SP Singla Constructions Pvt. Ltd. vs State Of Himachal Pradesh

“The fact that a named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or lack of independence on his part.”

[Case Brief] SP Singla Constructions Pvt. Ltd. vs State Of Himachal Pradesh

• BRIEF FACTS AND PROCEDURAL HISTORY:

1. The appellant was awarded construction work contract on 19.12.2006 relating to balance work of 214.00 mtrs. span C/C bearings on abutment bridge over river Beas at Harsipattan on Mandi Rewalsar Chandesh-Rakhota Maserah Sarkaghat Tihra Sandhole Alampur Jawalamukhi road for a sum of Rs.14,29,81,500/-.
2. An agreement was also entered into between the parties and clause (65) of the General Conditions of Contract contains arbitration clause. The period allowed for completion of work was on or before 04.01.2009. However, extension was granted to the appellant up to 30.06.2010. The work was completed by the appellant on 04.06.2011 and payment for the execution of work was made. The appellant raised a dispute and requested for the appointment of arbitrator vide its letter dated 18.10.2013.
3. Pursuant to the request of the appellant, the Chief Engineer, HPPWD appointed the “Superintendent Engineer, Arbitration Circle, HPPWD, Solan” as the arbitrator on 30.10.2013 and the said appointment had been made in terms of clause (65) of the agreement. The arbitrator entered upon reference on 11.11.2013. The appellant after requesting for the appointment of arbitrator either remained absent from the proceedings or sought adjournments stating that he intends to challenge the appointment of arbitrator before the Chief Justice as per the provisions of Arbitration and Conciliation Act, 1996. Even after hearing, no statement of claim was filed by the appellant. On 06.08.2014, arbitration proceedings were terminated under Section 25(a) of the Arbitration and Conciliation Act, 1996.
4. Being aggrieved by the appointment of “Superintendent Engineer, Arbitration Circle, Solan, HPPWD” as the arbitrator, the appellant filed petition before the High Court under Section 11(6) of the 1996 Act praying for appointment of independent arbitrator. The High Court placed reliance upon the judgment of this Court in Antrix Corporation Limited v. Devas Multimedia Private Limited (2014) 11 SCC 560 wherein it was held that in case, if any party is dissatisfied or aggrieved by the appointment of the arbitrator in terms of the agreement by other party/parties, his remedy would be by way of petition under Section 13 of the 1996 Act, and, thereafter while challenging the award under Section 34 of the 1996 Act.
5. The High Court held that the appointment of “Superintendent Engineer” as arbitrator being in terms of clause (65) of the agreement, Section 11(6) of the Act cannot be invoked. The appointment of arbitrator could not be challenged by way of an application under Section 11(6) of the 1996 Act. Being aggrieved by the dismissal of the arbitration petition, the appellant is before us.

• ISSUES BEFORE THE COURT:

1. Whether the section 12(5) of the Arbitration and Conciliation Act, 1996 has retrospective application?
2. Whether the appellant/contractor can challenge the appointment of the Superintendent Engineer, Arbitration Circle as Arbitrator to resolve the dispute between the parties?

• RATIO OF THE COURT:

