DELHI HIGH COURT DIRECTS THAT A PRIVATE PARTY IN A GOVERNMENT CONTRACT SHOULD BE GIVEN A FREE CHOICE OF APPOINTMENT OF AN ARBITRATOR

INTRODUCTION

A single-Judge Bench of the High Court of Delhi comprising of  Justice Dinesh Kumar Sharma passed an Order dated 22.03.2024 in ARB.P. 1230/2023, I.A. 23296/2023 in M/S Techno Compact Builders through Mr. Zulfiquar Ali, Sole Proprietor Vs. Railtel Corporation of India Limited and held that the appointment procedure of an arbitrator involving appointment from a panel made by one of the contracting parties should be such that the panel of arbitrators should be sufficiently broad-based. Further private parties in a Government contract ought to be given a free choice of appointment of an arbitrator.

FACTS

i) The Petitioner, M/S Techno Compact Builders through Mr. Zulfiquar Ali, Sole Proprietor had sought an appointment of Sole Arbitrator for adjudication of inter se disputes arising out of Clause 4.6 of the Letter of Acceptance (LOA) No.- RailTel/ Tender/OT /ER/HQ/2015-2016 /898/392 dated 20.06.2016.

ii) The case of the Petitioner was that there were disagreements over work and payments under the Contract. Subsequently, the Notice to initiate Arbitration Proceedings was issued to the Respondent, Railtel Corporation of India Limited.

iii) The Respondent vide E-mails dated 27.03.2023 and 01.04.2023 did not object to the fact that a dispute had arisen between the Parties which was covered under Clause 4.64 of the Contract and was in principle agreeable to the appointment of a tribunal to arbitrate the disputes.

iv) However, they could not agree on appointing an arbitrator. The Respondent wanted their CMD / RailTel to choose an arbitrator from their panel, but the Petitioner was of the view that this was unfair because the CMD had an interest in the outcome. Therefore, the Petitioner approached the High Court for appointment of an arbitrator by fair means.

HIGH COURT ANALYSIS

The High Court of Delhi vide Order dated 22.03.2024, made the following observations:

1) The High Court observed that Clause 4.6.4.3 of the Contract of General Conditions of Contract (GCC) stated that if the dispute is up to Rs.10,00,000/-, a Sole Arbitrator shall be appointed by the Managing Director of the Respondent. However, if the dispute is more than Rs.10,00,000/-, the matter shall be referred to the Arbitral Council. The Clause further provided that the Chairman-cum-Managing Director shall furnish a panel of three names to the Petitioner, out of which the Petitioner will recommend one name to be his nominee. Thereafter, the Chairman-cum-Managing Director/RailTel shall appoint out of the panel one person as the RailTel’s nominee. Further, such nominated Arbitrators shall, with mutual consent, appoint the third Arbitrator who shall act as the presiding Arbitrator.

2) The High Court observed that the claim amount in the present case was approximately Rs.9,66,87,000/- which is more than Rs.10,00,000/-.

3) Thus, as per the said Clause, an Arbitral Council is required to be appointed. However, the Respondent vide E-mail dated 27.03.2023 offered a proposal for an appointment of Sole Arbitrator by CMD/RailTel. The Sole Arbitrator was to be appointed out of the panel of arbitrators maintained by RailTel which included senior retired government officials. In the written submissions, the Respondent had offered the Petitioner to choose their nominee from the entire panel list. The question that is to be determined in the present case was whether the panel prepared by the Respondent was “broad-based” and whether the appointment procedure met the pre-requisite of “counter-balancing”.

4) The High Court observed the test of “broad-based” which was laid down by the Hon’ble Supreme Court in Voestalpine Schienen Gmbh V. Delhi Metro Rail Corporation Limited 2017 4 SCC 665, wherein it was held as follows;

“28. Before we part with, we deem it necessary to make certain comments on the procedure contained in the arbitration agreement for constituting the Arbitral Tribunal. Even when there are a number of persons empanelled, discretion is with DMRC to pick five persons therefrom and forward their names to the other side which is to select one of these five persons as its nominee (though in this case, it is now done away with). Not only this, DMRC is also to nominate its arbitrator from the said list. Above all, the two arbitrators have also limited choice of picking upon the third arbitrator from the very same list i.e. from remaining three persons. This procedure has two adverse consequences. In the first place, the choice given to the opposite party is limited as it has to choose one out of the five names that are forwarded by the other side. There is no free choice to nominate a person out of the entire panel prepared by DMRC. Secondly, with the discretion given to DMRC to choose five persons, a room for suspicion is created in the mind of the other side that DMRC may have picked up its own favourites. Such a situation has to be countenanced. We are, therefore, of the opinion that sub-clauses (b) & (c) of Clause 9.2 of SCC need to be deleted and instead choice should be given to the parties to nominate any person from the entire panel of arbitrators. Likewise, the two arbitrators nominated by the parties should be given full freedom to choose the third arbitrator from the whole panel.

