Hindustan Construction Company Ltd vs Maharashtra State Road Development Corporation Limited

This application under Section 11(6) of the Arbitration and Conciliation Act,1996 (for short 'the Act') seeks an appointment of a sole arbitrator to

adjudicate the disputes and differences between the parties stated to have arisen under the agreement dated 29 September 2000 being a contract 'for

the work of construction of Cable Stayed Bridge Approach Bridges & Toll Plaza (Package IV â€" OptionÂ1) of BandraÂWorli Sea Link Project'

awarded by the respondentÂ​Maharashtra State Road Development Corporation Ltd.

There is no dispute on the contract entered between the parties and the arbitration clause as contained therein being clause 67.3. The arbitration

clause reads thus:Â​

“67.3. If the decision of the Employer reached on consideration of the advice of the Technical Advisory Committee is not agreeable to the

Contractor, the Contractor shall notify the Employer within 14 days of the receipt of the said decision, failing which the Employer's decision shall be

final and binding on the Contractor. The Employer shall then nominate any person, who shall be a retired Chief Secretary of the Government of

Maharashtra â€" such person to be selected by the Managing Director Maharashtra State Road Development Corporation Limited â€" as a sole

arbitrator within 28 days of the receipt of the Contractor's notice for nonÂacceptance of the Employer's decision. The arbitrator so nominated shall

carry out the arbitration proceedings in accordance with the Arbitration and Conciliation Act 1996, or any modification thereof, and give his decision in

the case within 4 months from the date of reference of the dispute to him. The decision of the above said arbitrator shall be final and binding on the

Employer and the Contractor.â€​

The case of the applicant is of delays faced by the applicant in execution of the contractual work, which was solely attributable to the respondent.

According to the applicant, this resulted in a delay in completion of the project, which under the contract was required to be completed within thirty

months, that is on or before 31 March 2003. However, the project was finally completed in March,2010. The reasons of such delay are set out in

paragraph 6 of the application. The applicant contends that the delay being not attributable to the applicant, is also acknowledged by the respondent as

the contract period was extended from time to time.

The applicant has asserted that various clauses of the contract provide for payment of additional cost in case the project was delayed on account of

defaults of the respondent. The applicant invoking the said clauses, submitted its claim for the additional costs to the Engineer with a copy to the

respondent vide letter bearing No.4497 dated 20 May 2011 making a claim of Rs.648 crores. This claim of the applicant was rejected by the

Engineer/Project Management Consultant by its letter dated 27 May 2011. The applicant being aggrieved by the decision of the Engineer by the letter

dated 28 June 2011 approached the Technical Advisory Committee, BandraÂWorli Sea Link Project (for short 'the Committee'), making a claim for

compensation in terms of clause 67.2 of the said agreement, which provided for 'Settlement of Disputes'. This statement of claim was submitted to the

said Committee vide letter dated 22 August 2011. The said committee considered the claim of the applicant and it is stated by the applicant that the

Committee advised the respondent that the claim of the applicant shall be considered and determined in terms of the contract conditions and taking into

consideration the provisions of the Indian Contract Act,1872. This recommendation of the Committee interalia also referred to an amount of Rs.157

crores proposed to be paid by the respondent and certified by Engineer to say that it only included value of variations pertaining to three items and did

not include any other claim. This recommendation of the Committee was under a letter dated 29 June 2012 as submitted to the respondent.

The applicant states that despite the advice of the Committee in its letter dated 29 June 2012, no decision was taken on the claim for compensation

raised by the applicant. The applicant therefore addressed letters dated 15 September 2012, 5 October 2012, 22 October 2012, 22 November 2018, 8

January 2013 and 2 May 2013. However, there was no reply to these letters from the respondent. In paragraph 12 of the application, the applicant has

averred that the applicant was given to understand by the respondent that the respondent has already made assessment of the claim amount payable

to the applicant and further the proposal to that effect was forwarded to the Government for approval. This was confirmed by the respondent by its

letter dated 8 May 2015. This letter of the respondent referred to Compensation for Delays since inception of the Project of the amount of

Rs.6,48,00,00,000/Â. It recorded that the matter is under consideration of the State Government, as per the respondent's proposal submitted to State

Government, regarding the applicant's claim on delay.

