TaxTMI 
TaxTMI 
2019 (11) TMI 1154
X X X X Extracts X X X X
X X X X Extracts X X X X
....SY). Therefore a request for Proposals bearing RFP No.HSCC/3-AIIMS/Guntur/2016 was issued on 15.07.2016 for appointment of Design Consultants for the "comprehensive planning and designing, including preparation and development of concepts, master plan for the campus, preparation of all preliminary and working drawings for various buildings/structures, including preparation of specifications and schedule of quantities' for the proposed All India Institute of Medical Sciences at Guntur, Andhra Pradesh". (B) In response to the RFP, the consortium of the Applicants, namely, (i) Perkins Eastman Architects DPC, an Architectural firm having its registered office in New York and (ii) Edifice Consultants Private Limited, having its office in Mumbai submitted their bid on 28.09.2016. Letter of Intent was issued on 31.11.2017 awarding the project to the Applicants, the consideration being Rs. 15.63 crores. A letter of award was issued in favour of the Applicants on 22.02.2017 and a contract was entered into between the Applicants and the respondent on 22.05.2017, which provided inter alia for dispute resolution in Clause 24. The relevant portion of said Clause was as under: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r appointed by the CMD HSCC within 30 days form the receipt of request from the Design Consultant. 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 reference from the stage 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 CMD, HSCC of the appeal. It is also a term of this contract that no person other than a person appointed by such CMD, HSCC as aforesaid should act as arbitrator. It is also a term of the contract that if the Design Consultant 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 HSCC that the final bill is ready for payment, the claim of the Design Consultant shall be deemed to have been waived and absol....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pond to the letter dated 28th June, 2019 (received on 29th June, 2019). aa. Shockingly, in continuance of its highhanded approach and in contravention to its own letter dated 24th June, 2019, the CGM of the Respondent addressed the Purported Appointment Letter dated 30th July, 2019 to one Major General K.T. Gajria thereby purportedly appointing him as a sole arbitrator in the matter. On the same date, the CGM of the Respondent also addressed a letter to the Applicants inter alia informing about the purported appointment of Mr. Gajria" 3. In the aforesaid premises the Applicants submit:- (a) The Applicants had duly invoked the arbitration clause; (b) The Chairman and Managing Director was the competent authority to appoint a sole arbitrator; (c) But the Chief General Manager of the respondent wrongfully appointed the sole arbitrator; (d) Such appointment was beyond the period prescribed; (e) In any case, an independent and impartial arbitrator is required to be appointed. 4. In response to the application, an affidavit-in-reply has been filed by the respondent denying all material allegations. It is accepted that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....u Krishna Kumar, learned Senior Advocate appearing for the respondent submitted that no case was made out to maintain the instant application. He submitted that two basic submissions were raised in para 3 in sub-para (z) and (aa) of the application that the Chairman and Managing Director failed to appoint the sole arbitrator within 30 days of the requisition dated 28.06.2019 and that it was the Chief General Manager of the respondent who purportedly made the appointment of a sole arbitrator on 30.07.2019. The infirmities thus projected were on two counts, namely, for over-stepping the limit of 30 days; and secondly the appointment was not made by the Chairman and Managing Director of the respondent. He pointed out that the period in terms of requisition dated 28.06.2019 expired on Friday and the appointment was made on the first available working day. Secondly, the appointment was actually made by the Chairman and Managing Director but was conveyed by the Chief General Manager, and as such the alleged infirmities were completely non-existent. He further submitted that arbitration, if any, in the instant matter would not be an International Commercial Arbitration. 6. The present ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s Arcade, 3rd Floor, Opp. Govandi P.O., Off Govandi Station Road, Govandi East, Mumbai, Maharashtra 400088 do hereby designate Perkins Eastman Architects DPC being one of the members of the Consortium, as the Lead Member of the Consortium, to do on behalf of the Consortium, all or any of the acts, deeds of things necessary or incidental to the Consortium's Application/Bid for the Project, including submission of Application/Bid, participating in conferences, responding to queries, submission of information/documents and generally to represent the Consortium in all its dealings with HSCC, any other Government Agency or any person, in connection with the Project until culmination of the process of bidding and thereafter till the completion of the Contract." 8. It is not disputed by the respondent that it was a requisite condition to declare a lead member of the Consortium and that by aforesaid declaration the applicant No.1 was shown to be the lead member of the Consortium. The reliance is however placed by the respondent on Clause 9 of the Consortium Agreement by virtue of which both the Applicants would be jointly and severely responsible for the execution of the project. