Full Judgment Text
$~8
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision:08.03.2021
+ O.M.P.(T)(COMM.) 82/2020 & I.A. 11922/2020 (for ex parte ad
interim stay of arbitral proceedings)
REOM INFRASTRUCTURE AND CONSTRUCTION LIMITED
..... Petitioner
Through: Ms. Mani Gupta, Advocate.
versus
AIR FORCE NAVAL HOUSING BOARD ..... Respondent
Through: Mr. Vivekanand, Advocate.
CORAM:
HON’BLE MR. JUSTICE SANJEEV NARULA
JUDGMENT
[VIA VIDEO CONFERENCING]
SANJEEV NARULA, J. (Oral)
1. By way of the present petition under Section 14 of the Arbitration and
Conciliation Act, 1996 [ hereinafter referred to as the ‘ Act’ ], the
Petitioner-company, through its Resolution Professional Mr. Satya Prakash
Gupta appointed under the provisions of the Insolvency and Bankruptcy
Code, 2016 [ hereinafter referred to as ‘ IBC ’], seeks declaration to the effect
that Mr. Anil Kumar Kathuria, the Sole Arbitrator is de jure unable to act as
an Arbitrator, and further seeks appointment of a substitute Arbitrator.
2. The Petitioner and the Respondent had entered into a Contract dated
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11 April, 2011, for construction/development of its housing project at
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By:SAPNA SETHI
Signing Date:18.03.2021
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Bhubaneswar consisting 256 flats of different categories [ hereinafter
referred to as the ‘ Contract ’ ]. The Contract provided for dispute resolution
through the mechanism of arbitration under clause 18.2 [ hereinafter referred
to as the ‘ Arbitration Agreement ’]. The same is reproduced as under:-
“All disputes or differences arising between the parties hereto
arising out of the subject matter of this agreement or the
respective rights and duties of the parties under this agreement
except those the decision whereof is specifically provided for in
the agreement to be final, shall be referred to on the sole
arbitration of an arbitrator, to be only nominated by the
Chairman, Air Force Naval Housing Board, New Delhi whose
decision thereon shall be final and binding on both the parties
provided that if the differences and disputes are claimed by the
contractor to have arisen, reference shall only be made if the
Contractor has given notice in writing, of the said disputes or
differences, within 28 days of cause of action for the same
arising to the Chairman Air Force Naval Housing Board, New
Delhi.
It is hereby expressly agreed that the sole arbitrator shall not be
disqualified by reason of the fact that he had on an earlier
occasion dealt with the matter in dispute on the administrative
side or his expressed views on an or any of the matters in dispute
or difference. In case the person nominated as the sole arbitrator
is not available due to certain reasons. The Chairman Air Force
Naval Housing Board New Delhi, shall nominate another person
in his place, who shall proceed with the arbitration from the
stage the arbitration proceedings were last left.
The arbitrator shall have power to open up, review and revise
any certificate, opinion, decision requisition or notice and shall
determine all matters in dispute, which shall be submitted to him.
It is expressly agreed to by and between the parties that the
arbitration proceedings shall be held in Delhi and only Delhi
courts shall have jurisdiction.”
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By:SAPNA SETHI
Signing Date:18.03.2021
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3. The Respondent invoked the Arbitration Agreement on 29
November, 2019. In terms of the Arbitration Agreement, the appointing
authority therein, (i.e. the Chairman of Respondent-Board, Vice Admiral R.
Hari Kumar), nominated Mr. Anil Kumar Kathuria as the Sole Arbitrator to
adjudicate the disputes and differences between the parties under the
Contract.
4. The Petitioner contends that the Arbitration Agreement contained in
the Contract, as extracted above, was not fully enforceable in accordance
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with the law as it stood on 29 November, 2019. The Supreme Court in
Perkins Eastman Architects DPC and Ors. v. HSCC (India) Ltd ., AIR
2020 SCC 59, has held that dispute resolution clauses which provide rights
to the Director/Chairman of a party to nominate an arbitrator will be invalid
and unsustainable. The appointing authority, in the present facts (i.e. the
Chairman of the Respondent-Board), would naturally be interested in the
outcome of the decision in respect of the disputes that have arisen between
the parties. Therefore, the prerequisite of an element of impartiality would
be absent in such a process. The Arbitration Agreement is thus ex facie in
conflict with the aforesaid judgment.