The applicant thereafter submitted to the respondent a final statement as per clause 60.6 of the contract and requested the Engineer for issuance of

a final payment certificate for the due amount. In the said final statement, the applicant included the claim for compensation for sum of Rs.648 crores.

By another letter dated 23 August 2016 the applicant requested the respondent to amicably settle the dispute without inviting litigation. However, as

there was no response either to make final payment or to take steps to resolve the dispute, the applicant by its letter dated 27 December 2016

addressed to the respondent invoked the arbitration clause. This letter invoking the arbitration agreement was received by the respondent on 28

December 2016. However, despite lapse of 28 days from the date of receipt of the said letter/notice, the respondent failed to appoint an arbitrator in

terms of clause 67.3 of the said agreement. The respondent however by letter dated 27 January 2017 informed the applicant that the respondent is

pursuing the subject matter for early necessary action. In the above circumstances, the present application has been filed.

The respondent has appeared and has filed a reply affidavit of Mr.Pramod K.Patil, Executive Engineer. The respondent interalia contends that the

claim of the applicant is not maintainable. It is also the case of the respondent that the matter was under consideration of the State Government and

the same was informed to the applicant by letter dated 8 May 2015 which was in the spirit of a settlement. In the reply affidavit, there is no

substantive plea on facts which would dissuade the Court to exercise jurisdiction under Section 11(6) of the Act.

Mr.Cama, learned Counsel for the applicant has argued in support of the application. He has pointed out various documents on record of the dispute

having been arisen between the parties as also the clauses of the arbitration agreement which according to Mr.Cama would entitle the applicant for

reference of the dispute to arbitrator.

On the other hand the only contention as urged by Mr.Delhiwala, learned Counsel for the respondent is that the arbitrator who is required to be

appointed by the Court ought to be in terms of the arbitration clause namely a retired Chief Secretary of Government of Maharashtra to be selected

by the Managing Director of the respondent. Mr.Delhiwala submits that in the facts of the case and considering the law on the issue, there is no

impediment in the appointment of such named arbitrator as provided in the arbitration clause. In support of his submission, Mr.Delhiwala has relied on

the decisions in (i) Indian Oil Corporation Ltd. & Ors. Vs. Raja Transport Pvt.Ltd. (2009)8 SCC 52; 0(ii) Aravali Power Company Pvt.Ltd. Vs.

M/s.Era Infra Engineering Ltd. AIR 2017 SC 445;0 (iii) Voestalpine Schienen GMBH Vs. Delhi Metro Rail Corporation Ltd(2017)4 SCC 66; 5(iv)

Era Infra Engineering Ltd. Vs. Airports Authority of India.2018(5) Arb.LR 39 (Delhi).

Mr.Cama, learned Counsel for the applicant, however, would oppose the submissions as made on behalf of the respondent. Mr.Cama referring to

the decision of the Supreme Court in Deep Trading Company Vs. Indian Oil Corporation (2013)4 SCC 3 5would submit that the respondent in not

taking any steps to appoint an arbitrator in response to the applicant's notice dated 27 December 2016 invoking arbitration, the respondent has forfeited

its right to appoint an arbitrator. Mr.Cama submits that the facts clearly indicate that till filing of this application under Section 11(6) of the Act, an

appointment of arbitrator was not made by the respondent and hence, as per the clear mandate of Section 11(6) of the Act, the Court has now the

jurisdiction to appoint an arbitrator. Mr.Cama submits that even otherwise in the facts of the case and considering the nature of the contract, it would

not be appropriate to accept the submission as urged on behalf of the respondent and appoint the named arbitrator.

