Calling a Halt to Skewed Arbitration Practices


Abstract

This article analyses the verdict delivered by the High Court of Delhi in ‘Assignia-Vil JV v. Rail Vikas Nigam Limited’, Arb. P. No. 677/2015 decided on: 29th April 2016,[1] wherein the Court observed that the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as “the Amendment Act”) mandates that if the parties and the arbitrator appointed enjoy any of the relationships as mentioned in the Amendment Act,[2] then in such cases that person cannot be appointed as an arbitrator. In the instance case, the relationship between the arbitrator and a party in dispute was that of employer and employee, which the Court prohibited inter alia stating that justifiable doubts may arise as to the independence and impartiality of an employee of one of the parties appointed as an arbitrator.


Through this article, we briefly assert the facts leading up to the present petition, the arguments put forward and the judgments relied upon by the parties to the arbitration petition and analyse and assess the impact of the observations made by the concerned Hon’ble Judge with specific regard to the interpretation of the provisions of the Amended Act.

Facts leading up to the present Petition


On 07th March 2012, Rail Vikas Nigam Limited (hereinafter referred to as “the respondent”), issued an invitation for bid for certain construction works, doubling between Utrahtia junction and Rae Bareli Junction. Vide its letter dated 04th May 2012, Assignia-Vil JV (hereinafter referred to as “the petitioner”), submitted its bid, which was accepted by the respondent by its letter of acceptance dated 09th July, 2012. Consequent to this, the petitioner and the respondent entered into a contract agreement dated 14th August 2012 for a term of 30 months, plus a 6 months defect liability period.


The date of completion of the said construction work was stipulated to be 15th February 2016. However, due to several difficulties that were encountered on the work site, the petitioner sought an extension of time (EOT) by means of its letter dated 08th January 2015. On the basis of the said EOT the respondent increased the time of completion upto 14th August 2016 without levy of liquidated damages vide its letter dated 17th March 2015. Yet, the petitioner received a letter dated 19th May 2015 from the respondent giving a notice of termination to the petitioner for the said construction work. Thereafter, the petitioner sent a letter dated 26th May 2015 rebutted the allegations, however the respondent still terminated the contract by its letter dated 03rd June 2015. After no response within 60 days of the letter sent by the petitioner dated 22nd June 2015, the petitioner issued a notice of dissatisfaction dated 31st August 2015. Owing to lack of response on the part of the respondent to settle the matter amicably, the petitioner invoked the arbitration clause on 26th October 2015 and constituted an Arbitral Tribunal confined to a few claims[3] of the petitioner, which comprised of serving and retired officers of the respondent itself.


Submissions

Petitioner (Assignia – Vil JV)

  • The constitution of the Arbitral Tribunal was done without any attempt for amicable settlement;

  • Arbitration proceedings continuing without the attempt of making any settlement is premature as per the terms of arbitration clause of the contract;

  • The respondent has acted contrary to the stipulated procedure by failing to provide any list/panel for the constitution of the Arbitral Tribunal;

  • The present petition has been filed on the basis of the fresh cause of action as the respondent has terminated the contract between the parties, while the proceedings with regard to 3 claims are already pending;[4]

  • A fair hearing cannot be expected from an Arbitral Tribunal that comprises of serving officers of the respondent, It cannot be reasonably expected from a serving officer of a public-sector corporation that he/she would impute such faults to his or her very own employer, while continuing to be in the employment;[5]

  • No Arbitral Tribunal has been constituted till date for resolving the specific dispute relating to the illegal termination of the contract by the respondent;[6]

  • There is reasonable apprehension on the basis of certain instances of initiating department proceedings against officers in relation to the discharge of their quasi-judicial duties as arbitrators.[7]

Respondent (Rail Vikas Nigam Limited)

  • Pertaining to the three claims of the petitioner, the Arbitral Tribunal has already been constituted pursuant to invocation of Arbitration Clause by the petitioner;

  • The petitioner is now avoiding the arbitration proceedings without any valid reason;

  • The petitioner in the said proceedings did not file statement of claim nor raised any objection on the constitution of Arbitral Tribunal under Section 13 of the Act;[8]

  • The Mandate of the existing Arbitral Tribunal cannot be terminated;

  • The fresh dispute of termination of contract should also be referred to the same Arbitral Tribunal;

  • The appointed Arbitrators have the jurisdiction to decide ‘all disputes’ raised in the pleadings; and

  • No need for appointment of fresh arbitrators as additional claims could be added to the pending arbitration {Reliance placed on Section 23(3) of the Act}.

