# CENTRAL ORGANISATION FOR RAILWAY ELECTRIFICATION v. M/S ECI-SPIC-SMO-MCML (JV) A JOINT VENTURE COMPANY

- **Citation:** [2019] 16 S.C.R. 1234
- **Court:** Supreme Court of India
- **Decided:** 2019-12-17
- **Case number:** Civil Appeal Nos. 9486-9487 of 2019
- **Bench:** R. Banumathi, A. S. Bopanna, Hrishikesh Roy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/central-organisation-for-railway-electrification-v-m-s-eci-spic-smo-mcml-jv-a-33906
- **Pages:** 25

## Headnote

Arbitration and Conciliation Act, 1996:
s.11(6) - Application under - Seeking appointment of sole
arbitrator - High Court appointed a sole Arbitrator - Appeal to
Supreme Court - Held: High Court was not justified in appointing
an independent sole arbitrator ignoring Clauses 64(3)(a)(ii) and
64(3)(b) of General Conditions of Contract whereby it was
specifically provided that Arbitral Tribunal would consist of three
arbitrators from out of the panel of serving or retired Railway
Officers - The appointment of the Arbitrators should have been
in terms of the agreement between the parties.
Allowing the appeals, the Court
HELD: 1.1 Clause 64 of the General Conditions of
Contract (GCC) deals with the procedure for resolution of the
disputes and provides for "Demand for arbitration" and
appointment of the arbitrators. After coming into force of
Arbitration and Conciliation (Amendment) Act, 2015, the
Government of India, Ministry of Railways made a modification
to Clause 64 of the General Conditions of Contract and the
Railway Board issued a notification dated 16.11.2016 in this
regard. The modified Clause 64(3)(a)(i) (where applicability of
Section 12(5) of the Arbitration and Conciliation Act, 1996 has
been waived off inter alia provided that in case where the total
value of all claims in question added together does not exceed
rupees one crore, the arbitral tribunal shall consist of a sole
arbitrator who shall be a Gazetted Officer of Railways not below
JA Grade nominated by the General Manager. In terms of Clause
 [2019] 16 S.C.R. 1234
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64(3)(a)(i), the sole arbitrator shall be appointed within sixty days
from the day when a written and valid demand for arbitration is
received by the General Manager. In the present case, since
the value of the work contract is worth more than Rs.165 crores,
Clause 64(3)(a)(i) is not applicable. Clause 64(3)(a)(ii) of GCC
deals with cases not covered by Clause 64(3)(a)(i) where
applicability of Section 12(5) of the Act has been waived off.
[Paras 15-17] [1245-A-G-H; 1246-A-B]
1.2 Clause 64(3)(b) of GCC deals with appointment of
arbitrator where applicability of Section 12(5) of the Act has not
been waived off. The modified Clause 64(3)(b) inter alia provided
that the arbitral tribunal shall consist of a panel of three retired
railway officers not below the rank of SAO officer as arbitrator.
For this purpose, the Railway will send a panel of at least four
names of retired railway officer(s) empanelled. The contractor
will be asked to suggest to the General Manager at least two
names out of the panel for appointment as the contractor's
nominee and the General Manager shall appoint at least one out
of them as the contractor's nominee. The General Manager will
also simultaneously appoint the balance number of arbitrators
from the panel or from outside the panel. [Para 18] [1246-F-H]
1.3 After coming into force of the Arbitration and
Conciliation (Amendment) Act, 2015, when Clause 64 of the
General Conditions of Contract was modified inter alia providing
for constitution of Arbitral Tribunal consisting of three arbitrators
either serving or retired railway officers, the High Court is not
justified in appointing an independent sole arbitrator without
resorting to the procedure for appointment of the arbitrator as
prescribed under Clause 64(3)(b) of the General Conditions of
Contract. [Para 19] [1247-E-F]
1.4 Even in the application filed under Section 11(6) of the
Arbitration and Conciliation Act, 1996, the respondent prayed
for appointment of a sole arbitrator in terms of Clause 1.2.54(b)(i)
of the Tender Agreement/Clause 64 of the General Conditions
of Contract for adjudicating the disputes which have arisen
between the parties. The respondent itself sought for
appointment of arbitrator in terms of Clause 64 of the General
Conditions of Contract. As the value of the work contract was
CENTRAL ORG FOR RAILWAY ELECTRIFICATION v. M/S
ECI-SPIC-SMO-MCML (JV)
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SUPREME COURT REPORTS
[2019] 16 S.C.R.
CENTRAL ORGANISATION FOR
RAILWAY ELECTRIFICATION
v.
M/S ECI-SPIC-SMO-MCML (JV)
A JOINT VENTURE COMPANY
(Civil Appeal Nos. 9486-9487 of 2019)
DECEMBER 17, 2019
[R. BANUMATHI, A. S. BOPANNA AND
HRISHIKESH ROY, JJ.]
