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Thursday, January 22, 2015

Consequently, we allow the present petition and appoint Shri Justice S.R. Sathe, a retired judge of the Bombay High Court as the Arbitrator on behalf of the respondent Corporation. Both the Arbitrators shall now name the third Arbitrator forthwith whereafter the arbitration proceedings will be held and concluded as expeditiously as possible. The terms of appointment of Shri Justice S.R. Sathe as the Arbitrator on behalf of the respondent Corporation will be settled in consultation with the respondent Corporation.= CIVIL ORIGINAL JURISDICTION ARBITRATION CASE (CIVIL) NO.35 OF 2014 WALTER BAU AG,LEGAL SUCCESSOR, OF THE ORIGINAL CONTRACTOR, DYCKERHOFF & WIDMANN A.G. ...PETITIONER

REPORTABLE


                        IN THE SUPREME COURT OF INDIA
                         CIVIL ORIGINAL JURISDICTION
                   ARBITRATION CASE (CIVIL) NO.35 OF 2014


           WALTER BAU AG,LEGAL SUCCESSOR,
           OF THE ORIGINAL CONTRACTOR,
           DYCKERHOFF & WIDMANN A.G.       ...PETITIONER


                            VERSUS


           MUNICIPAL CORPORATION OF GREATER
           MUMBAI & ANR.                   ...RESPONDENTS




                                  JUDGMENT




           1.         A works contract No.3AAA dated  20th  December,  2000
           was executed by and between the  petitioner  and  the  Municipal
           Corporation of  Greater  Mumbai  (respondent  No.1  herein)  for
           execution of city tunnel rehabilitation works for  the  purposes
           of transporting the  city's  sewage.  Disputes  and  differences
           having arisen between the parties under the said  contract,  the
           petitioner invoked the arbitration clause contained therein  and
           by letter, dated 24th February, 2014, nominated  one  Shri  R.G.
           Kulkarni as its Arbitrator.   By  the  said  communication,  the
           petitioner called  upon  the  respondent  No.1  to  appoint  its
           Arbitrator within 30  days  of  the  receipt  of  the  aforesaid
           letter/notice.