29. Some comments are also needed on Clause 9.2(a) of GCC/SCC, as per which DMRC prepares the panel of “serving or retired engineers of government departments or public sector undertakings”. It is not understood as to why the panel has to be limited to the aforesaid category of persons. Keeping in view the spirit of the amended provision and in order to instil confidence in the mind of the other party, it is imperative that panel should be broad-based. Apart from serving or retired engineers of government departments and public sector undertakings, engineers of prominence and high repute from private sector should also be included. Likewise panel should comprise of persons with legal backgrounds like Judges and lawyers of repute as it is not necessary that all disputes that arise, would be of a technical nature. There can be disputes involving purely or substantially legal issues, that too, are complicated in nature. Likewise, some disputes may have the dimension of accountancy, etc. Therefore, it would also be appropriate to include persons from this field as well.

30. Time has come to send positive signals to the international business community, in order to create healthy arbitration environment and conducive arbitration culture in this country. Further, as highlighted by the Law Commission also in its report, duty becomes more onerous in government contracts, where one of the parties to the dispute is the Government or public sector undertaking itself and the authority to appoint the arbitrator rests with it. In the instant case also, though choice is given by DMRC to the opposite party but it is limited to choose an arbitrator from the panel prepared by DMRC. It, therefore, becomes imperative to have a much broadbased panel, so that there is no misapprehension that principle of impartiality and independence would be discarded at any stage of the proceedings, specially at the stage of constitution of the Arbitral Tribunal. We, therefore, direct that DMRC shall prepare a broad-based panel on the aforesaid lines, within a period of two months from today.”

5) The Ld. Judge also relied on Sms Ltd. vs Rail Vikas Nigam Limited; AIR ONLINE 2020 DEL 15, wherein it was held that;

“32. There is no dispute that there are only eight members out of thirty seven in the panel provided by the respondent Company who are Officers retired from organizations other than the Railways and PSUs not connected with the Railways. The Supreme Court in Voestalpine Schienen GMBH (supra) had observed as to why the panel should not be limited to Government departments or public sector undertakings; and went on to hold that in order to instill confidence in the mind of the other party, it is imperative that apart from serving or retired engineers of government departments and public sector undertakings, Engineers of prominence and high repute from private sector should also be included, likewise panel should comprise of persons with legal background like Judges and Lawyers of repute as it is not necessary that all the disputes that arise would be technical in nature. In fact, I find in the judgment of the Coordinate Bench of this Court in Simplex Infrastructures Ltd. (supra), the respondent Company had provided 26 names with only nine being Officers who were not connected with Railways or other Railways organizations / Companies, still there being no persons with any legal, accountancy backgrounds or from other diverse fields, the Court went ahead to hold clearly that in spite of repeated judgments relying upon the judgment of the Supreme Court in Voestalpine Schienen GMBH (supra), the respondent refused to comprehensively broad base its panel and had appointed the nominee Arbitrator on behalf of the respondent in the said case. So, it must follow, that the panel of thirty seven names given by the respondent Company, also, does not satisfy the concept of neutrality of Arbitrators as it is not broad based.”

ORDER

The High Court of Delhi, after considering all the facts and circumstances of the case, disposed off the Petition with the following directions:

I) “The disputes between the Parties under the said Agreement are referred to the Arbitral Tribunal.

II) Justice Kurian Joseph, Former Judge of the Supreme Court of India Mobile No.9999775444 is appointed as a sole Arbitrator to adjudicate the disputes between the Parties in all the Petitions.

III) The Arbitration will be held under the aegis of the Delhi International Arbitration Centre, Delhi High Court, Sher Shah Road, New Delhi hereinafter, referred to as the “DIAC”). The remuneration of the Ld. Arbitrator shall be in terms of the fees Schedule of DIAC.

IV) The Ld. Arbitrator is requested to furnish a declaration in terms of Section 12 of the Act before entering into the reference.

V) It is made clear that all the rights and contentions of the Parties, including as to the arbitrability of any of the claims, any other preliminary objection, as well as claims on merits of the dispute of either of the Parties, are left open for adjudication by the Ld. Arbitrator.

VI) The Parties shall approach the Ld. Arbitrator within two weeks from 22.03.2024.”

 

Kartik Khandekar

Associate

The Indian Lawyer & Allied Services