Arbitration and Conciliation Act, 1996:
s.11(6) - Application under - Seeking appointment of sole
arbitrator - High Court appointed a sole Arbitrator - Appeal to
Supreme Court - Held: High Court was not justified in appointing
an independent sole arbitrator ignoring Clauses 64(3)(a)(ii) and
64(3)(b) of General Conditions of Contract whereby it was
specifically provided that Arbitral Tribunal would consist of three
arbitrators from out of the panel of serving or retired Railway
Officers - The appointment of the Arbitrators should have been
in terms of the agreement between the parties.
Allowing the appeals, the Court
HELD: 1.1 Clause 64 of the General Conditions of
Contract (GCC) deals with the procedure for resolution of the
disputes and provides for "Demand for arbitration" and
appointment of the arbitrators. After coming into force of
Arbitration and Conciliation (Amendment) Act, 2015, the
Government of India, Ministry of Railways made a modification
to Clause 64 of the General Conditions of Contract and the
Railway Board issued a notification dated 16.11.2016 in this
regard. The modified Clause 64(3)(a)(i) (where applicability of
Section 12(5) of the Arbitration and Conciliation Act, 1996 has
been waived off inter alia provided that in case where the total
value of all claims in question added together does not exceed
rupees one crore, the arbitral tribunal shall consist of a sole
arbitrator who shall be a Gazetted Officer of Railways not below
JA Grade nominated by the General Manager. In terms of Clause
 [2019] 16 S.C.R. 1234
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64(3)(a)(i), the sole arbitrator shall be appointed within sixty days
from the day when a written and valid demand for arbitration is
received by the General Manager. In the present case, since
the value of the work contract is worth more than Rs.165 crores,
Clause 64(3)(a)(i) is not applicable. Clause 64(3)(a)(ii) of GCC
deals with cases not covered by Clause 64(3)(a)(i) where
applicability of Section 12(5) of the Act has been waived off.
[Paras 15-17] [1245-A-G-H; 1246-A-B]
1.2 Clause 64(3)(b) of GCC deals with appointment of
arbitrator where applicability of Section 12(5) of the Act has not
been waived off. The modified Clause 64(3)(b) inter alia provided
that the arbitral tribunal shall consist of a panel of three retired
railway officers not below the rank of SAO officer as arbitrator.
For this purpose, the Railway will send a panel of at least four
names of retired railway officer(s) empanelled. The contractor
will be asked to suggest to the General Manager at least two
names out of the panel for appointment as the contractor's
nominee and the General Manager shall appoint at least one out
of them as the contractor's nominee. The General Manager will
also simultaneously appoint the balance number of arbitrators
from the panel or from outside the panel. [Para 18] [1246-F-H]
1.3 After coming into force of the Arbitration and
Conciliation (Amendment) Act, 2015, when Clause 64 of the
General Conditions of Contract was modified inter alia providing
for constitution of Arbitral Tribunal consisting of three arbitrators
either serving or retired railway officers, the High Court is not
justified in appointing an independent sole arbitrator without
resorting to the procedure for appointment of the arbitrator as
prescribed under Clause 64(3)(b) of the General Conditions of
Contract. [Para 19] [1247-E-F]
1.4 Even in the application filed under Section 11(6) of the
Arbitration and Conciliation Act, 1996, the respondent prayed
for appointment of a sole arbitrator in terms of Clause 1.2.54(b)(i)
of the Tender Agreement/Clause 64 of the General Conditions
of Contract for adjudicating the disputes which have arisen
between the parties. The respondent itself sought for
appointment of arbitrator in terms of Clause 64 of the General
Conditions of Contract. As the value of the work contract was
CENTRAL ORG FOR RAILWAY ELECTRIFICATION v. M/S
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worth more than Rs.165 crores, the dispute can be resolved only
by a panel of three arbitrators in terms of Clause 64(3)(b) of the
General Conditions of Contract. The respondent was not right
in seeking for appointment of a sole arbitrator in terms of Clause
1.2.54(b)(i) of the Tender Agreement/Clause 64 of the General
Conditions of Contract. [Para 20] [1247-G-H; 1248-A]
Union of India v. Parmar Construction Company
(2019) SCC Online SC 442 ; Union of India v.
Pradeep Vinod Construction Company (2019) SCC
Online SC 1467 ; Government of Haryana PWD
Haryana (B and R) Branch v. G.F. Toll Road Private
Limited and Others (2019) 3 SCC 505 : [2019] 1 SCR
270 - relied on.
Voestalpine Schienen Gmbh v. Delhi Metro Rail
Corporation Limited (2017) 4 SCC 665 ; Bharat
Broadband Network Limited v. United Telecoms Limited
(2019) 5 SCC 755 - referred to.
2. The appellant has forwarded a list of four retired railway
officers on its panel thereby giving a wide choice to the
respondent to suggest any two names to be nominated as
arbitrators out of which, one will be nominated as the arbitrator
representing the respondent-Contractor. The very reason for
empanelling the retired railway officers is to ensure that the
technical aspects of the dispute are suitably resolved by utilising
their expertise when they act as arbitrators. Merely because the
panel of the arbitrators are the retired employees who have
worked in the Railways, it does not make them ineligible to act
as the arbitrators. [Para 27] [1251-A-B]
Voestalpine Schienen Gmbh v. Delhi Metro Rail
Corporation Limited (2017) 4 SCC 665; Bharat
Broadband Network Limited v. United Telecoms Limited
(2019) 5 SCC 755 - relied on.