5. The Petitioner further submitted that Schedule V and VII of the Act
ought to be taken into consideration, which lay down the criteria for
determining the independence and impartiality of an arbitrator. The arbitral
proceedings are at an early stage and the Respondent is yet to file its
counter-claim and reply to the statement of claim. Therefore, the court may
declare that the mandate of the Arbitral Tribunal stands terminated de jure ,
and appoint an independent substitute arbitrator.
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Digitally Signed
By:SAPNA SETHI
Signing Date:18.03.2021
12:00
6. Mr. Vivekanand, learned counsel for the Respondent, objects to the
present petition and relies upon Section 4 of the Act. He submits that the
present petition is not maintainable because, from the date of appointment of
the Arbitrator ( vide order dated 29th January, 2019), till November 2020, the
Petitioner has had ample opportunities to object to and challenge such
appointment before the sole Arbitrator, but the Petitioner had not raised any
such objection. He refers to the procedural orders passed by the Arbitrator to
support the aforesaid submission, and further submits that the objection not
having been taken before the Arbitral Tribunal within the period stipulated
under Section 13(2) of the Act, the right to object to the appointment of
Arbitrator stood waived in terms of Section 4 of the Act. Besides, no
circumstances exist that could raise justifiable doubts about his conduct or
impartiality. The arbitrator was appointed from a panel of arbitrators
maintained by Delhi International Arbitration Centre (DIAC). The Arbitrator
is neither from the department of the Respondent, nor in any way connected
to it. There is no relation between him and any of the past office-bearers or
management of the Respondent-Board either. The appointment of the
arbitrator is also not in conflict with the provisions of Schedules V or VII of
the Act. Thus, the objections raised by the Petitioner are toothless. Lastly,
Mr. Vivekanand submits that the if the Petitioner would have raised an
objection to this effect before the Arbitral Tribunal well in time, the
Respondent, a Government organisation, would not have been burdened
with the arbitral fee of Rs. 3,00,000/- that has been paid to the learned
Arbitrator.
7. The court has considered the submissions advanced by the counsels.
In this case, in terms of Section 21 of the Act, the arbitral proceedings
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By:SAPNA SETHI
Signing Date:18.03.2021
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commenced on 29th January, 2019 when the Respondent invoked the
Arbitration Agreement. Thus, the amendments introduced in Section 12 the
Act, including Section 12(5) read with Schedule VII of the Act and/or
amendments to Section 12(1) read with the Schedule V, are squarely
applicable. Undoubtedly, the appointing authority as per the Arbitration
Agreement is the Chairman of the Respondent herein. As per the language
employed in Schedule VII, the Chairman is ineligible to become an
arbitrator by operation of law. Due to such ineligibility to act as an
arbitrator, he also does not have the power to nominate any other person as
an arbitrator. In Perkins (supra), the Supreme Court has also discussed in
detail and clarified the position of law with regard to the unilateral
appointment of a Sole Arbitrator by one party. The said Judgment articulates
in detail, the effect of the 2015 Amendments to the Arbitration and
Conciliation Act, 1996. It is no longer open for any one party to unilaterally
appoint an Arbitrator. In Perkins (supra) , the Supreme Court, following the
principle enunciated in its earlier decisions, held that, “ the person who has
an interest in the outcome or decision of the dispute must not have the power
to appoint a sole arbitrator .” The appointing authority who is itself
ineligible to become an arbitrator under Section 12(5) of the Act, cannot
nominate another to as an arbitrator. Considering the fact that the Chairman
of the Respondent-Board 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 ”. Thus, the fundamental principle remains that
no authority, having an interest in the dispute which is sought to be
adjudicated, is entitled to appoint the Arbitral Tribunal. There can also be no
doubt that the Chairman of the Respondent would naturally be interested in
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By:SAPNA SETHI
Signing Date:18.03.2021
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the outcome or decision in respect of the dispute between the parties. Having
regard to above-noted legal position, the unilateral appointment of the
Arbitrator by the Chairman of the Respondent is ex facie not permissible,
being in conflict with the statutory provisions and the judgment of the
Supreme Court referred above.
