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2020 Supreme(Del) 1228
IN THE HIGH COURT OF DELHI AT NEW DELHI
Rajiv Shakdher, J.
Larsen & Toubro Ltd - Appellant
Versus
Public Works Department - Respondent
Interlocutory Application No. 529 of 2018, 9704 of 2018, 9723 of 2018; Original Miscellaneous Petition (T) (Comm) No. 58 of 2018
Decided On : 09-01-2020
Nakul Dewan, Advocate, Nooreen Sarna, Advocate, Sunil Malhotra, Advocate, Rajat Malhotra, Advocate, Ramesh Singh, Advocate, Sanjoy Ghose, Advocate, Chirayu Jain, Advocate, Rhishabh Jetley, Advocate
The court can terminate the mandate of an arbitrator under Section 14(1)(a) of the Arbitration and Conciliation Act, 1996 if the procedure for appointment of arbitrator is skewed in favour of the appointing authority and the arbitrator is not impartial and independent.
Headnote:
ARBITRATION - Appointment of arbitrator - Termination of mandate - Grounds - Impartiality and independence of arbitrator - Procedure for appointment of arbitrator skewed in favour of appointing authority - Appointment of arbitrator by court under Section 11(6) of the Arbitration and Conciliation Act, 1996.
Fact of the Case:
Larsen and Tourbo Ltd. (L&T) and the Public Works Department of the Government of NCT of Delhi (PWD) entered into an agreement for the construction of a hospital. Disputes arose between the parties during 2014-16. L&T invoked the arbitration clause in the agreement and submitted the information required for the appointment of an arbitrator. The PWD appointed Mr. Anil Kumar Verma, a retired Special Director General, CPWD, as the sole arbitrator. L&T objected to the appointment of Mr. Verma on the ground that the procedure for appointment of arbitrator was skewed in favour of the PWD and that Mr. Verma was not impartial and independent. L&T filed petitions under Sections 11(6) and 14(2) of the Arbitration and Conciliation Act, 1996 (1996 Act) seeking termination of Mr. Verma's mandate and appointment of a new arbitrator.
Finding of the Court:
The court held that the procedure for appointment of arbitrator was skewed in favour of the PWD and that Mr. Verma was not impartial and independent. The court terminated Mr. Verma's mandate and appointed Hon'ble Mr. Justice A.K.Sikri, former judge of the Supreme Court, as the arbitrator.
Issues: 1. Whether the procedure for appointment of arbitrator was skewed in favour of the PWD? 2. Whether Mr. Verma was impartial and independent? 3. Whether the court could terminate Mr. Verma's mandate under Section 14(1)(a) of the 1996 Act? 4. Whether the court could appoint a new arbitrator under Section 11(6) of the 1996 Act?
Ratio Decidendi: 1. The court held that the procedure for appointment of arbitrator was skewed in favour of the PWD because: a. The Chief Engineer, who was the appointing authority, also acted as the first appellate authority in the mandatory pre-arbitration adjudicatory process. b. The conditions prescribed by the PWD for empanelment of arbitrators were such that they tended to degrade the attributes of impartiality and independence which are expected of the appointee-arbitrator. 2. The court held that Mr. Verma was not impartial and independent because: a. He was empanelled under the same empanelment procedure which prescribed the aforementioned conditions for being empanelled. b. The panel of arbitrators from which Mr. Verma was chosen consisted of only retired officers who were either past employees of the PWD or its parent organization i.e. CPWD. 3. The court held that it could terminate Mr. Verma's mandate under Section 14(1)(a) of the 1996 Act because the procedure for appointment of arbitrator was skewed in favour of the PWD and Mr. Verma was not impartial and independent. 4. The court held that it could appoint a new arbitrator under Section 11(6) of the 1996 Act because: a. The object of achieving an impartial resolution of disputes obtaining between parties outweighs the principle of party autonomy. b. The PWD had failed to appoint an impartial and independent arbitrator.