3. By the letter dated 26.09.2018, the respondent
conveyed their disagreement in waiving the applicability of
Section 12(5) of the Amendment Act, 2015. By the letter dated
25.10.2018, in terms of Clause 64(3)(b) of GCC (where
applicability of Section 12(5) has not been waived off) the
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appellant has nominated a panel of four retired railway officers
to act as arbitrators and requested the respondent to select any
two from the list and communicate to the appellant within thirty
days from the date of the letter for formation of Arbitration
Tribunal. The respondent has neither sent its reply nor selected
two names from the list and replied to the appellant. Without
responding to the appellant, the respondent has filed petition
under Section 11(6) of the Arbitration and Conciliation Act before
the High Court on 17.12.2018. When the respondent has not
sent any reply to the communication dated 25.10.2018, the
respondent is not justified in contending that the appointment
of Arbitral Tribunal has not been made before filing of the
application under Section 11 of the Act and that the right of the
appellant to constitute Arbitral Tribunal is extinguished on filing
of the application under Section 11(6) of the Act. [Para 30] [1253B-E]
Punj Lloyd Ltd. v. Petronet MHB Ltd. (2006) 2 SCC
638 ; Union of India v. Bharat Battery Manufacturing
Co. (P) Ltd. (2007) 7 SCC 684 : [2007] 8 SCR 993 -
referred to.
4. In the present matter, after the respondent had sent the
letter dated 27.07.2018 calling upon the appellant to constitute
Arbitral Tribunal, the appellant sent the communication dated
24.09.2018 nominating the panel of serving officers of Junior
Administrative Grade to act as arbitrators and asked the
respondent to select any two from the list and communicate to
the office of the General Manager. By the letter dated
26.09.2018, the respondent conveyed their disagreement in
waiving the applicability of Section 12(5) of the Amendment Act,
2015. In response to the respondent's letter dated 26.09.2018,
the appellant has sent a panel of four retired Railway Officers
to act as arbitrators giving the details of those retired officers
and requesting the respondent to select any two from the list
and communicate to the office of the General Manager. Since
the respondent has been given the power to select two names
from out of the four names of the panel, the power of the
appellant nominating its arbitrator gets counter-balanced by the
power of choice given to the respondent. Thus, the power of the
General Manager to nominate the arbitrator is counter-balanced
CENTRAL ORG FOR RAILWAY ELECTRIFICATION v. M/S
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by the power of the respondent to select any of the two
nominees from out of the four names suggested from the panel
of the retired officers. In view of the modified Clauses 64(3)(a)(ii)
and 64(3) (b) of GCC, it cannot therefore be said that the General
Manager has become ineligible to act as the arbitrator. [Para 37]
[1257-C-F]
TRF Limited v. Energo Engineering Projects Limited
(2017) 8 SCC 377 : [2017] 7 SCR 409 - held
inapplicable.
TRF Limited, in Perkins Eastman Architects DPC and
another v. HSCC (India) Limited (2019) SCC Online
SC 1517 - referred to.
5. There is an express provision in the modified clauses
of General Conditions of Contract, as per Clauses 64(3)(a)(ii)
and 64(3)(b), the Arbitral Tribunal shall consist of a panel of three
Gazetted Railway Officers [Clause 64(3)(a)(ii)] and three retired
Railway Officers retired not below the rank of Senior
Administrative Grade Officers [Clause 64(3)(b)]. When the
agreement specifically provides for appointment of Arbitral
Tribunal consisting of three arbitrators from out of the panel
serving or retired Railway Officers, the appointment of the
arbitrators should be in terms of the agreement as agreed by
the parties. That being the conditions in the agreement between
the parties and the General Conditions of the Contract, the High
Court was not justified in appointing an independent sole
arbitrator ignoring Clauses 64(3)(a)(ii) and 64(3)(b) of the
General Conditions of Contract. [Para 38] [1257-G-H; 1258-AB]
Union of India and Another v. M.P. Gupta (2004) 10
SCC 504 ; Union of India and Another v. V.S.
Engineering (P) Ltd. (2006) 13 SCC 240 : [2006] 9
Suppl. SCR 125 - relied on.
Case Law Reference
(2017) 4 SCC 665
referred to
Para 12
(2019) 5 SCC 755
referred to
Para 13
(2004) 10 SCC 504
relied on
Para 21
[2006] 9 Suppl. SCR 125
relied on
Para 21
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(2017) 4 SCC 665
relied on
Para 25
[2019] 1 SCR 270
relied on
Para 26
(2006) 2 SCC 638
referred to
Para 28
[2007] 8 SCR 993
referred to
Para 29
[2017] 7 SCR 409
held inapplicable
Para 31
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 94869487 of 2019.
