TaxTMI 
TaxTMI 
2022 (10) TMI 1283
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....and circumstances of the present case." 2. It is the case where the petitioner viz. L & T Hydrocarbon Engineering Limited is a wholly owned subsidiary of Larsen & Toubro Limited (hereinafter referred to as "L&T"). It primarily caters to the Oil and Gas sector around the world under Offshore, Onshore, Construction Services, Modular Fabrication and Engineering Services verticals. 3. Whereas the Respondent viz. Indian Oil Corporation Limited (hereinafter referred to as "IOCL") is a Public Sector Undertaking, with business interests including, inter alia, refineries, pipeline transportation & marketing of petroleum products, exploration & production of crude oil & gas and marketing of natural gas and petrochemicals. 4. It is the case of the petitioner that on June 11, 2012, the respondent issued a Letter of Award for Mainline works including small HDD works, Civil works, Mechanical works, TCP & Electrical works, OFC laying works and Instrumentation works for Salaya Mathura Pipeline (SMPL) De-bottlenecking Pipeline Project ("Project") to the petitioner and a formal contract (hereinafter referred to as "Contract") was executed between the parties on July 11, 2012. 5. It has been....
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....n the BG, however, based on the directions and requests of the respondent, L&T Hydrocarbon has been extending the BG from time to time. 12. It is also the case of the petitioner that in March 2019, the respondent had also threatened to fraudulently and illegally invoke the BG issued by L&T Hydrocarbon and as a result of which L&T Hydrocarbon had approached this court by filing a petition under section 9 of the Act of 1996, wherein as per the petitioner, this court gave the following directions: (a) L&T Hydrocarbon would extend the BG till a period of 1 year from 31 May 2019, i.e. till 31 May 2020; (b) L&T Hydrocarbon would invoke the dispute resolution procedure prescribed under the Contract; (c) In case the Respondent intends to invoke and/or encash the subject performance bank guarantee, it shall serve on L&T Hydrocarbon in this behalf a prior written notice at least two (2) weeks before. 13. It is the submission of Mr. Rajshekhar Rao, Ld. Sr. Counsel, appearing on behalf of the petitioner that there is an arbitration agreement which was entered between the parties and as such contains the following arbitration clauses:- "SECTION 9 ....
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....to or concerning the scope or existence or otherwise of the Arbitration Agreement; (ii) Whether or not a Claim sought to be referred to arbitration by the CONTRACTOR is a Notified Claim; (iii) Whether or not a Notified Claim is included in the CONTRACTOR's Final Bill in accordance with the provisions of Clause 6.6.3.0 hereo;. (iv) Whether or not the CONTRACTOR has opted for the Alternative Dispute Resolution Machinery with respect to any Notified Claim included in the CONTRACTOR's Final Bill. 9.0.3.0 The provisions of the Indian Arbitration & Conciliation Act, 1996 and any re-enactment (s) and/or modification(s) thereof and of the Rules framed thereunder shall apply to arbitration proceedings pursuant hereto subject to the following conditions: (a) The Arbitrator shall give his Award separately in respect of each Claim and Counter-Claim; and (b) The Arbitrator shall not be entitled to review any decision, opinion or determination (howsoever expressed) which is stated to be final and/or binding on the CONTRACTOR in terms of the Contract Documents. 9.0.4.0 The venue of the arbitration shall be New Delhi, provided ....
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.... sole arbitrator for adjudication of the disputes between the petitioner and the respondent. 18. The respondent replied to both the notices of the petitioner by a common letter dated May 17, 2019. According to the petitioner, the respondent did not accept either of the names of the arbitrators suggested by the petitioner. Instead, the respondent nominated a panel of three persons and called upon the petitioner to select one of them whereas none of the names were acceptable to the petitioner. It is further the case of Mr. Rao that Clause 9.0.1.1 restricts/limits the right of the petitioner to choose its arbitrator only from the panel prepared and forwarded by the respondent and thus this procedure is invalid in law. Therefore, it was submitted that in the absence of a valid procedure in law for the appointment of a tribunal, the parties are left with no other option but to seek appointment of an Arbitrator from this court. 19. To crystallize and substantiate his case, Mr. Rao categorically argued that it is the respondent itself which had waived the requirement of clause 9.0.2.0 of the GCC. In order to weigh this contention, he pointed out the following facts: (a) Tha....
