TMI Blog2023 (6) TMI 1331X X X X Extracts X X X X X X X X Extracts X X X X ..... he disputed amount. Even if it were possible for the respondent to notify the disputed amount immediately, the clause would only be operative if the respondent was simultaneously making a counter claim more than the petitioner s claim which was being denied by the petitioner, by seeking reference of the dispute to arbitration. If you read Section 12(5) of the said Act along with its 7th schedule, the General Manager or any other employee of the respondent past or present, is disqualified from being an arbitrator on the likelihood of bias. The arbitration clause provides for appointment of a sole arbitrator by the Chairman of the respondent. If the petitioner also had a right to nominate an arbitrator, then it could have been argued that the General Manager s power to appoint an arbitrator of his choice was counter balanced by the petitioner s similar right and the clause adjudged to be valid in terms of CENTRAL ORGANISATION FOR RAILWAY ELECTRIFICATION VERSUS M/S ECI-SPIC-SMO-MCML (JV) A JOINT VENTURE COMPANY [ 2019 (12) TMI 841 - SUPREME COURT] . Under Section 11 sub-section 6A of the said Act, the court exercising power under Section 11 of the said Act has the power to g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause 33 (iii) is set out below:- 33(iii). All disputes and differences arising out of or in any way touching or concerning this Agreement (except those the decision whereof is otherwise herein before expressly provided for or to which the public premises [Eviction of Unauthorized Occupants] Act and the rules framed there under which are now enforced or which may hereafter come into force are applicable), shall, in the first instance, be referred to a Dispute Resolution Committee (DRC) setup at the airports, for which a written application should be obtained from the party and the points clearly spelt out. In case the dispute is not resolved within 45 days of reference, then the case shall be referred to sole arbitration of a person to be appointed by the Chairman/Member of the Authority. The award of the arbitrator so appointed shall be final and binding on the parties. The Arbitration Conciliation Act, 1996 shall be applicable. Once the arbitration clause has been invoked, the DRC process will cease to be operative. It will be no bar that the Arbitrator appointed as aforesaid is or has been an employee of the Authority and the appointment of the Arbitrator will not be challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and damages suffered for 2nd year w.e.f 27.03.2018 to 26.03.2019. ₹1,28,76,395.00 Claim No. 3 :- On account of compensation/damages suffered for 3rd year w.e.f 27.03.2019 to 24.03.2020. ₹89,46,874.00 Claim No. 4 :- On account of compensation/ damages suffered for 4th year w.e.f 25.03.2020 to 18.11.2020. ₹89,46,874.00 Claim No. 5 :- Refund/Release/Payment Bank guarantee and Security Deposit. ₹1,30,30,006.00 Total:- ₹10,85,15,345.00 (Ten Crore Eighty Five Lakh Fifteen Thousand Three Hundred forty five only). (The break up of the claims are mentioned in letter dated 28.11.2020 and necessary vouchers will be submitted in due course.) Claim No. 6 :- Interest @ 18% p.a; from the date of final claim i.e 28.11.2020 till realisation of full amount. Claim No. 7 :- Cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Water Supply Severage Board Anr. reported in (2019) 4 SCC 401. In this case, the court ruled that the stipulation regarding pre-deposit had no connection with the genuineness of the claim as it applies to all claims. There was no provision for return of the disputed amount after conclusion of arbitration. Mr. Justice Nariman delivering the judgment of the court opined that this kind of a clause would certainly amount to a clog on this process (arbitration). The particular clause being severable from the rest of the contract was struck down by the court. Next, learned counsel also relied on Section 12(5) of the said Act. It is in the following terms:- 12(5). 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. The 7th Schedule is set out hereunder:- THE SEVENTH SCHEDULE [See Section 12(5)] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitrator holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held. 18. A close family member of the arbitrator has a significant financial interest in the outcome of the dispute. 19. The arbitrator or a close family member of the arbitrator has a close relationship with a third party who may be liable to recourse on the part of the unsuccessful party in the dispute. Explanation 1. The term close family member refers to a spouse, sibling, child, parent or life partner. Explanation 2. The term affiliate encompasses all companies in one group of companies including the parent company. Explanation 3. For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialised pool. If in such fields it is the custom and practice for parties frequently to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out above. He contended that the arbitration clause providing for appointment of a sole ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and Amendment) Act, 2015. Learned counsel for the petitioner also cited Uttarakhand Purv Sainik Kalyan Nigam Ltd. vs. Northern Coal Field Ltd. reported in (2020) 2 SCC 455 where the Supreme Court on consideration of the insertion of Section 11 (6A) in the said Act with effect from 23rd October, 2015 to the effect that the Supreme Court or the High Court in considering an application under Section 11 of the said Act could examine the existence of the arbitration agreement. Learned counsel for the respondent cited Central Organisation for Railway Electrification vs. ECI-SPIC-SMO-MCML (JV) A Joint Venture Company reported in (2020) 14 SCC 712. This is a very interesting case. It was concerned with Clause 64 of the general clauses of contract of the Railways which provided for appointment of three arbitrators. Out of the panel of names of the Railways, the other party was required to suggest two names out of which the Railways were to select one to be the other party s nominee arbitrator. The other two arbitrators were to be appointed by the General Manager of the Railways. The Supreme Court after consideration of the above decisions made a distinction between this case and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Section 12(5) in the said Act with effect from 23rd October, 2015 great emphasis has been laid on the principle that anyone who in the opinion of a reasonable person is likely to be biased in favour of a party to the arbitration is made ineligible to be appointed as an arbitrator. Now if an ineligible person is appointed as an arbitrator it goes to the root of the matter. An ineligible person s appointment as arbitrator is a nullity. He has no jurisdiction to enter upon the reference. In such a case, he cannot be called upon to adjudicate upon his neutrality or impartiality because his appointment is non-est. It is for the court to decide the question. This has been emphasized by the legislature in successive amendments to subsection 6A of Section 11 of the said Act between 2015 and 2019. The Supreme Court has gone to the extent of saying that when a person is ineligible by virtue of the seventh schedule to act as an arbitrator on the ground of bias, he could not be called upon to nominate another arbitrator. This is an extension of the principle of bias to a very high degree so as to ensure that the arbitral proceedings are freely and fairly conducted in accordance with la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iality. The Supreme Court in Perkins Eastman Architects DPC and Anr. Vs. HSCC (India) Ltd. reported in (2020) 20 SCC 760 following Walter BAU AG, Legal Successor, of The Original Contractor, Dyckerhoff and Widmann A.G vs. Municipal Corporation of Greater Mumbai and Anr. reported in (2015) 3 SCC 800 and TRF Ltd. vs. Energo Engineering Projects Ltd. reported in (2017) 8 SCC 377 has taken a stricter view of bias to obviate the remote possibility of its presence in the arbitrator. It ruled that if the General Manager, being an employee of an organization is disqualified, then, if the General Manager is the appointing authority to appoint a sole arbitrator, then the likelihood of his being biased, is also transferred to his nominee or appointee. Such nominee of a disqualified person is also similarly disqualified to be arbitrator. In those circumstances, Clause 33 providing for appointment of a sole arbitrator as a General Manager is violative of Section 12(5) read with the seventh schedule and the above Supreme Court decisions. Any arbitrator appointed by the General Manager of the respondent under this clause would be disqualified. The arbitration clause provides for appointm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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