From the Judgment and Order dated 03.01.2019 & 29.03.2019
of the High Court of Court of Judicature at Allahabad in Arbitration
Application No. 151 of 2018
A.N.S. Nadkarni, ASG, Ms. Rashmi Malhotra, Jitin Singhal,
S.S. Rebello, Ms. Priyanka Dass, Ms. Arzu Paul, Neeleshwar Pavani,
Ms. Shivikka Agarwal, Ms. Riya Soni, Sumit Upadhyay, Raj Bahadur
Yadav, Advs. for the Appellant.
Sridhar Potaraju, Ms. Shweta Parihar, Ms. G. Usha Sri, Vishnu
Thulasi Menon, Advs. for the Respondent.
The Judgment of the Court was delivered by
R. BANUMATHI, J.
1. Leave granted.
2. These appeals have been preferred against the impugned
orders dated 03.01.2019 and 29.03.2019 passed by the High Court of
Judicature at Allahabad in Arbitration Application No.151 of 2018 in
and by which the High Court rejected the contention of the appellant
that the arbitrator is to be appointed as per General Conditions 64
(3)(a)(ii) and 64 (3)(b) of the Contract and appointed Shri Justice Rajesh
Dayal Khare as the sole arbitrator for resolving the dispute between
the parties.
3. The appellant awarded work contract of Rs.165,67,98,570/-
to the respondent-Company by an agreement dated 20.09.2010 which
contains the arbitration clause. Subsequently, after coming into force
of Arbitration and Conciliation (Amendment) Act, 2015 (w.e.f.
23.10.2015), the Government of India, Ministry of Railways made a
modification to Clause 64 of the General Conditions of Contract and
issued a notification dated 16.11.2016 for implementation of modification.
CENTRAL ORG FOR RAILWAY ELECTRIFICATION v. M/S
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The modified Clause 64(3)(a)(ii) (where applicability of Section 12(5)
has been waived off) inter alia provided that in cases where the total
value of all claims exceeds Rs. 1 crore, the Arbitral Tribunal shall consist
of a panel of three gazetted Railway Officers not below JA (Junior
Administrative) Grade or two Railway Gazetted Officers not below JA
Grade and a retired Railway Officer, retired not below the rank of Senior
Administrative (SA) Grade officer as arbitrators. The procedure for
constitution of the Arbitral Tribunal is provided thereon. Clause 64(3)(b)
deals with the appointment of arbitrator where applicability of Section
12(5) of the Arbitration and Conciliation Act has not been waived off.
Clause 64(3)(b) stipulates that the Arbitral Tribunal shall consist of a
panel of three retired railway officers not below the rank of Senior
Administrative Officer as the arbitrators as per the procedure indicated
thereon.
4. Since the respondent did not complete the work under the
contract within the prescribed period, on 18.10.2017, the appellant issued
"Seven days" notice under Clause 62 of the General Conditions of
Contract to the respondent. Thereafter on 27.10.2017, the appellant
issued a "48 hours' notice" to the respondent calling upon the respondent
to make good the progress of work, failing which the contract will stand
terminated. Since the respondent did not make adequate progress in
the work, on 01.11.2017, the contract was terminated as per Clause
62 of the General Conditions of the Contract. The respondent was
also informed that their security deposit has been forfeited and the
performance guarantee submitted by it shall also be encashed.
5. The respondent filed a Petition No.760 of 2017 before the High
Court challenging the termination of the contract which came to be
dismissed by the High Court vide order dated 28.11.2017 and the High
Court directed the respondent to avail the alternative remedy by invoking
arbitration clause. The respondent vide its letter dated 27.07.2018
requested the appellant for appointment of an Arbitral Tribunal for
resolving the disputes between the parties and settle the claims value
of Rs.73.35 crores. In reply dated 24.09.2018, the appellant sent a list
of four serving Railway Electrification Officers of JA Grade to act as
arbitrators. The respondent was asked to select any two and
communicate to the appellant for formation of the arbitration tribunal
panel. Vide letter dated 25.10.2018, the respondent was sent a list of
another panel comprising four retired Railway officers. In terms of
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Clause 63(3)(b) of Railway's General Conditions of Contract, the
respondent was asked to select any two from this list and communicate
them to the appellant within thirty days for constitution of the arbitration
tribunal.
6. The respondent did not send a reply to the above letters of
the appellant; but filed Arbitration Petition No. 151 of 2018 before High
Court under Section 11(6) of the Arbitration and Conciliation Act seeking
appointment of a sole arbitrator for resolution of differences. In its
petition, the respondent suggested the name of one Shri Ashwani Kumar
Kapoor, retired member Electrical from Railway Board to be appointed
as an arbitrator in the matter. According to the respondent, there exists
a valid and binding arbitration clause between the parties being clause
1.2.54 of Part I of Chapter 2 and also 64 of the General Conditions of
Contract; but since no neutral arbitrator is contemplated to be appointed
in the General Conditions of Contract, the respondent has no other
recourse except by filing the petition under Section 11(6) of the
Arbitration and Conciliation Act, 1996.
7. The High Court vide the impugned order dated 03.01.2019
rejected the argument of the appellant that the arbitrator ought to be
appointed only from the panel of arbitrators in terms of General
Conditions of Contract. The High Court observed that the powers of
the Court to appoint arbitrator are independent of the contract between
the parties and no fetters could be attached to the powers of the court.