           2.         The arbitration clause in the agreement  between  the
           parties would require to be specifically noticed and, therefore,
           is being extracted herein below:
|"Modified Sub-Clause 67.3                       |
|Arbitration                                     |
|                                                |
|Sub-clause 67.3 is modified to read as follows: |
|                                                |
|Any dispute, in respect of which the            |
|Recommendation(s), if any, of the Board has not |
|become final and binding pursuant to Sub-clause |
|67.1, shall be finally settled by arbitration as|
|set forth below.  The Arbitral Tribunal shall   |
|have full power to open-up, review and revise   |
|any decision, opinion, instruction,             |
|determination, certificate or valuation of the  |
|Engineer and any Recommendation(s) of the Board |
|related to the dispute:                         |
|I)    |A dispute with and Indian contractor    |
|      |shall be finally settled by arbitration |
|      |in accordance with the Indian           |
|      |Arbitration and Conciliation Act, 1996  |
|      |or any statutory amendment thereof.  The|
|      |Arbitral Tribunal shall consist of 3    |
|      |Arbitrators, one each to be appointed by|
|      |the Employer and the Contractor. The    |
|      |third arbitrator shall be chosen by two |
|      |arbitrators so appointed by the parties |
|      |and shall act as Presiding Arbitrator.  |
|      |In case of failure of the two           |
|      |arbitrators, appointed by the parties to|
|      |reach upon a consensus within a period  |
|      |of 30 days from the appointment of the  |
|      |arbitrator appointed subsequently, the  |
|      |presiding arbitrator shall be appointed |
|      |by the International Centre for         |
|      |Alternative Dispute Resolution in India.|
|      |For the purpose of this Sub-Clause, the |
|      |term "Indian Contractor" means a        |
|      |contractor who is registered in India   |
|      |and is a juridical person created under |
|      |Indian Law as well as a Joint Venture   |
|      |between such a Contractor and a Foreign |
|      |Contractor.                             |
|II.   |In case of a dispute with a foreign     |
|      |Contractor, the dispute shall be finally|
|      |settled in accordance with the          |
|      |provisions of UNCITRAL Arbitration      |
|      |Rules.  The arbitral tribunal shall     |
|      |consist of 3 Arbitrators one each to be |
|      |appointed by the Employer and the       |
|      |Contractor. The third arbitrator shall  |
|      |be chosen by the two arbitrators so     |
|      |appointed by the parties, and shall act |
|      |as presiding arbitrator.  In case of the|
|      |failure of the two arbitrators appointed|
|      |by the parties to reach upon a consensus|
|      |within a period of 30 days from the     |
|      |appointment of the arbitrator appointed |
|      |subsequently, the presiding arbitrator  |
|      |shall be appointed by the International |
|      |Centre for Alternative Dispute          |
|      |Resolution in India.  For the purposes  |
|      |of this clause 67, the term "Foreign    |
|      |Contractor" means a contractor who is   |
|      |not registered in India and is non      |
|      |juridical person created under India    |
|      |Law.                                    |
|III.  |Neither party shall be limited in the   |
|      |proceedings before such tribunals to the|
|      |evidence nor did arguments already put  |
|      |before the Engineer or the Board, as the|
|      |case may be, for the purpose of         |
|      |obtaining its/his said Recommendations/ |
|      |decision.  No such                      |
|      |Recommendations/decision shall          |
|      |disqualify the Engineer or any of the   |
|      |members of the Board, as the case may   |
|      |be, from being called as a witness and  |
|      |giving evidence before the arbitrators  |
|      |or any matter whatsoever relevant to the|
|      |dispute.                                |
|IV)   |Arbitration may be commenced prior to or|
|      |after completion of the works, provided |
|      |always that the obligations of the      |
|      |Employer, the Engineer, the contractor  |
|      |and the Board shall not be altered by   |
|      |reason of the arbitration being         |
|      |conducted during the progress of the    |
|      |works.                                  |
|V)    |If one of the parties fails to appoint  |
|      |its arbitrator in pursuance of          |
|      |Sub-clause (i) and (ii) above, within 30|
|      |days after receipt of the notice of the |
|      |appointment of its arbitrator by the    |
|      |other party, then the International     |
|      |Centre for Alternative Dispute          |
|      |Resolution in India, both in cases of   |
|      |foreign contractors as well as Indian   |
|      |Contractors, shall appoint an           |
|      |arbitrator. A certified copy of the     |
|      |order of the International Centre for   |
|      |Alternative Dispute Resolution in India |
|      |making such and appointment shall be    |
|      |furnished to each of the parties.       |
|VI)   |Arbitration proceeding s shall be held  |
|      |at Mumbai, India, and the language of   |
|      |the arbitration proceedings and that of |
|      |all documents and communications between|
|      |the parties shall be English.           |
|VII   |The decision of the majority of the     |
|      |arbitrators shall be final and binding  |
|      |upon both parties.  The cost and the    |
|      |expenses of arbitration proceedings will|
|      |be paid as determined by the arbitral   |
|      |tribunal.  However, the expenses        |
|      |incurred by each party in connection    |
|      |with the preparation, presentation, etc.|
|      |of its case as also the fees and        |
|      |expenses paid to the arbitrator         |
|      |appointed by such party or on its behalf|
|      |shall be borne by each party itself."   |