Precedents relied on


‘State of Orissa v. Asis Ranjan Mohonty’, (1999) 9 SCC 249; ‘H.L. Batra and Co v. State of Haryana’, (1999) 9 SCC 188; ‘Shyama Charan Agarwal & Sons v. Union of India’, (2002) 6 SCC 201; and ‘Kusheshwar Prasad Singh v. State of Bihar & Ors’, (2007) 11 SCC 447.


Observations of the Court


Prima facie, the Hon’ble Justice Manmohan Singh was of the view that the arbitral tribunals are not permanent bodies having all encompassing jurisdiction but are specifically created for adjudicating upon specific claims/disputes.[9] The Hon’ble Judge further observed that disputes pertaining to termination of contract cannot be referred to the same tribunal owing to the following reasons:[10]

  • In view of the Amendment Act, 2015;

  • Dispute being distinct and complicated;

  • Conflict of interest; and

  • The present petition has been filed post amendment.


Placing reliance upon Section 21 of the Act,[11] the Hon’ble Judge took the view that arbitration can only proceed when the respondent receives the request for a dispute to be referred to arbitration, which in the facts of the present case was after the dispatch of the letter dated 26th October 2015.


Placing reliance upon Section 11 (6) of the Act, [12] the Hon’ble Judge observed that a party that is bound to take steps to appoint the arbitrators refuses to do so, then such course of actions hall amount to failure of proceedings necessitating recourse to Section 11 (6) of the Act. In terms of the said section, the Court further observed that the respondent forfeited its right to appoint an Arbitral Tribunal of its choice comprising of its serving and retired officers.


The Court further observed that there is no legal impediment for the petitioner to seek appointment of another arbitrator to go into a dispute, which is not considered in the earlier arbitration proceedings.[13] It also observed that the disputes in question all related to the illegal termination of the contract, which are a completely different genre and require to be adjudicated upon by an independent Arbitral Tribunal. It is the prerogative of the petitioner to seek constitution of a distinct Arbitral Tribunal for adjudicating the issue of termination of the contract.[14] The Court therefore, did not find merit in the submissions of the respondent that the same Arbitral Tribunal shall decide ‘all disputes’ arising between the parties.[15]


Lastly, the Court observed that the arbitration clause between the parties states it beyond any cavil that the disputes between the parties shall be settled in accordance with the Act, “and any statutory modification or reenactment thereof”, which covers the Amendment Act of 2015.[16] Applying the Section 26 of the Amended Act, 2015 to the arbitration invoked by the petitioner on 26th October 2015, the Court observed that the provisions of the amended Act shall apply to the present petition.[17]


Precedents relied on


‘Datar Switchgears Ltd. v. Tata Finance Ltd. and Another’ (2000) 8 SCC 151; ‘Deep Trading Company v. Indian Oil Corporation and Ors’ (2013) 4 SCC 35; ‘North Eastern Railway v. Tripple Engineering Works’ (2014) 9 SCC 288; ‘S.C. Mathur v. V.P. Punj’ 1997 (2) Arb.LR 56 (Delhi); ‘Bruhat Bangalore Mahanagara Palike v. Serve and Volley Outdoor Advertising Private Limited’ in CMP No. 44/2012 decided on 29th May, 2013; ‘Dolphin Drilling Limited v. Oil and Natural Gas Corporation Limited’ (2010) 3 SCC 267


Held

  • Since the petitioner invoked the arbitration after the commencement of the Amendment Act, therefore, the respondent cannot insist on an Arbitral Tribunal comprised of its serving or retired officers in view of the Amendment Act, 2015;

  • The petitioner is entitled to appoint an impartial and independent Arbitral Tribunal as the respondent has forfeited its right to appoint a Tribunal of its choice;

  • The above position stands valid in terms of the parameters of Section 12 of the Amendment Act, 2015 [18] as well;

  • Prayer in the petition allowed;

  • Appointed Arbitrators: Justice R.M. Lodha (Former Chief Justice of India)/ Presiding member of the Panel, Justice R.V. Easwar (retired Judge of the Delhi High Court) and Justice M.L. Mehta (retired Judge of the Delhi High Court); and

  • The petition disposed of, no costs.

Analysis

The Amendment Act was notified in the official Gazette of India on 01st January 2016 and has come into force since then. Of the many key aims of the Amendment Act, the prime has been expediting the arbitration process and procedures and causing reduced court interference. Ever since its institution, there have been several clarifications sought by various courts as regards to the proper applicability of the provisions of the Amendment Act. By way of the aforesaid judgment, the Delhi High Court has not only thrown further light upon the applicability of the provisions of the Amendment Act, but has also made salient observations that may have a significant impact on the country’s arbitration regime.


India opening up Foreign Direct Investments in various sectors has lead to a considerable increase in the number of commercial disputes in the country. With such judgments, clarity is being brought into the interpretation of the procedural aspects of the Amendment Act, which shall reap benefits in the near future in the form of expeditious disposal of the ever increasing commercial disputes. It also reflects positively the constant endeavors of the legislature and judiciary who are working in consonance, in bringing the Indian law in line with the International law and practice.