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... respondent, has relied upon both the contract dated 9- 1-2009 as well as the actual consortium agreement dated 4-6-2008 between the Indian company and the Malaysian company, which, when read together, would show that they are really an unincorporated association and would, therefore, fall within Section 2(1)(f)(iii) as being an association or a body of individuals, provided the central management and control is exercised in any country other than India. ... ... ... 15. Section 2(1)(f)(iii) of the Act refers to two different sets of persons: an "association" as distinct and separate from a "body of individuals". For example, under Section 2(31) of the Income Tax Act, 1961, "person" is defined as including, under sub- clause (v), an association of persons, or body of individuals, whether incorporated or not. It is in this sense, that an association is referred to in Section 2(1) (f)(iii) which would therefore include a consortium consisting of two or more bodies corporate, at least one of whom is a body corporate incorporated in a country other than India. ... ... ... 17. Law Commission Report No. 246 of August 2014, which made several amendments ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o not deem it necessary to go into whether the appropriate stage for invoking arbitration has yet been reached." 10. It was thus held that "Association" and "Body of individuals" referred to in Section 2(1)(f) of the Act would be separate categories. However, the lead member of the Association in that case being an Indian entity, the "Central Management and Control" of the Association was held to be in a country other than India. Relying on said decision we conclude that the lead member of the Consortium company i.e. Applicant No.1 being an Architectural Firm having its registered office in New York, requirements of Section 2(1)(f) of the Act are satisfied and the arbitration in the present case would be an "International Commercial Arbitration". 11. That takes us to the second issue, namely, whether a case has been made out for exercise of power by the Court for an appointment of an arbitrator. 12. The communication invoking arbitration in terms of Clause 24 was sent by the Applicants on 28.06.2019 and the period within which the respondent was to make the necessary appointment expired on 28.07.2019. The next day was a working day but the appointment was made on Tuesday, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Amending Act (Act No.3 of 2016) came into force. It was submitted by the appellant that by virtue of the provisions of the Amending Act and insertion of the Fifth and Seventh Schedules in the Act, the Managing Director of the respondent would be a person having direct interest in the dispute and as such could not act as an arbitrator. The extension of the submission was that a person who himself was disqualified and disentitled could also not nominate any other person to act as an arbitrator. The submission countered by the respondent therein was as under: - "7.1. The submission to the effect that since the Managing Director of the respondent has become ineligible to act as an arbitrator subsequent to the amendment in the Act, he could also not have nominated any other person as arbitrator is absolutely unsustainable, for the Fifth and the Seventh Schedules fundamentally guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence and impartiality of the arbitrator. To elaborate, if any person whose relationship with the parties or the counsel or the subject-matter of dispute falls under any of the categories specified i....
X X X X Extracts X X X X
X X X X Extracts X X X X
...."25. We have to note that the Commissioner when he exercises power of the Board delegated to him under Section 33 of the Settlement Act, 1958, the order passed by him is to be treated as an order of the Board of Revenue and not as that of the Commissioner in his capacity as Commissioner. This position is clear from two rulings of this Court to which we shall presently refer. The first of the said rulings is the one decided by the Constitution Bench of this Court in Roop Chand v. State of Punjab AIR 1963 SC 1503. In that case, it was held by the majority that where the State Government had, under Section 41(1) of the East Punjab Holdings (Consolidation and Prevention of Fragmentation) Act, 1948, delegated its appellate powers vested in it under Section 21(4) to an "officer", an order passed by such an officer was an order passed by the State Government itself and "not an order passed by any officer under this Act" within Section 42 and was not revisable by the State Government. It was pointed out that for the purpose of exercise of powers of revision by the State under Section 42 of that Act, the order sought to be revised must be an order passed by an officer in his own right and n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated. Therefore, the view expressed by the High Court is not sustainable and we say so." 15. It was thus held that as the Managing Director became ineligible by operation of law to act as an arbitrator, he could not nominate another person to act as an arbitrator and that once the identity of the Managing Director as the sole arbitrator was lost, the power to nominate someone else as an arbitrator was also obliterated. The relevant Clause in said case had nominated the Managing Director himself to be the sole arbitrator and also empowered said Managing Directo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....igible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter balanced by equal power with the other party. But, in a case where only one party 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. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) and recognised by the decision of this Court in TRF Limited (2017) 8 SCC 377. 