Case BriefsHigh Courts

Delhi High Court: Vibhu Bakhru, J., while addressing the matter in respect to the invocation of an arbitration clause expressed that:

“…the legislative policy is to encourage arbitration, thus, any interpretation that would nullify an arbitration clause must be avoided.”

What led to the filing of the present petition?

Petitioner (TKE) is a company that has filed the present petition under Section 11 of the Arbitration and Conciliation Act, 1996, inter alia, praying for an arbitral tribunal to be constituted for the purpose of adjudicating the disputes that arose between the parties in relation to the Contract Agreement.

RITES Ltd. had issued a Notice Inviting Tender for “Development of Integrated Check Post at Dawki (Meghalaya) along Indo-Bangladesh Border” for which TKE was awarded the contract.

Further, TKE submitted that the execution of the work was hampered by RITES due to which TKE suffered losses to the extent of ₹2,37,23,39,473. The work was stopped by the Border Guards of Bangladesh as it objected to any activity within 40 metres of the International Border. Along with the Border Guards, even the forest department objected to setting up campsites.

RITES issued a notice calling upon TKE to expedite the work failing which it would terminate the agreement and in response to that TKE stated the reasons for delay.

Later, RITES terminated the agreement and the same was challenged by TKE before the Meghalaya High Court, which was dismissed and on being aggrieved with the same, TKE filed a Special Leave Petition. Supreme Court had observed that: 

“it would be appropriate for the petitioner to avail of the alternative remedy by filing arbitration petition or civil suit, as it may be advised”.

TKE requested the Engineer-In-Charge (EIC) to review the decision of terminating the Agreement and permit it to finish the work or in the alternative, compensate TKE for the damages incurred by it. The EIC rejected the said application, after which TKE invoked the arbitration clause in the agreement.

Analysis, Law and Decision

Bench stated that TKE’s contention that it did not invoke the arbitration clause was unmerited since the notice dated 06-03-2020 clearly indicated that the same was a “Notice of Intention to commence Arbitration under Clause 25(1) of the General Conditions of Contract”.

TKE sent another notice seeking to correct an error that had crept in the said notice inasmuch as, TKE had wrongly calculated the total amount of its claims as ₹237,23,39,473.14/- instead of ₹57,11,47,927.91.

RITES did not respond to TKE’s notice, hence TKE cannot be faulted for preferring the present application under Section 11 of the A&C Act.

Whether the parties can be referred to arbitration in view of TKE’s stand that the Appointing Authority, cannot appoint an arbitrator? 

Controversy in the instant matter revolves around the appointment of the arbitrator under Clause 25 of the GCC, which provides that the matters would be referred to a Sole Arbitrator appointed by the Appointing Authority. And, the same would be from a list of three serving officers of RITES of appropriate status, as may be provided by the Appointing Authority and as selected by TKE.

As per Section 12(5) of the A&C Act, the above-said is no longer permissible.

A serving employee of RITES would be disqualified as RITES is an interested party in the disputes that have arisen and thus, its employee cannot be appointed as an arbitrator. 

Whether the disability of the appointing authority to appoint an arbitrator would frustrate the arbitration agreement? 

After the amendment of A&C Act, 2015 certain persons were declared ineligible to act as arbitrators as per the 7th Schedule of the A&C Act. Although parties can waive the said objection after disputes arise.

Bench stated that it is not impossible for such persons to act as arbitrators. They can do so if objections to their independence and impartiality are waived in writing, in terms of the proviso to Section 12(5) of the A&C Act.

In view of the Supreme Court decisions of TRF Ltd. v. Energo Engineering Projects Ltd.: (2017) 8 SCC 377 and Perkins Eastman Architects DPC  v. HSCC (India) Ltd.  2019 SCC OnLine SC 1517, the appointing authority i.e. the Executive Director of RITES cannot appoint an arbitrator, without the written consent of TKE after disputes arise. However, this would not mean that the arbitration clause stands nullified.

Section 12(1) of the A&C Act was substituted and Section 12(5) of the A&C Act was introduced.

In Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd.: (2017) 4 SCC 665, the Supreme Court had noted the recommendations made by the Law Commission of India in its 246th Report and had explained the legislative intent of introducing the statutory amendments in Section 12 of the A&C Act. The said decision encapsulates the Court’s view regarding the importance of independence and impartiality of the arbitrators.

In TRF Ltd. v. Energo Engineering Projects Ltd.: (2017) 8 SCC 377 Supreme Court had decided that a person who is ineligible by the operation of law to act as an arbitrator would also be ineligible to nominate another person to act as an arbitrator. The said decision was founded on the express language and legislative intent of Section 12(5) of the A&C Act.