I have heard the learned Counsel for the parties, also I have perused the record. The arbitration agreement between he parties is not in dispute

wherein the parties in clause 67 of the contract have agreed for a mechanism for settlement of dispute which is firstly consideration of dispute by the

Engineer and thereafter against the decision of the Engineer a reference can be made to Technical Advisory Committee (TAC) and a decision to be

taken by the employer (respondent) on the basis of the advice of the TAC. If the dispute further remains unresolved, it is agreed between the parties

that the contractor shall notify the employer within fourteen days of the decision of the employer for appointment of an arbitrator. Thereupon the

employer shall nominate any person who shall be a retired Chief Secretary of the Government of Maharashtra to be selected by the Managing

Director of the respondent, as sole arbitrator within twenty eight days of the receipt of the contractor's notice, for non acceptance of the employer's

decision. The arbitration clause provides that the arbitrator so nominated shall carry out arbitration proceedings in accordance with the 'Arbitration and

Conciliation Act,1996, or any modification thereof', and give his decision within four months from the date of reference of the dispute .

As noted above the applicant in terms of clause 67.3 being not agreeable to the decision of the TAC, has invoked the arbitration clause by its letter

dated 27 December 2016 which was received by the respondent on 28 December 2016. In terms of the arbitration clause, within twenty eight days of

the receipt of the said letter, the respondent was required to make an appointment of the arbitrator. However such appointment was not made by the

respondent within the agreed stipulated time. Moreover, by a letter dated 27 January 2017 which was received by the applicant on 2 February 2017

the respondent informed the applicant that the subject matter is being pursued for early necessary action. The present application was ultimately filed

on 9 March 2017 and till the filing of this application, admittedly no appointment of a sole arbitrator as per the agreement between the parties is made

by the respondent. It is thus clear that the applicant has appropriately invoked the jurisdiction of this Court under Section 11(6) of the Act for

appointment of an arbitrator.

The scope of Section 11 of the Act which contains the scheme for appointment of an arbitral tribunal is clear. SubÂSection (1) provides that a

person of any nationality may be an arbitrator, unless otherwise agreed by the parties. SubÂsection (2) provides that subject to subÂsection (6), the

parties are free to agree on a procedure for appointing the arbitrator or arbitrators. SubÂsection (3) provides that failing any agreement referred to in

subÂsection (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third

arbitrator who shall act as the presiding arbitrator. SubÂsection (4) provides that if the appointment procedure in subÂsection (3) applies and a party

fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or the two appointed arbitrators fail to agree

on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Supreme

Court or, as the case may be, the High Court or any person or institution designated by such Court. SubÂsection (5) provides that failing any

agreement referred to in subÂsection (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from

receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Supreme Court or, as

the case may be, the High Court or any person or institution designated by such Court. SubÂsection (6) of Section 11 provides that where the

arbitration agreement specifies appointment procedure and a party fails to act as required under that procedure or the parties, or the two appointed

arbitrators, fail to reach an agreement expected of them under that procedure, or a person, including an institution, fails to perform any function

entrusted to him or it under that procedure, a party may request the Supreme Court or, as the case may be, the High Court or any person or institution

designated by such Court to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the

appointment. Sub section (6A) has been incorporated by the Act 3 of 2016 with effect from 23 October 2015 to provide that the Supreme Court or,

as the case may be, the High Court, while considering any application under subÂsection (4) or subÂsection (5) or subÂsection (6), shall,

notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement. SubÂsection (8)

as amended by the Act 3 of 2016 (with effect from 23 October 2015) provides that the Supreme Court or, as the case may be, the High Court or the

person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms

of subÂsection (1) of section 12, and have due regard interalia to any qualifications required for the arbitrator by the agreement of the parties. Thus it

can be seen that Section 11 is a Code by itself for appointment of an arbitral tribunal.