With those findings, the High Court appointed Shri Rajesh Dayal Khare,
a retired judge of the Allahabad High Court as the sole arbitrator subject
to his consent, under Section 11(8) of the Arbitration and Conciliation
Act. Subsequently, vide order dated 29.03.2019, the High Court noted
the consent of the arbitrator appointed by the court and directed the
Arbitrator to proceed with the arbitration proceedings. Being aggrieved,
the appellant has preferred these appeals.
8. Mr. A.N.S. Nadkarni, learned Additional Solicitor General
(ASG) appearing for the appellant submitted that in terms of Clause
64(3)(a)(ii) of the General Conditions of Contract (where applicability
of Section12(5) of the Amended Act has been waived off), the Arbitral
Tribunal shall consist of a panel of three Gazetted Railway Officers
not below Junior Administrative Grade or two Railway Gazetted
Officers not below Junior Administrative Grade and a retired Railway
Officer retired not below the rank of Senior Administrative Grade
CENTRAL ORG FOR RAILWAY ELECTRIFICATION v. M/S
ECI-SPIC-SMO-MCML (JV) [R. BANUMATHI, J.]
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Officer as the arbitrators. It was submitted that as per Clause 64(3)(b)
of the General Conditions of Contract (where applicability of Section
12(5) of the Act has not been waived off), the Arbitral Tribunal shall
consist of a panel of three retired Railway Officers retired not below
the rank of Senior Administrative Grade Officers as the arbitrators after
compliance of the procedure stipulated in Clause 64(3)(b). It was
contended that when the agreement and the General Conditions of
Contract provided for appointment of Arbitral Tribunal consisting of three
arbitrators from the Panel, the High Court erred in appointing the sole
arbitrator outside the panel of the arbitrators. The learned ASG further
submitted that the appointment of an independent arbitrator is in
contravention of Clauses 64(3)(a)(i), 64(3)(a)(ii) and 64(3)(b) of the
General Conditions of Contract and the impugned judgment appointing
a former Judge of the High Court of Allahabad is not sustainable. In
support of the contention, the learned ASG inter alia placed reliance
upon Union of India v. Parmar Construction Company (2019) SCC
Online SC 442 and Union of India v. Pradeep Vinod Construction
Company (2019) SCC Online SC 1467 and other judgments.
9. Refuting the above contention, Mr. Sridhar Potaraju, learned
counsel appearing for the respondent submitted that the Arbitration and
Conciliation Act, 1996 was amended with effect from 23.10.2015 and
in the present case, the demand for arbitration for resolution of disputes
was made by the respondent on 27.07.2018 and hence, the provisions
of the amended Act applies to the present case. It was submitted that
by virtue of the provisions of Section 12(5) read with Schedule VII to
the Arbitration and Conciliation Act, 1996, the panel of arbitrators
proposed by the appellant vide letter dated 24.09.2018 were statutorily
made ineligible to be appointed as arbitrators since they were either
serving or retired employees of the appellant. It was contended that
as per the provisions of the Amendment Act, 2015, all employees present
or past are statutorily made ineligibile for appointment as arbitrators.
The learned counsel further submitted that when the General Manager
himself being ineligible to be appointed as an arbitrator under Section
12(5) read with Schedule VII of the Act, the General Manager cannot
nominate any of the persons to be arbitrator. The learned counsel for
the respondent inter alia placed reliance upon Voestalpine Schienen
Gmbh v. Delhi Metro Rail Corporation Limited (2017) 4 SCC 665,
TRF Limited v. Energo Engineering Projects Limited (2017) 8 SCC
377 and number of other judgments which would be referred to at the
appropriate place.
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10. We have carefully considered the submissions and perused
the impugned judgment and materials on record. The point falling for
consideration is whether the High Court was right in appointing an
independent arbitrator in contravention of the Clauses 64(3)(a)(ii) and
64(3)(b) of the General Conditions of Contract.
Appointment of an independent arbitrator without
reference to the Clauses of General Conditions of
Contract (GCC) - Whether correct?
11. Learned counsel for the respondent submitted that being
serving employees of the appellant, the panel of arbitrators proposed
by the appellant vide letter dated 24.09.2018 were not eligible to be
appointed as arbitrators in view of provisions of Section 12(5) read with
Schedule VII of the Arbitration and Conciliation Act. Learned counsel
further submitted that the panel of arbitrators proposed by the appellant
vide letter dated 25.10.2018 comprising of retired employees of the
appellant were also not eligible to be appointed as arbitrators under
Section 12(5) read with Schedule VII of the Act as the employees of
the appellant are expressly made ineligible.
12. In support of the above contention, learned counsel for the
respondent has placed reliance upon Voestalpine Schienen Gmbh v.
Delhi Metro Rail Corporation Limited (2017) 4 SCC 665 wherein,
the Supreme Court held as under:-
"24. .......The amended provision puts an embargo on a person
to act as an arbitrator, who is the employee of the party to the
dispute. It also deprives a person to act as an arbitrator if he
had been the consultant or the advisor or had any past or present
business relationship with DMRC.......".