In Perkins Eastman Architects DPC v. HSCC (India) Ltd. 2019 SCC OnLine SC 1517 Supreme Court interpreted the provisions of Section 12(5) of the A&C Act, in an expansive manner and held that even in cases where the power to appoint an arbitrator was vested with the person who was otherwise ineligible to be appointed as an arbitrator, it would be impermissible for him to exercise the same in view of the ineligibility referred to in TRF Ltd. Thus, a person who is ineligible to act as an arbitrator, would also not be eligible to appoint anyone else as an arbitrator.

Now, proceeding further in light of the above discussion, Bench while considering that RITES had agreed that the subject disputed are required to be referred to arbitration, could not be heard to contend that the said arbitration would either be conducted in a manner which may compromise the fundamental requirement of an independent and an impartial process or not at all.

Hence, in the instant matter, by virtue of Section 12(5) of the A&C Act, though appointing authority is ineligible to act as an arbitrator but this would not mean that the entire arbitration agreement would be frustrated.

In North Eastern Railway v. Tripple Engineering Works: (2014) 9 SCC 288, the Supreme Court observed that the principle that the court must appoint an arbitrator as per the contract between the parties had seen a significant erosion.

Power of the Court to appoint Arbitrator

Supreme Court in Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd.: (2009) 8 SCC 520 was also referred wherein the decision was rendered in an appeal against an order passed by the Chief Justice of the Uttaranchal High Court in an application filed under Section 11(6) of the A&C Act appointing a former Judge of that Court as the Sole Arbitrator to adjudicate the disputes between the parties.

In the above-mentioned decision, Supreme Court held that a Court could appoint an independent arbitrator in cases where it found that the arbitrator named in the agreement or to be appointed as per the procedure as agreed under the agreement, would not be impartial or independent.

The above principle of the Supreme Court would hold good in the present context as well.

As held in Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd.: (2009) 8 SCC 520 even in cases where the arbitration agreement provides for a procedure for appointment of an arbitrator, a court could appoint an independent arbitrator if there were reasonable grounds to doubt the independence and impartiality of the named arbitrator to be appointed in accordance with the procedure as stipulated under the arbitration agreement.

Hence no dispute was found as to the existence of the arbitration agreement. As TKE had invoked the arbitration clause but the parties were unable to concur on the appointment of an arbitrator, High Court proposed that Justice (Retd.) Pradeep Nandrajog, former Chief Justice of the High Courts of Rajasthan and Maharashtra be appointed as a Sole Arbitrator.

Matter to be listed on 19-03-2021.[T.K. Engineering Consortium (P) Ltd. v. Director (Projects) RITES Ltd., 2021 SCC OnLine Del 1188, decided on 08-03-2021]


Advocates who appeared in this case:

For the Petitioner:

: Mr Rituraj Biswas, Ms Sujaya

: Bardhan, Mr Rituraj Choudhary and: Mr Mayan Prasad, Advocates.

: Mr G. S. Chaturvedi and

For the Respondents:

: Mr Shrinkar Chaturvedi, Advocates: for RITES Ltd.

: Mr Ripu Daman Bhardwaj, CGSC

: for R-3

Case BriefsHigh Courts

Bombay High Court: N.J. Jamadar, J., while disposing of an interim application filed by the defendants in a commercial division summary suit, held that the salutary object of the Arbitration and Conciliation Act, 1996, cannot be defeated by adding a claim over and above the claim in respect of the matter which is squarely covered by arbitration agreement. 

The suit was filed by the plaintiffs for recovery of a sum of over Rs 1. 24 crores on the basis of a memorandum of understating (“MoU”) entered into with the defendants and multiple negotiable instruments issued by the defendants in favour of the plaintiffs. The defendants filed the instant interim application seeking the reference of the dispute to arbitration in view of an arbitration clause in the MoU. The plaintiffs resisted the application averring that there was a series of transactions between them and the defendants. Their claim consisted of two parts, the first part based on cheques issued by the defendants and the second part based on bills of exchange. It was submitted that the arbitration clause in the MoU covered only the first part, whereas the second part was out of its purview. 

Narayan Sahu, counsel for the plaintiffs, submitted that the subject-matter of the suit cannot be bifurcated and, therefore, the application under Section 8 of the Arbitration and Conciliation Act became untenable. While on the other hand, Saurab Oka, counsel for the defendants insisted on allowing their application under Section 8 and refer the dispute for arbitration. 

According to the High Court, the crucial question which wrenches to the fore was: whether the effect and force of the arbitration clause gets diluted on account of inclusion in the suit, of a claim in respect of a dispute which is not governed the arbitration clause?