At the outset, it may be observed that the parties in the arbitration clause have agreed for applicability of the Arbitration and Conciliation Act,1996

“with any modification thereof†to the arbitration proceedings. Section 21 of the Act provides for commencement of arbitral proceedings to

stipulate that unless the parties otherwise agree, the arbitral proceedings in respect of a particular dispute would commence on the date on which the

request for that dispute to be referred to arbitration is received by the respondent. Admittedly, the notice invoking the arbitration is dated 27 December

2016 received by the respondent on 28 December 2016. Thus clearly the mandate of the amended provisions of the Act namely Section 6A becomes

applicable and the endeavour of the Court is to confine the inquiry to the examination of arbitration agreement. In the context of the above clear

statutory mandate, it is quite clear that the facts of the present case would warrant appointment of an arbitrator by the Court.

However, the only question is whether the court is required to appoint a person named in the arbitration clause as insisted on behalf of the

respondent. The issue would be required to be answered considering the statutory mandate and the law in this regard.

In so far as the facts of the present case are concerned, on a default being committed by the respondent in not appointing arbitrator within a

prescribed time, as called upon to do so by the applicant, it can be very well said that the respondent has forfeited its right to appoint the arbitrator in

terms of the clause. It would not be open for the respondent to contend, after the applicant had approached this Court by the present application under

Section 11(6) of the Act, that it should be put in the same position as it stood prior to the filing of this application and that a right to appoint an arbitrator

of its choice as provided in the arbitration clause would nonetheless be available to the respondent. This right which was available to the respondent

certainly stood forfeited by the respondent's inaction to make an appointment within a prescribed time as provided under the arbitration clause or

within thirty days from the receipt of the request as provided by subÂ​section (4) of Section 11. The law in this regard is well settled.

In Datar Switchgears Ltd. Vs. Tata Finance Ltd. & Anr. (2000)8 SCC 151 Â in interpreting subÂsection 6 of Section 11, the Supreme Court

considered in what circumstances the right of a party to make an appointment stands forfeited. In Paragraph 19 the Court observed thus:Â​

“19. So far as cases falling under Section 11(6) are concerned â€" such as the one before us â€" no time limit has been prescribed under the Act,

whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view, therefore, so far as Section 11(6) is

concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the

demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after

30 days of the demand, but before the first party has moved the court under Secton11, that would be sufficient. In other words, in cases arising under

Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but

continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the

right of the opposite party cease. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within

30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited.â€​

In “Denal (Proprietary Limited) Vs. Govt. of India, Ministry of Defenc†AIR 2012 SC 81 t7he Supreme Court again applied the law as laid

down in the decision in Datar Switchgears Ltd.(supra) and also followed the decision in Punj Lloyd Ltd. Vs. Petronet MHB Ltd. 2006(2) SCC 638 19.

In Deep Trading Company Vs. Indian Oil Corporation & Ors.(supra) a three Judge Bench of the Supreme Court applying the law as laid down in

Datar Switchgears Ltd.(supra) held as under:Â​

“19. If we apply the legal position exposited by this Court in Datar Switchgears to the admitted facts, it will be seen that the Corporation has

forfeited its right to appoint the arbitrator. It is so for the reason that on 9Â8Â2004, the dealer called upon the Corporation to appoint the arbitrator in

accordance with the terms of Clause 29 of the agreement but that was not done till the dealer had made application under Section 11(6) to the Chief

Justice of the Allahabad High Court for appointment of the arbitrator. The appointment was made by the Corporation only during the pendency of the

proceedings under Section 11(6). Such appointment by the Corporation after forfeiture of its right is of no consequence and has not disÂentitled the

dealer to seek appointment of the arbitrator by the Chief Justice under Section 11(6). We answer the above questions accordingly.â€​

In a recent decision in TRF Ltd. Vs. Energo Engineering Projects Ltd. (2017)8 SCC 37 a7 three Judge Bench of the Supreme Court referring to

the decision in Deep Trading Company Vs. Indian Oil Corporation & Ors.(supra), in the context of right of the parties to appoint an arbitrator, in

paragraphs 27 and 28 it was observed thus:Â​

“27. … … …. In Deep Trading Co. arbitration clause, as is noticeable, laid down that the dispute or difference of any nature whatsoever or

regarding any right, liability, act, omission on account of any of the parties thereto or in relation to the agreement shall be referred to the sole

arbitration of the Director (Marketing) of the Corporation or of some officer the Corporation who may be nominated by the Director (Marketing).