1. On behalf of the appellant, learned senior counsel Mr. Maninder Singh submitted that the appointment by office after coming into operation of the 1996 Act, was no more permissible and any appointment could only be made in terms of Section 11 of 1996 Act. It was further submitted that since the arbitrator appointed by office had entered upon the reference, the appellant was compelled to file Arbitration Petition No. 4049 of 2013 and the High Court erroneously rejected the prayer made on behalf of the appellant for appointment of an independent arbitrator by name. The learned senior counsel further submitted that the arbitrator appointed by office, is an employee in service of the HPPWD which the provision of Section 12(5) bars at the threshold. Learned senior counsel placed reliance upon Ratna Infrastructure Projects Pvt. Ltd. v. Meja Urja Nigam Private Limited (2017) SCC Online Del 7808.
2. Refuting the above contention, on behalf of the respondent-State, learned counsel submitted that the appointment of Superintendent Engineer, Arbitration Circle is as per clause (65) of the agreement and as per the provisions of law. In response to the contention that Section 12(5) of the Amendment Act, 2015 bars appointment of arbitrator by post, the learned counsel for the State placed reliance upon Board of Control for Cricket in India v. Kochi Cricket Private Limited and others (2018) 6 SCC 287 and submitted that the provisions of the Amendment Act, 2015 shall apply in relation to arbitral proceedings commenced on or after the date of commencement of the Amendment Act, 2015 and shall not apply to the arbitral proceedings commenced prior to the Amendment Act, 2015 unless the parties otherwise agree.
3. The main thrust of challenge for appointment of sole arbitrator was on the ground that the arbitrator had not been appointed by name but, had been appointed by designation. A perusal of clause (65) makes it apparently clear that it was permissible to appoint a person by designation and this will be evident from clause (65), in particular the sentence “the arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason the Chief Engineer is to appoint another person….”. If appointments were only to be made by name and not by designation there could be no question of further appointment on the Arbitrator vacating his office. It is only when an Arbitrator is appointed by designation that the question of a vacancy upon the incumbent vacating office could arise thereby enabling the Chief Engineer to appoint another person to act as arbitrator. The Superintendent Engineer, Arbitration Circle appointed as the Arbitrator is from the very arbitration circle, HPPWD and such appointment is only as per clause (65) of the contract and we find no merit in the objection raised by the appellant.
4. Likewise, there is no merit in the contention of the appellant/contractor that the appointed arbitrator is an employee in service of the HPPWD which the provision of Section 12(5) of the 1996 Act (as amended w.e.f. 23.10.2015) bars at the threshold itself. In a catena of judgments, the Supreme Court held that arbitration clauses in government contracts providing that an employee of the department will be the sole arbitrator are neither void nor unenforceable. [Indian Oil Corporation Limited and others v. Raja Transport Private Limited (2009) 8 SCC 520, Ace Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corporation Limited (2007) 5 SCC 304, Union of India and another v. M.P. Gupta (2004) 10 SCC 504] The fact that a named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or lack of independence on his part.
5. Observing that, in government contracts before appointing arbitrators, the appointing authority should be more vigilant and more responsible in choosing arbitrators who are in a position to conduct arbitral proceedings in an efficient manner without comprising with the other duties, in Union of India v. Uttar Pradesh State Bridge Corporation Limited (2015) 2 SCC 52.
6. Any challenge regarding the appointment of an arbitrator as per the terms of the agreement between the parties must be viewed in the context of the agreement between the parties. As pointed out earlier, the parties have mutually agreed that there will be sole Arbitration by the person appointed by the Engineer-in-Chief and that the appellant shall have no objection to any such appointment that the Arbitrator so appointed is a Government Servant. If the appellant has any grievance that the appointment of the arbitrator is by ‘post’ and not by ‘person’, the appellant ought to have raised the challenge before the arbitrator in the first instance. Be it noted, in the petition filed before the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 on 28.12.2013, the appellant has only prayed for quashing the appointment of the Superintendent Engineer, Arbitration Circle, HPPWD, Solan as the sole arbitrator as unconstitutional and sought for appointment of an independent and impartial sole arbitrator to adjudicate the dispute between the parties. It is fairly well settled that any challenge to the arbitrator appointed ought to have been raised before the arbitrator himself in the first instance.
7. In the facts and circumstances of the present case, the proviso in clause (65) of the general conditions of the contract cannot be taken to be the agreement between the parties so as to apply the provisions of the amended Act. As per Section 26 of the Act, the provisions of the Amendment Act, 2015 shall apply in relation to arbitral proceedings commenced on or after the date of commencement of the Amendment Act, 2015 (w.e.f. 23.10.2015). In the present case, arbitration proceedings commenced way back in 2013, much prior to coming into force of the amended Act and therefore, provisions of the Amended Act cannot be invoked. In Board of Control for Cricket in India v. Kochi Cricket Private Limited and others, (2018) 6 SCC 287, this Court has held that the provisions of Amendment Act, 2015 (with effect from 23.10.2015) cannot have retrospective operation in the arbitral proceedings already commenced unless the parties otherwise agree.
8. Moreover, Section 25(a) provides that the Arbitral Tribunal shall terminate the proceedings where the claimants failed to communicate his claim in accordance with sub-section (1) of Section 23 of the Act. In the present case, the appellant has failed to file his statement of claim; and only sent the communication to the arbitrator seeking adjournment on the ground that the appellant has approached the High Court by filing petition under Section 11(6) of the Act. When the parties have specifically agreed for appointment of sole Arbitrator of the person appointed by the Engineer-in-Chief/Chief Engineer, HPPWD, the appellant was not right in approaching the High Court seeking appointment of an independent Arbitrator.
9. The appellant-contractor did not file his statement of claim before the arbitrator since the appellant had approached the High Court by filing petition under Section 11(6) of the 1996 Act, probably under the advice that the appellant can get an independent arbitrator appointed. The appellant had been writing letters to the arbitrator before the hearing seeking adjournment. However, on the fourth occasion, proceedings were simply terminated since no hearings were held on earlier occasions, he expected that his request might be accepted. The arbitrator could have issued a notice warning the appellant that no adjournment would be granted under any circumstances. Since, no such warning was given, we deem it appropriate to set aside the order of termination. Appellant had made a claim on account of delay as indicated in his letter dated 18.10.2013 under various heads. In the interest of justice, in our considered view, an opportunity is to be afforded to the appellant to go before the departmental arbitrator (as agreed by the parties in clause (65) of the general conditions of contract) and the proceedings of the arbitrator dated 06.08.2014 terminating the proceedings is to be set aside.

• DECISION HELD BY COURT:

In the result, the appeals are disposed of with the following directions:-

• The proceedings of the arbitrator dated 06.08.2014 terminating the arbitral proceedings is set aside. In terms of clause (65) of the general conditions of contract, the Chief Engineer, Himachal Pradesh Public Works Department is directed to appoint an arbitrator in terms of clause (65) of the agreement.
• The appellant shall file his claim before the arbitrator so nominated and the arbitrator shall afford sufficient opportunities to both the parties and proceed with the matter in accordance with law.

We make it clear that we have not expressed any opinion on the merits of the claim of the appellant.