08 Jan 2121

The absence of persons of the private sector from the proposed panel of arbitrators is not a ground to hold that it is not broad-based - Delhi High Court

Case : Consortium of Autometers Alliance Ltd. & Canny Elevators Co. Ltd. v. Chief electrical Engineer/Planning, Delhi Metro Rail Corporation & Ors. ARB. P. 420/2020

Court : Delhi High Court

Bench : Justice V. Kameswar Rao

Decided on : 08 Jan 2121

Relevant Statutes

Sections 11 and 21 of the Arbitration and Conciliation Act, 1996

Arbitration and Conciliation (Amendment) Act, 2015

Brief Facts and Procedural History

1. The Petitioner is a Consortium of Autometers Alliance Ltd. and Canny Elevators Co. Ltd. having its office in Noida, Uttar Pradesh.

2. Respondent Nos. 1, 2, and 3 are the Chief Electrical Engineer/Planning, Executive Director (Electrical) and Senior General Manager, and Contracts of Delhi Metro Rail Corporation (DMRC) respectively.

3. The petitioner contended to have participated in the bidding process for design, manufacturing, supply, installation, testing & commissioning of Escalators for Delhi MTRS Project Phase-III, after the issue of a Notice Inviting Tender in September 2012. Being the successful bidder, Respondent issued a Letter of Acceptance dated April 16, 2013, in favour of the petitioner and thereafter entered into a contract.

4. Petitioner alleged wrongful deductions made by the Respondent, the same was never resolved and approximately ₹4.30 Crores had been illegally withheld by the Respondent.

5. The petitioner invoked the Conciliation Procedure as per the two-stage dispute resolution clause of the Contract on January 23, 2020.

6. No amicable settlement could be reached between the parties under the Conciliation Proceedings held by Sole Conciliator appointed from a panel of three Conciliators provided by the Respondent. After its failure, the Petitioner initiated Arbitration proceedings under Clause 17.9 of the GCC read with Section 21 of the Arbitration and Conciliation Act, 1996.

7. The Petitioner approached the High Court under Section 11 of the Arbitration and Conciliation Act, 1996 and prayed for declaration of the following:

a. The appointment of an independent Arbitral Tribunal.

b. Clause 17.9 of the GCC forming part of the Contract, to the extent of appointment of all three arbitrators from a panel of arbitrators proposed by the Respondent, is void and unenforceable.

c. Justice M.M.S. Bedi (Retd,) shall be appointed as the nominee arbitrator on behalf of the Petitioner.

d. Respondent has forfeited all its rights to participate in the constitution of the Arbitral Tribunal.

e. An arbitrator shall be appointed on behalf of the Respondent, who along with Justice M.M.S. Bedi (Retd) shall mutually appoint the third (presiding) arbitrator.

8. The Respondent objected to the maintainability of the petition.

Issue of the Case

Whether the Clause 17.9 of the GCC is void and unenforceable as it provides for the appointment of all three arbitrators from a panel proposed by the Respondent?

The Observations of the Court

The Honourable Delhi High Court observed that:

1. The petitioner had, dehors (outside the scope of) the provisions of Clause 17.9 of the GCC, proposed the name of Justice M.M.S. Bedi (Retd.) to act as a sole arbitrator or he should be treated as a nominee arbitrator on behalf of the Petitioner and had also called upon the Respondent to nominate its arbitrator. Similar is the prayer made in this petition as well.

2. The Respondent had prepared a panel consisting of five names. The five names consisted of names of an Additional District and Sessions Judge (Retd.) and other retired employees from reputed organizations such as RVNL, NHPC, etc. The Respondent also took a stand that they have enlarged/broad-based the list of panel of arbitrators to include the names of 26 retired Judges, 22 public sector engineers (serving or retired), and 3 public sector accountants or finance professionals (serving). The Respondent had no objection if the petitioner chose its nominee arbitrator from the panel of 51 names prepared by the Respondent.

3. No doubt, the panel did not have persons like lawyers of repute or accountants or financial professionals or engineers from the private sector but the panel consisting of 51 names was ten times the initial panel of five names provided by the Respondent.

4. The dispute between the parties was concerning the Service Tax. It was held by the Apex Court in Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Limited, (2017) 4 SCC 665, that a party must have a wider choice for nominating its arbitrator from the panel. But a panel consisting of names of persons, who have retired from other public sector undertakings, will not be a ground to challenge it under Section 12(5) of the Arbitration and Conciliation Act, 1996 or relevant Schedules therein.

5. The High Court noted that the Petitioner had nominated a retired Judge of the High Court as its nominee arbitrator and not a person with a finance background. Merely because the Respondent could have further broad-based the panel cannot be a ground to hold that the proposed panel of 51 names was not broad-based when it consisted of names of 26 retired High Court or District or Additional District Judges and serving or retired officers of the other Public Sector Undertakings.

The Decision Held by the Court

The High Court directed the petitioner to nominate a name from the panel of 51 names prepared by the Respondent, who shall act as its nominee arbitrator, within four weeks. Thereafter the parties shall proceed under the Contract and law.

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