13. On behalf of the respondent, reliance was also placed upon
Bharat Broadband Network Limited v. United Telecoms Limited
(2019) 5 SCC 755 wherein, the Supreme Court held as under:-
"15. Section 12(5), on the other hand, is a new provision which
relates to the de jure inability of an arbitrator to act as such.
Under this provision, any prior agreement to the contrary is wiped
out by the non obstante clause in Section 12(5) the moment any
person whose relationship with the parties or the counsel or the
subject-matter of the dispute falls under the Seventh Schedule.
The sub-section then declares that such person shall be
CENTRAL ORG FOR RAILWAY ELECTRIFICATION v. M/S
ECI-SPIC-SMO-MCML (JV) [R. BANUMATHI, J.]
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"ineligible" to be appointed as arbitrator. The only way in which
this ineligibility can be removed is by the proviso, which again is
a special provision which states that parties may, subsequent to
disputes having arisen between them, waive the applicability of
Section 12(5) by an express agreement in writing. What is clear,
therefore, is that where, under any agreement between the
parties, a person falls within any of the categories set out in the
Seventh Schedule, he is, as a matter of law, ineligible to be
appointed as an arbitrator. The only way in which this ineligibility
can be removed, again, in law, is that parties may after disputes
have arisen between them, waive the applicability of this subsection by an "express agreement in writing". Obviously, the
"express agreement in writing" has reference to a person who
is interdicted by the Seventh Schedule, but who is stated by
parties (after the disputes have arisen between them) to be a
person in whom they have faith notwithstanding the fact that such
person is interdicted by the Seventh Schedule."
14. Per contra, on behalf of the appellant, Mr. A.N.S. Nadkarni,
learned ASG has submitted that the appointment of arbitrator is
governed as per Clauses 64(3)(a)(i) and 64(3)(a)(ii) of the General
Conditions of Contract (GCC) where applicability of Section 12(5) of
the Arbitration and Conciliation Act has been waived off and the Arbitral
Tribunal shall consist of a panel of three serving Railway Officers or
two serving officers and one retired officer. Learned ASG submitted
that Clause 64(3)(b) of GCC deals with appointment of arbitrator where
applicability of Section 12(5) of the Act has not been waived off. It
was further submitted that Clause 64(3)(b) of GCC stipulates that the
Arbitral Tribunal shall consist of a panel of three retired railway officers
not below the rank of Senior Administrative Officer and the Arbitral
Tribunal to be constituted as per the procedure indicated thereon.
Placing reliance upon Union of India v. Parmar Construction
Company (2019) SCC Online SC 442 and Union of India v.
Pradeep Vinod Construction Company (2019) SCC Online SC
1467, learned ASG has submitted that when the agreement specifically
provides for appointment of panel of arbitrators, the appointment should
be in terms of the agreement and the appointment of independent sole
arbitrator is in contravention of the General Conditions of Contract which
govern the parties for appointment of arbitrators.
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15. Clause 64 of the General Conditions of Contract deals with
the procedure for resolution of the disputes and provides for "Demand
for arbitration" and appointment of the arbitrators. Clause 64 of the
General Conditions of Contract (GCC) reads as under:-
"64. (1): Demand for Arbitration:
64. (1) (i) In the event of any dispute or difference between
the parties hereto as to the construction or operation of this
contract, or the respective rights and liabilities of the parties on
any matter in question, dispute or difference on any account or
as to the withholding by the Railway of any certificate to which
the contractor may claim to be entitled to, or if the Railway fails
to make a decision within 120 days, then and in any such case,
but except in any of the "excepted matters" referred to in Clause
63 of these Conditions, the contractor, after 120 days but within
180 days of his presenting his final claim on disputed matters shall
demand in writing that the dispute or difference be referred to
arbitration.
64. (1) (ii) (a) The demand for arbitration shall specify the
matters which are in question, or subject of the dispute or
difference as also the amount of claim item-wise. Only such
dispute or difference, in respect of which the demand has been
made, together with counter claims or set off, given by the
Railway, shall be referred to arbitration and other matters shall
not be included in the reference.
64. (1) (ii) (b) The parties may waive of the applicability of subsection 12(5) of Arbitration and Conciliation (Amendment) Act,
2015. If they agree or such waiver in writing after having arisen
between them in the formation under Annexure XII of these
conditions."
16. After coming into force of Arbitration and Conciliation
(Amendment) Act, 2015, the Government of India, Ministry of Railways
made a modification to Clause 64 of the General Conditions of Contract
and the Railway Board issued a notification dated 16.11.2016 in this
regard. The modified Clause 64(3)(a)(i) (where applicability of Section
12(5) of the Act has been waived off) inter alia provided that in case
where the total value of all claims in question added together does not
exceed rupees one crore, the arbitral tribunal shall consist of a sole
CENTRAL ORG FOR RAILWAY ELECTRIFICATION v. M/S
ECI-SPIC-SMO-MCML (JV) [R. BANUMATHI, J.]
