2021 (11) TMI 1174 - HC - Indian Laws

HC allows arbitrator appointment under Section 11(6) after rejecting limitation objection and upholding 3% pre-deposit clause validity

The Assan Co-Op. L & C Society Versus Haryana Vidyut Prasaran Nigam Ltd.

The HC allowed the petition for appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996. The court held that the ... Seeking appointment of an Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 - Clause-25A of the contract (Annexure P-1) having been executed between the parties provides for the same - invocation of bank guarantee - time limitation - HELD THAT:- In TRF Limited [2017 (7) TMI 1288 - SUPREME COURT] the dispute was qua purchase order inter se the parties and the encashment of the bank guarantee. The High Court had upheld the appointment of the sole arbitrator which had been done by the Managing Director, who was a Former Judge of the Supreme Court. The challenge as such that the Managing Director could not nominate had been rejected. While referring to the provisions of Section 12, 6th Schedule and 7th Schedule and referring to various judgments, the Apex Court reversed the order of the High Court. In 'Bharat Broadband Network Limited Vs. United Telecoms Limited', [2019 (4) TMI 983 - SUPREME COURT] , dispute had arisen with the appellant, who had nominated the sole arbitrator. Keeping in view the judgment passed in TRF Limited, the appellant itself challenged the appointment by filing an application before the arbitration for withdrawal, which was rejected. The petition filed before the High Court of Delhi was rejected on the ground that the person who had appointed the arbitrator was estopped from raising the plea. The matter was taken to the Apex Court, which had allowed the appeal and set aside the judgment of the High Court and held that arbitrator was unable to perform his function as an arbitrator and left it open for the High Court to appoint a substitute arbitrator with the consent of both the parties. Thus, it would be clear that the jurisdiction as such with the respondent-Nigam to appoint an nominated arbitrator has been taken away, in view of the said judgments and, therefore, the petitioner is well justified to approach this Court for the said purpose. Whether the claim would be held to be barred by limitation and whether the clause providing for pre-deposit is liable to be sustained or not? - HELD THAT:- It is to be noticed that in the present case the rejection to appoint an arbitrator was only on 08.04.2019 (Annexure P-7) on the ground of limitation and the present petition was filed on 24.04.2019 and therefore, there is no such inordinate delay and the objection raised by the respondent is without any basis. The issue of pre-deposit was subject matter of consideration before two Division Benches. Firstly in the case of 'National Building Construction Corporation Ltd. and another Vs. State of Haryana and another' [ [2007 (1) TMI 649 - PUNJAB AND HARYANA HIGH COURT] , challenge had been raised to the clause of deposit of the 10% of the amount claimed as per Clause 25(viii) of the contract before arbitration proceedings could be invoked. The same was rejected on the ground that it was a laudable object that no one can file frivolous claims before the arbitrator and there is no irrationality in imposing the said condition. Even otherwise the clause was found not unreasonable or unconscionable and there being no unequal bargaining power of the party to the contract. Even otherwise it is settled principle that this Court is bound by the view of the Larger Bench of the Apex Court which is S.K. Jain's case [2009 (2) TMI 926 - SUPREME COURT] which is a Three Judges Bench and, therefore, the claim as such for striking down of 3% deposit clause would not arise - the Arbitration Board had not been constituted by the Corporation and neither the arbitrator could be appointed by the High Court. Resultantly, it was directed that the Corporation shall constitute an Arbitration Board on furnishing of the security of the sum to be determined by the Corporation and the Arbitration Board would proceed from the stage the earlier arbitrator was appointed by the High Court. It was held that the arbitrator could not be appointed inconsistently with the arbitration agreement. Resultantly, the interest of the respondent-Nigam can be protected to the extent that the arbitrator shall only enter into reference provided the requisite security is furnished to the tune of 3% of the amount claimed. The Chief Justice A.K. Mittal (retd.) is appointed as an Arbitrator - The learned Arbitrator is requested to enter into reference only on furnishing of proof of the 3% deposit in terms of the condition imposed by the respondent-Nigam - application allowed. Issues Involved:1. Appointment of an Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.2. Challenge to Clause 25A(7) of the contract regarding pre-deposit security fee.3. Limitation period for making a claim.4. Authority of the Managing Director/Chief Engineer to appoint an arbitrator.Issue-wise Detailed Analysis:1. Appointment of an Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996:The petitioner sought the appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, based on Clause 25A of the contract. The contract was for special repair and maintenance of colony and roads at 132 KV S/Station HVPNL, Fazilpur, Sonipat. The respondent opposed the appointment on the grounds of limitation and the specific clause that no other person than the one appointed by MD/Chief Engineer shall act as an arbitrator.2. Challenge to Clause 25A(7) of the contract regarding pre-deposit security fee:The petitioner challenged Clause 25A(7) as arbitrary and against the object of the 1996 Act, arguing that it required a pre-deposit security fee of 3% of the total amount claimed. The petitioner relied on the Supreme Court's judgment in 'M/s. ICOMM Tele Ltd. Vs. Punjab State Water Supply & Sewerage Board and another' to argue that such a clause discourages arbitration and is contrary to the objective of de-clogging the court system. However, the respondent distinguished this judgment, citing the Supreme Court's decision in 'S.K. Jain Vs. State of Haryana and another,' which upheld similar pre-deposit clauses.3. Limitation period for making a claim:The respondent argued that the claim was barred by limitation as it was made beyond the six-month period prescribed in the contract. However, the court found that the claim was made within a reasonable time frame, considering the work was completed on 17.03.2017, and the arbitration clause was invoked on 05.09.2018. The court referred to the Supreme Court's judgment in 'M/s. Geo Miller & Co. Pvt. Ltd. Vs. Chairman, Rajasthan Vidyut Utpadan Nigam Ltd.,' which held that the limitation period for arbitration claims is three years from the date the cause of action arises.4. Authority of the Managing Director/Chief Engineer to appoint an arbitrator:The court examined the authority of the Managing Director/Chief Engineer to appoint an arbitrator, referencing several Supreme Court judgments. It was held that once an arbitrator becomes ineligible by operation of law, they cannot nominate another person as an arbitrator. This principle was established in 'TRF Limited Vs. Energo Engineering Projects Limited' and further affirmed in 'Bharat Broadband Network Limited Vs. United Telecoms Limited' and 'Perkins Eastman Architects DPC and another Vs. HSCC (India) Ltd.' Consequently, the court concluded that the respondent-Nigam's jurisdiction to appoint a nominated arbitrator was invalidated.Judgment:The court dismissed CWP-13539-2021, rejecting the challenge to Clause 25A(7). However, ARB-127-2019 was allowed, and Chief Justice A.K. Mittal (retd.) was appointed as the arbitrator, subject to the petitioner furnishing the 3% deposit as per the contract. The arbitrator was requested to complete the proceedings within the specified time under Section 29A of the Act, and the fees were to be paid in accordance with the Act and Rules. The parties were directed to appear before the arbitrator on 29.11.2021 at 10.00 a.m.