Unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the Court exercising jurisdiction under Section 11(6) of the Arbitration Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be countenanced in law.
|Case name:||Perkins Eastman Architects Dpc Vs. Hscc (India) Limited|
|Case number/Citation:||Arbitration Petition No. 000032 / 2019|
|Court:||Supreme Court of India|
|Bench:||HON’BLE MR. JUSTICE UDAY UMESH LALIT HON’BLE MS. JUSTICE INDU MALHOTRA|
|Decided on:||November 26, 2019|
|Relevant Act/Sections:||Section 11(6) and 12 of Arb and Conciliation Act|
- BRIEF FACTS AND PROCEDURAL HISTORY:
- As an executing agency of Ministry of Health and Family Welfare, the respondent was desirous of comprehensive architectural planning and designing for the works provided under Pradhan Mantri Swasthya Suraksha Yojna (PMSSY).
- 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”.
- 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 31.01.2017 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 providedAinter alia for dispute resolution in Clause 24.
- Within six days of the signing of the said contract, in letter dated 26.5.2017 the respondent alleged failure on part of the Applicants which was followed by stop work notice dated 03.11.2017. It is the case of the Applicants that officials of the respondents were deliberately trying to stall the project and were non-co-operative right from the initial stages.
- Later, a termination notice was issued by the respondent on11.01.2019 alleging non-compliance of contractual obligations on part of the Applicants, which assertions were denied. However, termination letter was issued on 20.02.2019. On 11.04.2019 a notice was issued by the Advocate for the applicants invoking the dispute resolution Clause namely Clause 24 as aforesaid raising a claim of Rs.20.95 crores.
- According to the Applicants, a decision in respect of the notice dated 11.04.2019 was required to be taken within one month in terms of Clause 24 of the contract but a communication was sent by the respondent on 10.05.2019 intimating that a reply to the notice would be sent within 30 days.
- An appeal was filed by the Applicants before the Director (Engineering) in terms of said Clause 24 but there was complete failure on part of the Director (Engineering) to discharge the obligations in terms of said Clause 24. Therefore, by letter dated 28.06.2019 the Chief Managing Director of the respondent was called upon to appoint a sole arbitrator in terms of said Clause 24. However, no appointment of an arbitrator was made within thirty days but a letter was addressed by Chief General Manager of the respondent on 30.07.2019 purportedly appointing one Major General K.T. Gajria as the sole arbitrator.
- The relevant averments in para 3 of the application are:-
- “z. The 30 (thirty) day time period for appointment of a sole arbitrator stood expired on 28 th July, 2019 and yet the CMD of the respondent failed to appoint a sole arbitrator or even respond to the letter dated 28 th June, 2019 (received on 29 th June, 2019). aa. Shockingly, in continuance of its highhanded approach and in contravention to its own letter dated 24 th June, 2019, the CGM of the Respondent addressed the Purported Appointment Letter dated 30 th 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”
- ISSUE BEFORE THE COURT:
- Whether a sole Arbitrator may be appointed, in accordance with the Contract dated 22 nd May, 2017 executed between the parties and the sole Arbitrator so appointed may adjudicate the disputes and differences between the parties arising from the said Contract?
- RATIO OF THE COURT
- The applicants submitted that
(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.
- On the other hand the respondents submitted that
(a) The appointment of Major General K.T. Gajria was in consonance with Clause 24 of the contract;
(b) Such appointment could not in any way be said to be illegal;
(c) There was no occasion to file an application seeking appointment of any other person under the provisions of Section 11(6) read with Section 11(12)(a) of the Act; and
(d) In any case, the arbitration in the present matter would not be an International Commercial Arbitration within the meaning of Section 2(1)(f) of the Act.
- The court held that that the declaration shows that the Applicant No.1 was accepted to be the lead member of the Consortium. Therefore, even if the liability of both the Applicants was stated in Clause 9 to be joint and several, that by itself would not change the status of the Applicant No.1 to be the lead member.
- In Larsen and Toubro Limited SCOMI Engineering BHD more or less similar fact situation came up for consideration. The only distinction was that the lead member in the consortium was an entity registered in India. It was 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”.
- In TRF Limited vs Energo Engineering (2017) 8 SCC 377 it was 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 Director to nominate another person to act as an arbitrator. The Managing Director thus had two capacities under said Clause, the first as an arbitrator and the second as an appointing authority.
- The court determined that there are two categories of cases, first where the Managing Director himself is named as an arbitrator with an additional power to appoint any other person as an arbitrator. In the second category, the Managing Director is not to act as an arbitrator himself but is empowered or authorised to appoint any other person of his choice or discretion as an arbitrator.
- If, in the first category of cases, the Managing Director was found incompetent, it was because of the interest that he would be said to be having in the outcome or result of the dispute. The element of invalidity would thus be directly relatable to and arise from the interest that he would be having in such outcome or decision. If that be the test, similar invalidity would always arise and spring even in the second category of cases. If the interest that he has in the outcome of the dispute, is taken to be the basis for the possibility of bias, it will always be present irrespective of whether the matter stands under the first or second category of cases.
- This court held that if such deduction is drawn from the decision of this Court in TRF Limited (2017) 8 SCC 377 all cases having clauses similar to that with which we are presently concerned, a party to the agreement would be disentitled to make any appointment of an Arbitrator on its own and it would always be available to argue that a party or an official or an authority having interest in the dispute would be disentitled to make appointment of an Arbitrator.
- In TRF Ltd, the Court was concerned with the issue, “whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an Arbitrator” The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible 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.
- This court further relied upon Walter Bau AG vs BMC (2015) 3 SCC 800 wherein it was held that unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the Court exercising jurisdiction under Section 11(6) of the Arbitration Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be countenanced in law.
- DECISION HELD BY COURT:
- The court accepted the application.
- In exercise of the power conferred by Section 11(6) of the Act, it appointed Dr. Justice A.K. Sikri, former Judge of this Court as the sole arbitrator to decide all the disputes arising out of the Agreement dated 22.05.2017, between the parties, subject to the mandatory 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.