As the factual matrix of the said case would show, the appointing authority had not appointed arbitrator till the dealer moved the Court and it did

appoint during the pendency of the proceeding. Be it noted that dealer had called upon the Corporation to appoint arbitrator on 9Â8Â2004 and as no

appointment was made by the Corporation, he had moved the application on 6Â12Â2004. The Corporation appointed the sole arbitrator on 28Â12Â‐

2004 after the application under Section 11(6) was made. Taking note of the factual account, the Court opined that there was a forfeiture of the right

of appointment of arbitrator under the agreement and, therefore, the appointment of the arbitrator by the Corporation during the pendency of the

proceeding under Section 11(6) of the Act was of no consequence and remanded the matter to the High Court. … … ...â€​

In Aravali Power Company Pvt.Ltd. Vs. M/s.Era Infra Engineering Ltd.(supra) the Supreme Court referring to the decision in Denal (Proprietary

Limited) Vs. Govt. of India, Ministry of Defence (supra) observed thus:Â​

“20.5. Similarly, in Denel (Proprietary) Ltd. Vs. Ministry of Defence [(2012)2 SCC 759; (2012)2 SCC (Civ)37], the relevant clause provided for

sole arbitration of the Director General, Ordinance Factory, Government of India or a government servant appointed by him. It was observed that

since no arbitrator was appointed in terms of the governing clause within the stipulated period the respondent had forfeited the right to make an

appointment of an arbitrator. .. … ..â€​

Adverting to the principles of law as laid down in the above decisions, it is clear that the respondent in the present case has forfeited its right to

appoint the arbitrator and thus the respondent cannot insist as a matter of legal right that at this stage a person designated in the arbitration clause be

appointed as an arbitrator.

To support the contention, reliance placed on behalf of the respondent on the decision in Indian Oil Corporation Ltd. & Ors. Vs. Raja Transport

Pvt.Ltd.(supra) is not well founded. Firstly this was a case prior to the amendment to Section 11(8) and Section 12 as brought about to the Act by Act

3 of 2016, and the dispute between the parties initially arose in the proceedings filed before the Civil Court by the respondent therein, where in an

objection under Section 8 read with Order VII Rule 11 of the Code of Civil Procedure was taken to the jurisdiction of the Court in view of the

arbitration agreement between the parties. The objection was upheld and the learned Civil Judge directed the parties to refer the matter to arbitration.

An appeal against the said order was also dismissed. During the pendency of the appeal, respondent therein had issued a notice dated 4 January 2006

through its Counsel to the appellant (Indian Oil Corporation) referring to the appellant's insistence that only its Director(Marketing) be nominated by

him to act as arbitrator as referred in the order passed by the civil Court. The respondent alleged that they did not expect a fair trial if the Director

(Marketing) or any other employee of the appellant was appointed as an arbitrator and such appointment should be prejudicial to its interest. It is on

this background, the respondent filed an application under Section 11(6) of the Arbitration Act before the High Court. The High Court appointed a

retired High Court Judge as sole arbitrator to decide the dispute between the parties. It is in this context and not in the context of refusal of the

appellant therein to appoint an arbitrator, the issue was considered by the Supreme court. The Supreme Court held that the appellant had not failed in

making an appointment as agreed between the parties. This is surely not a situation in the present case. Moreover the Supreme Court considering the

divergent views expressed in Ace Pipeline Contract Pvt. Ltd. v. Bharat Petroleum Corporation Ltd. (2007) 5 SCC 30 4and Union of India v. Bharat

Battery Manufacturing Company Pvt. Ltd. (2007) 7 SCC 68 4in the case Northern Railway Administration v. Patel Engineering Co. Ltd. (2008)10

SCC 240, in paragraph 12 held that it is not mandatory for the Chief Justice or any person or institution designated by him to appoint the named

arbitrator or arbitrators. But at the same time, due regard has to be given to the qualifications required by the agreement and other considerations. The

arbitration clause in the present case surely also not prescribe any special qualification. The dispute between the parties is on a construction contract.