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....e above-contention, Mr. Rao had also submitted that in any event, parties can agree amongst themselves as to which matters are excepted and which are not. According to Mr. Rao, the respondent's reply to the present petition, coupled with its act of not referring the claims to the General Manager clearly manifest that there is a subsequent agreement between the parties and that in the present case, the arbitrator can decide whether the claims raised are notified or not. It was further urged by Mr. Rao that even in the past, the respondent had filed proceedings under Section 16 of the Act of 1996 before the tribunal for deciding whether claims are notified or not. To substantiate this, Mr. Rao relied upon two judgments viz. Triune Energy Services Pvt. Ltd. vs. Indian Oil Petronas Pvt. Ltd., 2018 SCC OnLine Del 9312 and China Petroleum Pipeline Bureau vs. India Oil Corporation Limited, 2020 SCC OnLine Del 122. 21. Mr. Rao then pleaded that the respondent cannot be permitted to take advantage of its own wrongs. To substantiate this, he relied upon clause 9.0.2.0, which, according to him, mandates that the issue of whether the claims are notified or not shall have to be decided by th....
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.... 26. In reference to the argument of the respondent that the petitioner unilaterally imposed two weeks deadline, Mr. Rao relied upon Clause 9.0.2.0 of the contract. He submitted that such a clause neither prescribes the time period within which the respondent ought to refer the matter to the General Manager nor provides the time period for the General Manager to render a decision. Mr. Rao also relied upon Section 46 of the Indian Contract Act, 1872 to argue that it was incumbent upon the respondent to refer the matter to its General Manager within a reasonable time and the respondent had clearly failed to act within reasonable time. 27. According to Mr. Rao, the respondent has now waived its right to get any decision by the General Manager by not referring the disputes to the him for a period of over three years (which is, as per Mr. Rao, double the period provided under section 29A of the Act of 1996 for the completion of entire arbitration proceedings). Therefore, he contended that, now it cannot be argued that the petition ought to be dismissed because the General Manager did not render his decision. 28. Another argument of Mr. Rao is that the court is also not bound to ....
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....CCL-Premco (.JV) vs. Rail Vikas Nigam Ltd., Arb. P. No. 627/2018; (c) Larsen & Toubro Ltd. vs. Rail Vikas Nigam Ltd., Arb. P. No. 335/2018; (d) Bernard Ingenieure ZT-GmbH vs. Ircon International Ltd., Arb. P. No. 460/2017. 32. Thereafter, Mr. Rao also argued that even the right of the respondent to unilaterally nominate a panel of members is invalid. For this, Mr. Rao highlighted Clause 9.0.1.1 of the GCC wherein this right has been given to the respondent. To support this contention, he took the aid of the judgment of the Supreme Court of India in TRF Ltd. vs. Energo Engg. Projects Ltd., (2017) 8 SCC 377 and Perkins Eastman Architects DPC vs. HSCC (India) Ltd., (2020) 20 SCC 760. As per Mr. Rao, the Supreme Court in the latter judgment while following the former judgment had 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 and therefore, clauses where only one party has a right to appoint a sole arbitrator, are not valid in law. 33. Mr. Rao further argued that the respondent's reliance on the judgment of the Supreme Court in Central Organisation for Railway....