           3.         A reading of the aforesaid clause  of  the  agreement
           would go to show that after one of the parties  thereto  invokes
           the arbitration clause; appoints its arbitrator  and  thereafter
           give notice to the other party to appoint its arbitrator, if the
           same is not done within  30  days  or  if  the  two  arbitrators
           appointed by both sides fail to nominate a third arbitrator, the
           matter is  to  be  referred  to  the  International  Centre  for
           Alternative Dispute Resolution in India (for short "ICADR"). For
           appointment of the Arbitrator on behalf of one  of  the  parties
           who has failed to  so  act  or  for  appointment  of  the  third
           arbitrator, as may  be,  ICADR  is  governed  by  certain  norms
           contained in Rules 5 and 35 of the ICADR Rules,  1996  governing
           the procedure for appointment of Arbitrators. The same rules may
           be usefully extracted herein below:




           |5. Appointment of arbitrators.- (1) Unless      |
|otherwise agreed by the parties, a person of any|
|nationality may be an arbitrator.               |
|                                                |
|(2) Where the arbitration agreement provides    |
|that each party shall appoint one arbitrator,   |
|and the two appointed arbitrators shall appoint |
|the presiding arbitrator, 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 appointed arbitrators fail to agree on  |
|the presiding arbitrator within thirty days from|
|the date of their appointment, the appointment  |
|shall be made, upon request of a party, by the  |
|ICADR.                                          |
|                                                |
|(3) 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 ICADR.                            |
|                                                |
|(4) A decision by the ICADR on a matter         |
|entrusted to it by sub-rule (2) or sub rule (3) |
|will be final and binding on the parties.       |
|                                                |
|(5) Upon receipt of a request under sub-rule (2)|
|or sub-rule (3), the ICADR will-                |
|(a) make the appointment as promptly as         |
|possible,                                       |
|(b) follow the procedure specified in rule 35,  |
|(c) have regard to-                             |
|                                                |
|(i) any qualifications required of the          |
|arbitrator by the agreement of the parties      |
|                                                |
|(ii) such considerations as are likely to secure|
|the appointment of an independent and impartial |
|arbitrator; and                                 |
|                                                |
|(iii) in the case of appointment of a sole or   |
|presiding arbitrator in an international        |
|commercial arbitration, the advisability of     |
|appointing a person of a nationality other than |
|the nationalities of the parties.               |
|                                                |
|                                                |
|                                                |
|35. Services as appointing authority.- (1) On   |
|receipt of a request to appoint an arbitrator in|
|pursuant of rule 5(2) or 5(3), the ICADR will   |
|follow the following procedure-                 |
|(i) the ICADR will communicate to each party a  |
|list containing the names, addresses,           |
|nationalities and a description of              |
|qualifications and experience of at least three |
|individuals from the panel of arbitrators;      |
|                                                |
|(ii) within thirty days following the receipt of|
|the list, a party may delete any name to which  |
|he objects and after re-numbering the names in  |
|the order of his preference, return the list to |
|the ICADR;                                      |
|                                                |
|(iii) on receipt of the list returned by the    |
|party, the ICADR will appoint the arbitrator    |
|from the list taking into account the order of  |
|preference indicated by the parties;            |
|                                                |
|(iv) if for any reason the appointment cannot be|
|made according to the procedure specified in    |
|clauses (i) to (iii), the ICADR may appoint the |
|arbitrator from the panel of arbitrators.       |
|                                                |
|(2) In appointing an arbitrator the ICADR will  |
|have regard to the matters referred to in rule  |
|5(5)(c) and will carefully consider the nature  |
|of the dispute in order to include in the list, |
|persons having appropriate professional or      |
|businiess experience,language ability and       |
|nationality.                                    |
|                                                |
|(3) All appointments on behalf of the ICADR will|
|be made by the Secretary-General and in his     |
|absence by such member of the Governing Council |
|as is designated by the Chairperson:            |
|Provided that where the Secretary-General is to |
|be appointed as the arbitrator, the appointment |
|will be made by the Chairperson.                |




