Court in Union of India v. U.P. State Bridge Corpn. Ltd. [Union of India v. U.P. State Bridge Corpn. Ltd., (2015) 2 SCC 52 : (2015) 1 SCC (Civ) 732] and after placing reliance on North Eastern Railway v. TrippleEngg. Works [North Eastern Railway v. TrippleEngg. Works, (2014) 9 SCC 288 : (2014) 5 SCC (Civ) 30] held that since the Arbitral Tribunal has failed to perform and to conclude the proceedings, appointed an independent arbitrator in exercise of power under Section 11(6) of the 1996 Act. In the given circumstances, it was the duty of the High Court to first resort to the mechanism in appointment of an arbitrator as per the terms of contract as agreed by the parties and the default procedure was opened to be resorted to if the arbitrator appointed in terms of the agreement failed to discharge its obligations or to arbitrate the dispute which was not the case set up by either of the parties.

47. To conclude, in our considered view, the High Court was not justified in appointing an independent arbitrator without resorting to the procedure for appointment of an arbitrator which has been prescribed under Clause 64(3) of the contract under the inbuilt mechanism as agreed by the parties."

10.

In the case of Central Organisation for Railway Electrification v. ECI-SPIC-MCML (JV) a Joint Venture Company reported in (2020) 14

SCC 712 it was held that when the agreement specifically provides for appointment of the Arbitral Tribunal, the appointment of arbitrators should be in terms of the agreement as agreed by the parties. The High Court was not justified in appointing an independent sole arbitrator ignoring the General Conditions of Contract. The relevant paragraph of the judgment is delineated below:

"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 the Arbitral Tribunal consisting of three arbitrators from out of the panel of 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." 11.

The conclusion that one derives from Parmar Construction Company (supra) is that when an arbitration agreement provides for appointment of an arbitrator by issuing a notice on the opposite party and also provides for specific time period for such notice, the right to adjudicate the dispute through an arbitral tribunal still remains and the court has the power to direct the opposite party to act in an affirmative manner (appointing an arbitrator for settlement of the dispute) which will also fulfillthe object of the arbitration agreement. A similar finding was made in the case of Central Organisation for Railway Electrification

(supra) wherein the court held that the arbitration agreement between the parties should be adhered to and any deviation from the agreement between the parties is not justified. When the arbitration agreement specifically provide for the procedure which is to be followed while appointing the tribunal for adjudication of the dispute between the parties, the court has the power to direct the parties to proceed as per the terms of the agreement.

12.

In the light of above discussion, I direct the respondent authority concerned to appoint an arbitrator as per the agreement within a period of four weeks from date. I make it clear that all points of law are kept open before the arbitrator.

13.

Accordingly, AP/14/2021 is allowed.

(SHEKHAR B. SARAF, J.)