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....onflict with Voestalpine Schienen GmBH (supra). Mr. Rao argued that although in the former judgment the latter was also referred but the Supreme Court did not consider or even refer to the relevant paragraph of the latter judgment wherein the Supreme Court itself had held that restricting or limiting the choice of an arbitrator from a panel of three or five persons give rise to suspicion of bias. 36. He also relied upon the judgment of the Coordinate Bench of this Court in CMM Infra projects Ltd. vs. Ircon International Ltd., MANU/DE/1982/2021 and the judgment of the High Court of Karnataka in JMC Atepl Joint Venture vs. Bangalore Metro Rail Corporation Limited, MANU/KA/1062/2021, to argue that this court as well as other High Courts have also not followed the judgment of Central Organisation for Railway Electrification (supra) in certain cases and have instead made appointments in exercise of their power under Section 11 of the Act of 1996. This was on the basis that Central Organisation for Railway Electrification (supra) did not consider the finding of the earlier judgments and also on the pretext that if selection from such a panel is permitted, it would lead to permitting t....
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....se is that the petitioner cannot seek a declaration from this court to invalidate the clauses of GCC. According to the respondent the same is barred under the scope of section 11 of the Act of 1996. 42. Moreover, it is the case of the respondent that the act of the petitioner inviting this court to re-write the arbitration agreement between the parties is highly impermissible in law. According to him, the petitioner cannot go contrary to terms of the arbitration agreement as incorporated in the GCC. 43. It is also the case of the respondent that as per clause 9.0.1.0 only the Notified Claims of the contractor included in the final bill in accordance with the provisions of 6.6.3.0 thereof and the claims of the owner against the contractor can only be referred to the sole arbitrator and no other claims. 44. According to the respondent, the agreed procedure for selection of the sole arbitrator is specified in clause 9.0.1.1 of the GCC as per which it is the contractor who has to select a sole arbitrator amongst the panel of three arbitrators nominated by the owner for the purposes of selection. In case the contractor would fail to select the sole arbitrator within thirty days....
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....concerned, is confined to Notified Claims included in the petitioner's final bill as declared/ certified by the General Manager and also that the sole arbitrator shall have to selected by the petitioner from a panel of three persons proposed by the respondent. 52. Mr. Koura, placed his reliance upon the following judgments to contend that the procedure embodied in clause 9.0.2.0 of the GCC has already been upheld by this court in: (a) IOT Infrastructure & Energy Service Ltd. vs. Indian Oil Corporation Ltd., Arb. P. 334/2014; (b) Institute of Geoinformatics (P) Ltd. vs. Indian Oil Corporation Ltd., 2015 SCC Online Del 9562; (c) Srico Projects Pvt. Ltd vs. Indian Oil Foundation, 2017 SCC OnLine Del 6446. 53. He then argued at length to assert that the petitioner can neither ignore the arbitration agreement executed between the parties at its sweet-will nor can it ask the court to re-write the arbitration agreement. He relied upon the following judgments to plead that it is a duty of the court while exercising jurisdiction under section 11(6) Act of 1996 to give effect to the arbitration agreement executed between the parties: (a) Union of Ind....
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....considered by the Supreme Court in Aravali Power Company Pvt. Ltd vs. Era Infra Engineering Ltd., 2017 15 SCC 32. According to Mr. Koura, in this judgment, the Supreme Court had clarified that the panel comprising of five names originally proposed by the DMRC in the former case had serving officers in it and for this reason such a panel was held to be invalid under the amended Section 12(5) read with Clause 1 of schedule VII of the Act of 1996. 61. To plead that such a clause which gives a party the right to maintain a panel of arbitrators, is valid in law, Mr. Koura relied upon the judgment of this court in SP. Singla Construction Pvt. Ltd. vs. DMRC, 2017 SCC OnLine Del 10689. According to him, this case had also dealt with the same arbitration agreement which is the subject matter of the present case and the court while relying upon the dictum of Voestalpine Schienen GmbH (supra) held that Voestalpine Schienen GmbH (supra) never invalidates an arbitration agreement wherein the right is given to one party to suggest a panel of names to other party. To this effect, Mr. Koura also relied upon the judgment of this court in Bhayana Builders Pvt. Ltd. vs. Oriental Structural Pvt. Lt....