By way of this judgment, the Court has further made it their goal to provide for neutral arbitrators or approach the Courts to appoint arbitrators, which is what has happened in the instant case. However, one may wonder what repercussions enacting multifarious tribunals for different claims in a single Contract may have on the expeditious disposal of cases. Nevertheless, the Judgment speaks volumes of the true agenda behind incorporating the Amendment rules i.e. impartiality and independence of the Arbitration Tribunal and has definitely put an end to the skewed practice of appointing ‘in-house’ arbitrators.


Disclaimer: The views and opinions expressed in this article are based on extensive and thorough research. In no way does the author or the law firm claim ownership of the ideas and concepts presented in this paper. Information so provided is to be strictly considered for general reference of the subject matter, which has been adequately referenced. Specialist advice should be sought about any specific circumstances directly from the law firm.


REFERENCES

[1] Available at https://indiankanoon.org/doc/115973945/ > accessed on 23rd May, 2016


[2] As stated in the Schedule VII, of the Amendment Act, at Page 14, available at <http://www.prsindia.org/uploads/media/Arbitration/Arbitration%20and%20Conciliation%20Act,%202015.pdf> accessed on 23rd May, 2016


[3] “Prior to the filing of the present petition, the petitioner had raised certain claims during the execution of the work in the subject contract. The said claims as per petitioner were kept pending by the respondent without any decision in the matter. Therefore, by its letter dated 11th April 2014 the petitioner notified the respondent that payment should be made towards the aforesaid claims. The petitioner thereinafter sought for the constitution of an Arbitral Tribunal to resolve the disputes, however, it is the admitted position that it was constituted pertaining to three claims alone of the petitioner.” Id 1, at page 3.


[4] Id 1, Para 27 at Page 10


[5] Id 1, Para 28, 29 at Page 10


[6] Id 1, Para 30 at Page 10


[7] Reliance has been placed on Circular No. 2006/V-1/DAR/1/4 issued in March 2006 by the Ministry of Railways (Railway Board) which states as under:-

"In continuation of the Boards letter No. 99/V-l/ CVC1/9 dated 13th July, 1999, regarding proceedings against delinquent officials, discharging quasi-judicial functions, it is desired to initiate investigations, based on source information, into the Arbitration Cases, involving "corrupt motive" or "giving undue favour to party" in deciding the Arbitration Award."


[8] Section 13. Challenge procedure: (1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.

(2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.

(3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.

(4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.

(5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34.

(6) Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees.

Arbitration and Conciliation Act, 1996, available at < http://www.ficci-arbitration.com/htm/acts.pdf> accessed on 24th May 2016


[9] Id 1, para 20, page 6


[10] Ibid


[11] Section 21. Commencement of arbitral proceedings: Unless otherwise agreed by the parties, the arbitral proceedings, in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. At Id 6


[12] Section 11. Appointment of arbitrators: (1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.


(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.


(3) Failing any agreement referred to in sub-section (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.


(4) If the appointment procedure in sub-section (3) applies and-


(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or


(b) 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 Chief Justice or any person or institution designated by him.


(5) Failing any agreement referred to in sub-section (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 Chief Justice or any person or institution designated by him.


(6) Where, under an appointment procedure agreed upon by the parties,-


(a) a party fails to act as required under that procedure; or


(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or


(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,


a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. [emphasis supplied]


(7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justice or the person or institution designated by him is final.


(8) The Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to-


(a) any qualifications required of the arbitrator by the agreement of the parties and


(b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator.


(9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.


(10) The Chief Justice may make such scheme as he may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-section (5) or sub-section (6) to him.


(11) Where more than one request has been made under sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justices of different High Courts or their designates, the Chief Justice or his designate to whom the request has been first made under the relevant sub-section shall alone be competent to decide on the request.


(12) (a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in an international commercial arbitration the reference to "Chief Justice" in those sub-sections shall be construed as a reference to the "Chief Justice of India".


(b) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in any other arbitration, the reference to "Chief Justice" in those sub-section shall be construed as a reference to, the Chief Justice of the High Court within whose local limits the principal Civil Court referred to in clause (e) of sub-section (1) of section 2 is situate and, where the High Court itself is the "Court referred to in that clause, to the Chief Justice of that High Court. Id 6.


[13] Id 1, Para 32 at Page 11


[14] Id 1, Para 34 at Page 12


[15] Id 1, Para 35 at Page 12


[16] Id 1, Para 36 at Page 13


[17] Ibid


[18] Section 12 (5) of the Amendment Act, 2015: Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing, Id 4 at page 5.



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