17. We must also at this stage re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion under Section 11(6) of the Act. (v) Where the appointment procedure has been agreed between the parties, but the cause of action for invoking the jurisdiction of the Chief Justice or his designate under clauses (a), (b) or (c) of sub-section (6) has not arisen, then the question of the Chief Justice or his designate exercising power under sub- section (6) does not arise. The condition precedent for approaching the Chief Justice or his designate for taking necessary measures under sub-section (6) is that (i) a party failing to act as required under the agreed appointment procedure; or (ii) the parties (or the two appointed arbitrators) failing to reach an agreement expected of them under the agreed appointment procedure; or (iii) a person/institution who has been entrusted with any function under the agreed appointment procedure, failing to perform such function. (vi) The Chief Justice or his designate while exercising power under sub-section (6) of Section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause. (vii) If circumstances exist, giving rise to justifiable doubts as to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es to appoint employee arbitrators. The Commission is of the opinion that, on this issue, there cannot be any distinction between State and non-State parties. The concept of party autonomy cannot be stretched to a point where it negates the very basis of having impartial and independent adjudicators for resolution of disputes. In fact, when the party appointing an adjudicator is the State, the duty to appoint an impartial and independent adjudicator is that much more onerous - and the right to natural justice cannot be said to have been waived only on the basis of a "prior" agreement between the parties at the time of the contract and before arising of the disputes." 19. In Voestalpine (2015) 3 SCC 800, this Court dealt with independence and impartiality of the arbitrator as under: "20. Independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which applied to all judicial and quasi- judicial proceedings. It is for this reason that notwithstanding the fact that relationship between the parties to the arbitration and the arbitrators themselves are....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther, as highlighted by the Law Commission also in its report, duty becomes more onerous in government contracts, where one of the parties to the dispute is the Government or public sector undertaking itself and the authority to appoint the arbitrator rests with it. In the instant case also, though choice is given by DMRC to the opposite party but it is limited to choose an arbitrator from the panel prepared by DMRC. It, therefore, becomes imperative to have a much broadbased panel, so that there is no misapprehension that principle of impartiality and independence would be discarded at any stage of the proceedings, specially at the stage of constitution of the Arbitral Tribunal. We, therefore, direct that DMRC shall prepare a broadbased panel on the aforesaid lines, within a period of two months from today." 20. In the light of the aforestated principles, the report of the Law Commission and the decision in Voestapline Schienen Gmbh (2017) 4 SCC 665, the imperatives of creating healthy arbitration environment demand that the instant application deserves acceptance. 21. The further question that arises is whether the power can be exercised by this Court under Section 11 of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ustice A.D. Mane is non est in law. Such an appointment, therefore, will not inhibit the exercise of jurisdiction by this Court under Section 11(6) of the Arbitration Act. It cannot, therefore, be held that the present proceeding is not maintainable in law. The appointment of Shri Justice A.D. Mane made beyond 30 days of the receipt of notice by the petitioner, though may appear to be in conformity with the law laid down in Datar Switchgears Ltd (2000) 8 SCC 151., is clearly contrary to the agreed procedure which required the appointment made by the respondent Corporation to be from the panel submitted by ICADR. The said appointment, therefore, is clearly invalid in law." 22. It may be noted here that the aforesaid view of the Designated Judge in Walter Bau AG (2015) 3 SCC 800 was pressed into service on behalf of the appellant in TRF Limited (2017) 8 SCC 377 and the opinion expressed by the Designated Judge was found to be in consonance with the binding authorities of this Court. It was observed:- "32. Mr Sundaram, learned Senior Counsel for the appellant has also drawn inspiration from the judgment passed by the Designated Judge of this Court in Walter Bau AG (2015) 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ory declaration made under the amended Section 12 of the Act with respect to independence and impartiality and the ability to devote sufficient time to complete the arbitration within the period as per Section 29A of the Act. A copy of the Order be dispatched to Dr. Justice A. K. Sikri at 144, Sundar Nagar, New Delhi - 110003 (Tel. No.:- 011 - 41802321). The arbitrator shall be entitled to charge fees in terms of the Fourth Schedule to the Act. The fees and other expenses shall be shared by the parties equally. 26. Before we part, we must say that the appointment of an arbitrator by this Court shall not be taken as any reflection on the competence and standing of the arbitrator appointed by the respondent. We must place on record that not even a suggestion in that respect was made by the learned counsel for the Applicants. The matter was argued and has been considered purely from the legal perspective as discussed hereinabove. 27. This application is allowed in aforesaid terms. ARBITRATION APPLICATION NO.34 OF 2019 Perkins Eastman Architects DPC & Anr. ...Applicants VERSUS HSCC (India) Ltd. ...Respondent ....