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....rovision for the nomination of a panel of persons who are not covered by the VII Schedule to the Act of 1996 is a valid provision in view of Central Organisation for Railway Electrification (supra). 66. It is pertinent to mention here that both Mr. Rao as well as Mr. Koura, have relied upon the recent judgment of the Supreme Court in Indian Oil Corporation Limited (supra), however in different contexts. It is the case of Mr. Koura that the judgment of the Supreme Court has the direct bearing upon the present case whereas on the other hand Mr. Rao has argued differently and vehemently opposed the applicability of this judgment in the facts of the present case. 67. Mr. Rao has unequivocally argued that it is well settled that "excepted matters" cannot be referred to arbitration. He asserted that even the interpretation of clause 9.0.2.0 of the GCC is not in dispute. 68. To demonstrate that the afore-said judgment passed by the Supreme Court has no relevance to the facts of the present case, Mr. Rao submitted that the said judgment was passed in a fact situation where there existed a prior decision by the General Manager on whether the claims were "Notified or not". It was in....
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....said issues manifest that the facts are not clear or glaring so as to enable this court under Section 11 of the Act of 1996 to give a finding on arbitrability of the petitioner's claim. Therefore, in the present case, it is best left to the arbitrator to decide the above issues. ANALYSIS: 71. Having heard the learned counsel for the parties and perused the record, two issues arise for consideration in this petition; (i) relating to the claims required to be notified and; (ii) with regard to appointment of an Arbitrator from the panel of names submitted by the respondent. 72. On the first issue, the submissions of Mr. Rao are primarily the following:- (i) The General Manger does not have any authority to decide the issues set out in Clause 9.0.2.0 of the GCC or to bind the parties to his decision; (ii) The issues involved could only be decided by an Arbitrator; (iii) Nonetheless, the petitioner had called upon the respondent to refer the claims to the General Manager for him to render a decision in terms of Clause 9.0.2.0 of the GCC; (iv) As the Clause 9.0.2.0 of the GCC does not stipulate the time period, the petitioner suggested a perio....
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....all the alleged Notified Claims of the respondent has thereafter found that none of the claims made by the respondent is a Notified Claim. On a conjoint reading of the relevant clauses of the GCC viz. Clauses 9.0.1.0 and 9.0.2.0, the dispute arising out of Notified Claims only, which is included in the Final Bill of the contractor can be referred to arbitration. However, as per Clause 9.0.2.0, any dispute or difference on whether or not a claim sought to be referred to arbitration by the contractor is a Notified Claim falls within the excluded matters and the Arbitrator or Arbitral Tribunal shall have no jurisdiction and/or authority with respect thereto. The dispute or difference whether or not a claim sought to be referred to arbitration by the contractor is a Notified Claim shall not and cannot form the subject matter of any reference or submission to arbitration. Therefore, on a fair and conjoint reading of Clause 9.0.1.0 and 9.0.2.0, it can safely be concluded that (i) only the Notified Claims of the contractor included in the Final Bill of the contractor in accordance with the provisions of Clause 6.6.3.0 shall have to be referred to arbitration; (ii) whether or not a claim s....
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....is required to give a certificate as a pre-condition to arbitration and it either fails or delays to do so, then the pre-condition must be held to be waived, is also unmerited for the reason stated above. 77. One of the submissions of Mr. Rao is that the respondent was obliged to refer the claims to the General Manager, who was bound to give a decision within a reasonable time. But since, the claims were not referred to General Manager and no decision was taken by the General Manager for three years, the delay shall have the effect of a waiver. The Court while exercising its jurisdiction under Section 11 of the Act of 1996, is not bound to decide the issue of arbitrability of the claims. According to him, the Supreme Court in the case of Vidya Droila (supra) has held that the issue of arbitrability should be decided by the Courts when the facts of the case are clear and glaring. 78. The conclusion of the Supreme Court in Indian Oil Corporation Limited (supra) on which much reliance has been placed by Mr.Rao is primarily with regard to the issue of "accord and satisfaction" in the background of acceptance of Rs.4,53,04,021/- by the respondents NCC. The Supreme Court has held t....