           4.         The respondent Corporation having failed  to  respond
           to the notice dated 24th February, 2014 of  the  petitioner,  an
           approach was made to the ICADR by the petitioner  on  19th  May,
           2014.  On the basis thereof, the ICADR by its letter  dated  3rd
           June, 2014  called  upon  the  respondent  Corporation  to  make
           appointment of an Arbitrator from a panel of  three  names  that
           was furnished to the respondent Corporation or to  independently
           appoint an arbitrator.  The respondent Corporation  pursuant  to
           the said  communication  of  the  ICADR  appointed  Mr.  Justice
           (Retd.) A.D. Mane as its arbitrator by communication  dated  3rd
           July, 2014. Thereafter, this application/petition under  Section
           11(6) of the Arbitration and Conciliation Act, 1996  (for  short
           "the Arbitration Act") was filed on 21st August, 2014.


           5.         Mr. Shamik Sanjanwala, learned counsel appearing  for
           the petitioner has submitted that the arbitration clause in  the
           agreement read with  Rules 5 and 35 of the ICADR Rules embody  a
           procedure that was agreed upon by the  parties  with  regard  to
           appointment of the arbitrator(s).  Clearly  and  evidently,  the
           appointment  of  Mr.  Justice  A.D.  Mane  by   the   respondent
           Corporation is contrary to the procedure agreed upon inasmuch as
           under the relevant Rules governing the ICADR, the said Body  was
           required to communicate the respondent Corporation  a  panel  of
           three names and it is from the said panel  that  the  respondent
           Corporation was required to name its Arbitrator.  The  Rules  do
           not contemplate an alternative procedure giving  the  respondent
           Corporation liberty to appoint an Arbitrator of his choice  once
           the respondent Corporation  failed  to  appoint  its  arbitrator
           within the agreed upon period of thirty days from the receipt of
           the notice from the petitioner.  The appointment of Mr.  Justice
           A.D.Mane as Arbitrator is, therefore, non-est, leaving  it  open
           for this Court to exercise its powers under Section 11(6) of the
           Act to  appoint  an  Arbitrator  on  behalf  of  the  respondent
           Corporation. It is also pointed out that the  petitioner  has  a
           serious basis to question the impartiality and  independence  of
           the arbitrator purported  to  be  appointed  by  the  respondent
           Corporation.


           6.          Mr.  Mukul  Rohatgi,   learned   Attorney   General,
           appearing for the the respondent Corporation, on the other hand,
           has  submitted  that  the  present   petition   would   not   be
           maintainable  inasmuch  as  an  Arbitrator  has   already   been
           appointed and any exercise of power under Section 11(6)  of  the
           Arbitration Act, at this stage,  would operate as an  ouster  of
           the said Arbitrator.  It is submitted that  the  remedy  of  the
           petitioner,  if  any,  lies  elsewhere   and   under   different
           provisions  of  the  Arbitration  Act  and  not  by  way  of  an
           application under Section  11(6)  thereof.   Reliance  has  been
           placed on the decision  of  this  Court  in  Antrix  Corporation
           Limited versus Devas Multimedia Private Limited [(2014)  11  SCC
           560] and another recent pronouncement of this Court  dated  16th
           December,  2014  in  Pricol  Limited  versus  Johnson   Controls
           Enterprise Ltd. & Ors. [Arbitration Case (Civil) NO.30 of 2014].


           7.         Alternatively, it has been urged by  Mr.Rohatgi  that
           as the appointment of Mr. Justice A.D. Mane was made before  the
           present application/petition was filed in this Court,  the  said
           appointment would be valid in law.  It  is  submitted  that  the
           requirement of appointment within 30 days of receipt of a notice
           is only in cases covered under Section 11(4) and  11(5)  of  the
           Arbitration Act, whereas in cases falling  under  Section  11(2)
           read with Section 11(6) of the  Arbitration  Act,  so  long  the
           appointment is made before the concerned aggrieved  party  moves
           the Court under Section 11(6),  such  appointment  will  not  be
           invalidated.  In this regard, reliance has been placed on  Datar
           Switchgears Ltd. Versus Tata Finance Ltd. and another [(2000)  8
           SCC 151] and Deep Trading Company versus Indian Oil  Corporation
           and others [(2013) 4 SCC 35].