Thus the said decision would not assist the respondent.

On the above conspectus, the contention of the respondent that the Court shall have due regard to the arbitration clause and the person named in

the arbitration clause to be appointed as an arbitrator, cannot be accepted.

The Court also cannot overlook that by the amendment Act 3 of 2016 (with effect from 23 October 2016) significant amendments are made to

subÂsection (8) of Section 11 of the Act requiring the Supreme Court or, as the case may be, the High Court or the person or institution designated by

such Court, before appointing an arbitrator, to seek a disclosure in writing from the prospective arbitrator in terms of sub section (1) of section 12,

and have due regard to any qualifications required for the arbitrator by the agreement of the parties and the contents of the disclosure and other

considerations as are likely to secure the appointment of an independent and impartial arbitrator. Section 12 which was also amended by the said

Amending Act provides for a disclosure in writing by the arbitrator when approached for appointment of an arbitrator. The disclosure as contemplated

is quite extensive which would include any circumstances of the arbitrator having any direct or indirect, or any past or present relationship with or

interest in any of the parties or in relation to the subjectÂmatter in dispute, whether financial, business, professional or other kind, which is likely to

give rise to justifiable doubts as to his independence or impartiality and which are likely to affect his ability to devote sufficient time to the arbitration

and in particular his ability to complete the entire arbitration within a period of twelve months. 'Explanation 1' below Section 12 provides that the

grounds stated in the “Fifth Schedule†shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the

independence or impartiality of an arbitrator. SubÂsection (5) provides that notwithstanding any prior agreement to the contrary, any person whose

relationship, with the parties or counsel or the subjectÂmatter of the dispute, falls under any of the categories specified in the “Seventh Scheduleâ€

shall be ineligible to be appointed as an arbitrator. These are the specific rigours now contemplated by virtue of the amendment.

Thus the Act has undergone a radical change in terms of the amendment as brought out by Act 3 of 2016 with effect from 23 October 2015.

Considering the provisions of Section 11(8) read with Section 12(1) and the contents of the Fifth Schedule and the Seventh Schedule, in the facts of

the case it would not be appropriate for the court to appoint a person named in the arbitration clause. This for the reason that the respondent as a

corporation is fully under the control of the State Government and is concerned with various development activities in the urban areas. The present

dispute has arisen under the contract 'for the work of construction of Cable Stayed Bridge Approach Bridges & Toll Plaza (Package IV â€" OptionÂ‐

1) of BandraÂWorli Sea Link Project' which was a major project in the heart of Mumbai city. It cannot be conceived that any retired person who held

the office of the Chief Secretary would not be concerned with the affairs of urban development department or was not connected even remotely with

matters pertaining to any decision in regard to such project. Thus in my opinion the contention as urged on behalf of the appellant to appoint a retired

Chief Secretary cannot be accepted.

In the above circumstances, the application is required to be allowed. Accordingly the following order is passed:Â​

(I) The Court appoints Mrs.Justice Vasanti A. Naik (Retd), having her address at 322, Verma Chambers, 11, Homji Street, Horniman Circle, Fort,

Mumbai, as an arbitrator.

(II) The learned arbitrator, fifteen days before entering the arbitration reference, shall forward a statement of disclosure as per the requirement of

Section 11(8) read with Section 12(1) of the Arbitration and Conciliation Act,1996, to the Prothonotary and Senior Master of this Court, to be placed

on record of this application with a copy to be forwarded to both the parties.

(III) Office to forward a copy of this order to Mrs.Justice Vasanti Naik (Retd)

(IV) The Arbitration Application is disposed of in the above terms. No costs.