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arbitrator who shall be a Gazetted Officer of Railways not below JA
Grade nominated by the General Manager. In terms of Clause
64(3)(a)(i), the sole arbitrator shall be appointed within sixty days from
the day when a written and valid demand for arbitration is received by
the General Manager. In the present case, since the value of the work
contract is worth more than Rs.165 crores, Clause 64(3)(a)(i) is not
applicable.
17. Clause 64(3)(a)(ii) of GCC deals with cases not covered by
Clause 64(3)(a)(i) where applicability of Section 12(5) of the Act has
been waived off. Clause 64(3)(a)(ii) of General Conditions of Contract
reads as under:-
"64. (3) Appointment of Arbitrator:
...........
64. (3) (a) (ii) In case not covered by the Clause 64(3)(a)(i),
the Arbitral Tribunal shall consist of a Panel of three Gazette
Railway Officers not below JA Grade or two Railway Gazette
Officers not below JA Grade and a retired Railway Officer,
retired not below the rank of SAG officer, as the arbitrators. For
this purpose, the railway will send a panel of at least four (4)
names of Gazette Railway Officers of one or more departments
of the Railway which may also include the name(s) of retired
Railway Officer(s) empanelled to work as railway Arbitrator to
the contractor within 60 days from the day when a written and
valid demand for arbitration is received by the GM.........".
18. Clause 64(3)(b) of GCC deals with appointment of arbitrator
where applicability of Section 12(5) of the Act has not been waived
off. The modified Clause 64(3)(b) inter alia provided that the arbitral
tribunal shall consist of a panel of three retired railway officers not
below the rank of SAO officer as arbitrator. For this purpose, the
Railway will send a panel of at least four names of retired railway
officer(s) empanelled. The contractor will be asked to suggest to the
General Manager at least two names out of the panel for appointment
as the contractor's nominee and the General Manager shall appoint at
least one out of them as the contractor's nominee. The General
Manager will also simultaneously appoint the balance number of
arbitrators from the panel or from outside the panel. The modified
Clause 64(3)(b) of the General Conditions of Contract reads as under:-
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"64. (3)(b) Appointment of Arbitrator where applicability
of Section 12(5) of A&C Act has not been waived off.
The Arbitrator Tribunal shall consist of a Panel of three retired
Railway Officer retired not below the rank of SAO officer, as
the arbitrator. For this purpose, the Railway will send a panel of
at least four names of retired Railway Officer(s) empanelled to
work as Railway. Arbitrator indicating their retirement date to
the contractor within 60 days from the day when a written and
valid demand for arbitrators is received by the GM.
Contractor will be asked to suggest to General Manager at least
two names out of the panel for appointment as contractor's
nominee within 30 days from the date of dispatch of the request
by Railway. The General Manager shall appoint at least one out
of them as the contractor's nominee and will, also simultaneously
appoint the balance number of arbitrators other from the panel
or from outside the panel, duly indicating the 'presiding arbitrator'
from amongst the three arbitrators so appointed CM shall
complete tis exercise of appointing the Arbitral Tribunal within
30 days from the receipt of the names of contract's nominees.
While nominating the arbitrators, it will be necessary to ensure
that one of them has served in the Accounts Department."
19. After coming into force of the Arbitration and Conciliation
(Amendment) Act, 2015, when Clause 64 of the General Conditions of
Contract has been modified inter alia providing for constitution of
Arbitral Tribunal consisting of three arbitrators either serving or retired
railway officers, the High Court is not justified in appointing an
independent sole arbitrator without resorting to the procedure for
appointment of the arbitrator as prescribed under Clause 64(3)(b) of
the General Conditions of Contract.
20. It is pertinent to note that even in the application filed under
Section 11(6) of the Arbitration and Conciliation Act, 1996, the
respondent prayed for appointment of a sole arbitrator in terms of Clause
1.2.54(b)(i) of the Tender Agreement/Clause 64 of the General
Conditions of Contract for adjudicating the disputes which have arisen
between the parties. In the petition filed under Section 11(6) of the Act,
the respondent prayed for appointment of one Shri Ashwani Kumar
Kapoor to act as the arbitrator. Thus, the respondent itself sought for
appointment of arbitrator in terms of Clause 64 of the General
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Conditions of Contract. The appointment of Shri Ashwani Kumar
Kapoor as arbitrator, of course, was not agreeable to the appellant, since
it was found that said Shri Ashwani Kumar Kapoor was not in the panel
of arbitrators and therefore, could not be considered for appointment
as arbitrator. As the value of the work contract was worth more than
Rs.165 crores, the dispute can be resolved only by a panel of three
arbitrators in terms of Clause 64(3)(b) of the General Conditions of
Contract. The respondent was not right in seeking for appointment of
a sole arbitrator in terms of Clause 1.2.54(b)(i) of the Tender
Agreement/Clause 64 of the General Conditions of Contract.
21. Considering the various matters of railway contracts and
interference with the appointment of independent arbitrators, after
referring to Union of India and Another v. M.P. Gupta (2004) 10
SCC 504 and Union of India and Another v. V.S. Engineering (P)
Ltd. (2006) 13 SCC 240 and other judgments, in Union of India v.