           8.         While it is  correct  that  in  Antrix   (supra)  and
           Pricol Limited (supra), it was opined by this Court  that  after
           appointment  of  an  Arbitrator  is  made,  the  remedy  of  the
           aggrieved party is not under Section 11(6) but such remedy  lies
           elsewhere and under different provisions of the Arbitration  Act
           (Sections 12 and 13), the context in which  the  aforesaid  view
           was expressed cannot be  lost  sight  of.   In  Antrix  (supra),
           appointment of the Arbitrator, as per ICC Rules, was as per  the
           alternative procedure agreed upon,  whereas  in  Pricol  Limited
           (supra), the party which had filed the application under Section
           11(6) of the Arbitration  Act   had  already  submitted  to  the
           jurisdiction of  the  Arbitrator.   In  the  present  case,  the
           situation is otherwise.


           9.         Unless the appointment of the arbitrator is ex  facie
           valid  and  such  appointment  satisfies  the  Court  exercising
           jurisdiction  under  Section  11(6)  of  the  Arbitration   Act,
           acceptance of such appointment as a fait accompli to  debar  the
           jurisdiction under Section 11(6) cannot be countenanced in  law.
           In the present case,  the  agreed  upon  procedure  between  the
           parties contemplated the appointment of the arbitrator by second
           party within 30 days of receipt  of  a  notice  from  the  first
           party. While the decision in Datar Switchgears Ltd. (supra)  may
           have introduced some flexibility in the time frame  agreed  upon
           by the parties by extending it till a point of time anterior  to
           the filing  of  the  application  under  Section  11(6)  of  the
           Arbitration Act, it cannot be lost sight of that in the  present
           case the appointment  of  Shri  Justice  A.D.  Mane  is  clearly
           contrary  to  the  provisions  of  the   Rules   governing   the
           appointment of Arbitrators  by  ICADR,  which  the  parties  had
           agreed to abide in the matter of such appointment.   The  option
           given to the respondent  Corporation  to  go  beyond  the  panel
           submitted by the ICADR and to appoint any person of  its  choice
           was clearly not in the contemplation of the parties.  If that be
           so, obviously, the appointment of Shri Justice A.D. Mane is non-
           est in law.  Such an appointment, therefore,  will  not  inhibit
           the exercise of jurisdiction by this Court under  Section  11(6)
           of the Arbitration Act.  It cannot, therefore, be held that  the
           present proceeding is not maintainable in law.  The  appointment
           of Shri Justice A.D. Mane made beyond 30 days of the receipt  of
           notice by the petitioner, though may appear to be in  conformity
           with the law laid down in Datar  Switchgears  Ltd.  (supra),  is
           clearly contrary to the  agreed  procedure  which  required  the
           appointment made by the respondent Corporation to  be  from  the
           panel submitted by the ICADR. The said  appointment,  therefore,
           is clearly invalid in law.


           10.        Consequently,  we  allow  the  present  petition  and
           appoint Shri Justice S.R. Sathe, a retired judge of  the  Bombay
           High Court  as  the  Arbitrator  on  behalf  of  the  respondent
           Corporation.  Both the Arbitrators  shall  now  name  the  third
           Arbitrator forthwith whereafter the arbitration proceedings will
           be held and concluded as expeditiously as possible. The terms of
           appointment of Shri Justice S.R.  Sathe  as  the  Arbitrator  on
           behalf  of  the  respondent  Corporation  will  be  settled   in
           consultation with the respondent Corporation.


           11.        The arbitration petition is disposed of in the  above
           terms.






                                                     ....................,J.
                                                              (RANJAN GOGOI)


           NEW DELHI
           JANUARY 20, 2015

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