Final Decision: The court terminated the mandate of Mr. Anil Kumar Verma and appointed Hon'ble Mr. Justice A.K.Sikri, former judge of the Supreme Court, as the arbitrator.
JUDGMENT
Rajiv Shakdher, J. - Prefatory Facts:
1. These are two petitions filed by Larsen and Tourbo Ltd. (hereafter referred to as "L&T") against the Public Works Department of the Government of NCT of Delhi (hereafter referred to as "PWD").
2. The first petition i.e. ARB. P. 529/2018, is preferred under Section 11(6) read with Section 11(5) of the Arbitration and Conciliation Act, 1996 (hereafter referred to as the "1996 Act"). The second petition i.e. OMP(T)(COMM) 58/2018, is preferred under Section 14(2) read with Section 14(1)(a) of the 1996 Act.
3. In essence, the reliefs sought for by L&T via the captioned petitions is that the mandate of the incumbent arbitrator i.e. Mr. Anil Kumar Verma, be terminated and that this Court should substitute his appointment with a sole arbitrator. Qua the issue of appointment of an arbitrator, an alternate plea has also been made, which is, that the procedure for appointment of an arbitrator as incorporated under Clause 25 of the General Conditions of Contract (''GCC'') be disregarded and a three-member arbitral tribunal be constituted qua the disputes obtaining between the parties.
4. Before I proceed to adjudicate upon the issues which have arisen in the captioned petitions, it may be necessary to, briefly, advert to the backdrop in which the instant petitions have been filed.
Backdrop:
5. On 13.10.2014, L&T and the PWD entered into an agreement (pursuant to a Notice Inviting Tender [NIT] issued by the latter) concerning the construction of a 700-bed hospital which was to be located in Sector-9, Dwarka, New Delhi. The value of the contract, which had to be executed on a turnkey basis and also involved rendering maintenance and operational services for 5 years, was pegged at Rs.545,11,42,992. The subject works had to be completed, as per the agreement, by 26.6.2016.
6. It appears that certain disputes arose between L&T and the PWD during 2014-16. Consequently, L&T, on 23.9.2016, took recourse to the disputes resolution clause i.e. clause 25 of the GCC. Accordingly, a petition in the form of letter dated 23.9.2016 was filed, in this behalf, with the Superintending Engineer, PWD (hereafter referred to as "SE").
6.1 Since the SE failed to act in the matter within the prescribed time, L&T escalated the matter and approached the Principal Chief Engineer for redressal of its grievance via a petition/letter dated 3.2.2017 which, inter alia, concerned "reimbursement of additional cost incurred due to differing site conditions".
6.2 However, before the Principal Chief Engineer could rule on the appeal, the Chief Project Manager(Health) (who, I am told, is equivalent to the SE) vide communication dated 11.5.2017 rejected the claims made by L&T.
7. Since the Principal Chief Engineer had not rendered a decision to the petitioner''s appeal within the prescribed period, L&T, it appears, decided to escalate the matter to the next level and, consequently, preferred an appeal, on 6.11.2017, with the Disputes Resolution Committee (DRC). The appeal, preferred with the DRC, met with the same fate. The DRC rejected the petitioner''s claims on 11.5.2018. This decision, though, was communicated to L&T only on 21.5.2018.
8. Faced with this situation, L&T shot off a Notice Of Dissatisfaction dated 14.6.2018 ("NOD") to the PWD qua the decision rendered by the DRC. Besides this, via the NOD, L&T also triggered the arbitral process incorporated in Clause 25(i) of the GCC and, in this behalf, furnished the information, as mandated, in terms of the proforma provided in appendix XV of the GCC.
8.1 Pertinently, in the NOD, L&T asserted that while the agreement between the parties concerning adjudication of disputes via arbitration survived, the procedure for appointment of the arbitral tribunal, as provided in Clause 25 of the GCC, had been rendered invalid on account of the amendments brought about in the 1996 Act via the Arbitration and Conciliation (Amendment) Act, 2015(Act No. 3 of 2016) [hereafter referred to as '