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.... to chose its Arbitrator only from that panel of three persons is invalid. 83. On the other hand, Mr. Koura would submit the following:- (i) The petitioner cannot ignore the arbitration agreement executed between the parties, which contemplates a particular procedure for the appointment of a sole arbitrator and this Court cannot rewrite the same; (ii) It is not the case of the petitioner that the three names given by the petitioner did not qualify as independent Arbitrators; (iii) The clause which gives right to a party to maintain a panel a Arbitrators is valid in law. 84. At the outset, I may state, the clause of contract conferring right of appointment to one party cannot be challenged unless the stipulation is invalid on the anvil of Section 12(5) of the Act of 1996. 85. Having noted the challenge of the petitioner, it is to be seen whether the nomination of one person from a panel of three Members is invalid. Mr. Rao had opposed the procedure by relying upon the judgment in the case of Simplex Infrastructures Ltd. (supra), NCCL Premco (.JV) (supra), Larsen & Toubro Ltd. (supra) and Bernard Ingenieure ZT-GmbH (supra). In these judgments, the ....
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....z. their independence and impartiality. The amended provision is enacted to identify the "circumstances" which give rise to "justifiable doubts" about the independence or impartiality of the arbitrator. If any of those circumstances as mentioned therein exists, it will give rise to justifiable apprehension of bias. The Fifth Schedule to the Act enumerates the grounds which may give rise to justifiable doubts of this nature. Likewise, the Seventh Schedule mentions those circumstances which would attract the provisions of sub-section (5) of Section 12 and nullify any prior agreement to the contrary. In the context of this case, it is relevant to mention that only if an arbitrator is an employee, a consultant, an advisor or has any past or present business relationship with a party, he is rendered ineligible to act as an arbitrator. Likewise, that person is treated as incompetent to perform the role of arbitrator, who is a manager, director or part of the management or has a single controlling influence in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration. Likewise, persons who regularly advised the appointing party o....
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.... nominee (Though in this case, it is now done away with). Not only this, the DMRC is also to nominate its arbitrator from the said list. Above all, the two arbitrators have also limited choice of picking upon the third arbitrator from the very same list, i.e., from remaining three persons. This procedure has two adverse consequences. In the first place, the choice given to the opposite party is limited as it has to choose one out of the five names that are forwarded by the other side. There is no free choice to nominate a person out of the entire panel prepared by the DMRC. Secondly, with the discretion given to the DMRC to choose five persons, a room for suspicion is created in the mind of the other side that the DMRC may have picked up its own favourites. Such a situation has to be countenanced. We are, therefore, of the opinion that sub-clauses (b) & (c) of clause 9.2 of SCC need to be deleted and instead choice should be given to the parties to nominate any person from the entire panel of arbitrators. Likewise, the two arbitrators nominated by the parties should be given full freedom to choose third arbitrator from the whole panel. 29 Some comments are also needed on t....
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....f an Arbitrator by one party, the appointment cannot be invalidated if it is not in violation of Section 12(5) of the Act of 1996. 91. The issue is, can the arbitrator be appointed by one party by asking the other party to choose a sole Arbitrator from a panel of three Arbitrators without forming the panel in conformity with the judgment of the Supreme Court in Voestalpine Schienen GmBH (supra). 92. Mr. Koura has sought to justify the appointment of an Arbitrator from a panel of three persons by relying upon Central Organisation for Railway Electrification (supra). Mr. Rao has contested this on the ground that the correctness of the said judgment has been doubted by the Supreme Court in its subsequent judgment in Tantia Constructions Ltd.(supra), thereby referring the said judgment to a larger Bench. I am informed that the issue is yet to be decided. 93. Mr. Koura has also relied upon the judgments in the cases of IWorld Business Solutions - I (supra) and IWorld Business Solutions - II (supra). I have seen the judgments. In IWorld Business Solutions - I (supra) this Court refused to interfere with the decision of the respondent to provide a panel of three arbitrators to the p....