The Court thought it fit to consider the question from the perspective of the legislative object contained in Section 8. Referring to Order 2 Rules 3 and 6 CPC and relying on the Supreme Court decisions in Sundaram Finance Ltd. v. T. Thankam, (2015) 14 SCC 444, it was held by the High Court that if the submission of plaintiff as aforementioned is readily accepted, it has the propensity to give a long leash to the plaintiff to circumvent the arbitration agreement by uniting a cause of action which is beyond the purview of the arbitration agreement. It would have the effect of denuding Section 8 of its force and vigour. Such an interpretation would also derogate from the object which the Arbitration and Conciliation Act, 1996 is intended to achieve: of minimum judicial intervention where parties have agreed to arbitrate the dispute.

In the peculiar facts of the case, the Court referred the dispute to arbitration in respect of the first transaction which was squarely covered by the arbitration clause and exercised its power under Order 2 Rule 6 CPC to direct the plaintiffs to institute a separate suit in respect of the second transaction not covered by the arbitration clause. [Taru Meghani v. Shree Tirupati Greenfield, 2020 SCC OnLine Bom 110, decided on 10-01-2020] 

Case BriefsHigh Courts

Delhi High Court: A Single Judge Bench comprising of Navin Chawla, J., dismissed a petition filed under Section 11(6) of Arbitration and Conciliation Act, 1996 seeking appointment of a sole arbitrator for adjudication of the dispute between the parties.

The dispute arose in relation to a contract executed between the petitioner and the respondents for construction of EWS houses. Arbitration Agreement between the parties was contained in Clause 25 of the said contract, which not only provided for hierarchical manner of adjudication of claims raised by the contractor but also gave a specific timeline for the decision of each authority. The primary contention raised on behalf of the respondents was that the petition was not maintainable in as much as the petitioner did not follow the procedure prescribed in the Agreement before filing of the present petition.

In order to appreciate the submissions of the respondents, the High Court perused the Arbitration Agreement. On reading the sequence of events, the Court noted that the procedure as prescribed in Clause 25 was not followed by the petitioner. It was observed that Section 11(6) comes into play only where the other party fails to act as required under the procedure. The High Court was of the view that the petitioner, itself, having not followed the procedure as prescribed in the Arbitration Agreement, cannot make a complaint against respondents’ alleged failure to act in accordance with the same. In the facts and circumstances of the present case, it was held that the petition was liable to be dismissed as the petitioner itself failed to follow the procedure defined in the Arbitration Agreement. The order was made accordingly. [Ved Prakash Mithal and Sons v. DDA,  2018 SCC OnLine Del 9884, dated 10-07-2018]

Case BriefsHigh Courts

Karnataka High Court: While passing the order in a petition filed under S. 11(5) of the Arbitration and Conciliation Act, 1996 praying to appoint an Arbitral Tribunal, a Single Judge Bench of A.S. Bopanna, J. held that since the process of constitution of Arbitral Tribunal as decided by the parties became unworkable, the Court was empowered to act under S. 11(6) of the Act to constitute the Tribunal.

The petitioner and the respondent entered into a trade agreement which provided for an arbitration clause where under it was agreed that in case of a dispute, the parties will resolve it through arbitration. The clause provided that from the panel of 5 arbitrators enlisted by the respondent, both the parties are to chose 1 arbitrator each who will further choose the third arbitrator. But in the facts of the situation, three out of five arbitrators on the enlisted panel declined to act as an arbitrator. In such circumstances, the petitioner claimed that the arbitration clause became unworkable and this petition was filed.

The respondent opposed the petition contending that the Tribunal had to be re-constituted by the respondent themselves in terms of the general conditions of the contract and the instant petition filed under S. 11 of the Act was not maintainable.

The Court was faced with the question that whether in the facts of the present case, it should decline to entertain the petition and permit the constitution of the Tribunal only from the panel of Arbitrators as re-constituted by the respondent.

The Court perused the arbitration clause and held that it did not provide for the contingency where 3 out of 5 Arbitrators on the panel decline to act. In such a situation the constitution of the Arbitral Tribunal under the contract failed but the arbitration clause subsisted. The situation was such that the parties concerned had to approach the Court by invoking S. 11(5) of the Act and the Court was empowered to constitute an Arbitral Tribunal under S. 11(6) of the Act. Accordingly, the Court appointed three members to constitute the Arbitral Tribunal as prayed for by the petitioner. [JMC Projects (India) Ltd. v. Bangalore Metro Rail Corporation Ltd., C.M.P. No. 97/2016, decided on 06.09.2017]