Parmar Construction Company (2019) SCC Online SC 442, the
Supreme Court set aside the appointment of an independent arbitrator
and directed the General Manager of Railways to appoint arbitrator in
terms of Clause 64(3) of the agreement. In Para (44) of Parmar
Construction Company, the Supreme Court held as under:-
"44. To conclude, in our considered view, the High Court was
not justified in appointing an independent arbitrator without
resorting to the procedure for appointment of an arbitrator which
has been prescribed under clause 64(3) of the contract under
the inbuilt mechanism as agreed by the parties."
22. Applying ratio of the Parmar Construction Company, in
Pradeep Vinod Construction Company (2019) SCC Online SC
1467, the Supreme Court held that the appointment of arbitrator should
be in terms of the agreement and the High Court was not right in
appointing an independent arbitrator ignoring Clause 64 of the General
Conditions of Contract. As held in Parmar Construction Company
and Pradeep Vinod Construction Company, the High Court was not
justified in appointing an independent arbitrator without resorting to the
procedure for appointment of the arbitrators which has been prescribed
under the General Conditions of Contract.
RE: Contention:- Retired Railway Officers are not eligible
to be appointed as arbitrators under Section 12(5) read
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with Schedule VII of the Act and were statutorily made
ineligible to be appointed as an arbitrator.
23. Vide letter dated 27.07.2018, the respondent made a request
for appointment of arbitrator/constitution of Arbitral Tribunal. In
response to the same, the appellant sent a letter dated 24.09.2018
nominating the names of four serving railway officers and the respondent
was asked to select any two names from the list of the four railway
officers and communicate to the appellant. It is seen from the record
that the respondent vide their letter dated 26.09.2018 expressed their
disagreement in waiving off the applicability of Section 12(5) of the
Amendment Act, 2015. Referring to its own earlier letter dated
24.09.2018 and letter of the respondent dated 26.09.2018, the appellant
had sent a communication dated 25.10.2018 nominating the panel of
four retired railway officers to act as arbitrators and requesting the
respondent to select any two names from the list in terms of Clause
64(3)(b) of GCC and communicate to the appellant within thirty days
from the date of the letter for formation of Arbitration Tribunal.
According to the appellant, the respondent failed to select any of the
nominee from the panel within the stipulated time of thirty days. The
respondent neither responded to the appellant's letter dated 25.10.2018
not suggested the names of two arbitrators from the panel sent by the
appellant. Instead the respondent approached the High Court under
Section 11(6) of the Act for appointment of an independent sole arbitrator
by filing a petition on 17.12.2018.
24. The contention of the learned counsel for the respondent is
that the panel of arbitrators proposed by the appellant vide letter dated
25.10.2018 comprising of retired employees of the appellant are not
eligible to be appointed as arbitrators under Section 12(5) read with
Schedule VII of the Act. Further contention of the learned counsel for
the respondent is that the panel of arbitrators drawn by the appellant
consist of those persons who were railway employees or Ex-railway
employees and therefore, they are statutorily made ineligible to be
appointed as arbitrators.
25. Contending that the appointment of retired employees as
arbitrators cannot be assailed merely because an arbitrator is a retired
employee of one of the parties, learned ASG has placed reliance upon
Voestalpine Schienen Gmbh v. Delhi Metro Rail Corporation
Limited (2017) 4 SCC 665. After referring to various judgments and
CENTRAL ORG FOR RAILWAY ELECTRIFICATION v. M/S
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also the scope of amended provision of Section 12 of the Amendment
Act, 2015 and the entries in the Seventh Schedule , the Supreme Court
observed that merely because the panel of arbitrators drawn by the
respondent-Delhi Metro Rail Corporation are the Government
employees or Ex-Government employees, that by itself may not make
such persons ineligible to act as arbitrators of the respondent-DMRC.
It was observed that the persons who have worked in the Railways
under the Central Government or the Central Public Works Department
or Public Sector Undertakings cannot be treated as employee or
consultant or advisor of the respondent-DMRC. In para (26) of
Voestalpine Schienen Gmbh, the Supreme Court held as under:-
"26. It cannot be said that simply because the person is a retired
officer who retired from the government or other statutory
corporation or public sector undertaking and had no connection
with DMRC (the party in dispute), he would be treated as
ineligible to act as an arbitrator. Had this been the intention of
the legislature, the Seventh Schedule would have covered such
persons as well. Bias or even real likelihood of bias cannot be
attributed to such highly qualified and experienced persons, simply
on the ground that they served the Central Government or PSUs,
even when they had no connection with DMRC. The very reason
for empanelling these persons is to ensure that technical aspects
of the dispute are suitably resolved by utilising their expertise
when they act as arbitrators. It may also be mentioned herein
that the Law Commission had proposed the incorporation of the
Schedule which was drawn from the red and orange list of IBA
guidelines on conflict of interest in international arbitration with
the observation that the same would be treated as the guide "to
determine whether circumstances exist which give rise to such
justifiable doubts". Such persons do not get covered by red or
orange list of IBA guidelines either." [Underlining added]
26. The same view was reiterated in Government of Haryana
PWD Haryana (B and R) Branch v. G.F.