8. Next, we shall deal with the objections of the Respondent. This Court
is also unable to accept the contention that just because the Petitioner has
participated in the proceedings before the Arbitrator, it constitutes as a
waiver of its right to object under Section 4 of the Act. The waiver of such a
right has to be examined under sub-section 5 to Section 12 of the Act. The
said provision is reproduced as under: -
"12(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."
9. In terms of the proviso to sub-section 5 of Section 12 of the Act, the
parties may waive the applicability of Section 12(5) of the Act. However, the
said waiver has to be made only after the disputes have arisen; and is to be
made by way of an express agreement in writing. In the present case, there is
no written agreement between the parties whereby the Petitioner has agreed
to waive the applicability of Section 12(5) of the Act and therefore, the
Court does not find any merit in the contentions raised by the Respondent.
No doubt the Petitioner has participated in the proceedings before the
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By:SAPNA SETHI
Signing Date:18.03.2021
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Arbitral Tribunal, however, from the perusal of the proceedings recorded by
the Arbitrator, the court is not able to discern any agreement between the
parties, whether express or implied, which is in line with Section 12(5) of
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the Act. The Petitioner entered appearance for the first time on 30 January,
2020 before the Sole Arbitrator. At the said hearing, the counsel for the
Petitioner submitted that the Petitioner is not in receipt of any of the records
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pertaining to the arbitration proceedings. Then on 14 February, 2020, an
application was filed seeking sine die adjournment of the arbitral
proceedings till the completion of the Corporate Insolvency Resolution
Process, in accordance with Section 14 of the IBC. Not having received
arbitral records and copy of the Contract before the hearing, the Petitioner
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again made a request for the same during the hearing held on 14 February,
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2020. Petitioner then moved an application on 27 July, 2020 seeking copy
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of arbitral records, which was then made available on 25 September, 2020.
In such circumstances, the Court cannot construe that there was an implied
consent by the Petitioner for the appointment and for the commencement of
the arbitration proceedings, further the conduct also does not demonstrate
that the Petitioner had waived its right to object to the above, as is being
canvassed by the Respondent.
10. The court is also not impressed with the contention that since the
appointment of the Sole Arbitrator is of a person who is unrelated to the
Respondent, he is not in conflict with the criteria specified in Schedule V or
VII of the Act. The question here is not whether the sole arbitrator appointed
by one of the parties is actually biased or partial, but it is the premise for
making the unilateral appointment that is called into question. As already
discussed above at length, the appointment is squarely in teeth of the law
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Signing Date:18.03.2021
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laid down in Perkins as well as Section 12(5) of the Act.
11. Accordingly, the present petition is allowed and the mandate of Mr.
Anil Kumar Kathuria, unilaterally appointed by the Respondent, is
terminated. Hon’ble Mr. Justice Badar Durrez Ahmed (Retd.) former Chief
Justice of the Jammu and Kashmir High Court [+91 7042205786] is
appointed as the Sole Arbitrator to adjudicate the disputes that have arisen
between the parties. With the consent of parties, it is directed that the
learned Arbitrator shall conduct the arbitration proceedings under the aegis
of DIAC and shall be paid his fees in terms of the DIAC Rules. This is
subject to the Arbitrator making the necessary disclosure under Section
12(1) of the Act and not being ineligible under Section 12(5) of the Act. The
parties are directed to appear before the learned Arbitrator as and when
notified. It is, however, made clear that the termination of the mandate of
Mr. Anil Kumar Kathuria will not be seen as a reflection on his impartiality
or fairness.
12. It is further made clear that in the event the Respondent succeeds in
the arbitration proceedings, it would also be entitled to recover the
arbitration fee of Rs. 3,00,000/- paid to Mr. Anil Kumar Kathuria.
13. The petition is allowed in the aforesaid terms, and disposed of.
Pending application is also disposed of.
SANJEEV NARULA, J
MARCH 8, 2021
nd
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By:SAPNA SETHI
Signing Date:18.03.2021
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