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China Railway Shisiju Gr. Corporation And Another v. New Delhi Municipal Council And Another
Factual and Procedural Background
The petitioners and the New Delhi Municipal Council entered into an agreement dated 9-6-2008 for the “improvement/upgradation of Shivaji Stadium,” which included construction of a sports facility block, hockey stadium, parking facilities, lifts, and other works. Petitioner 1 was awarded the contract by a Council resolution of 28-4-2008 and subsequently appointed Petitioner 2 as its agent under Clause 18 of the General Conditions of Contract.
A dispute later arose concerning alleged unauthorised sub-letting in favour of Petitioner 2, leading to a CBI investigation and the freezing of Petitioner 1’s bank account. The contract was rescinded and the respondent Council attempted to invoke the bank guarantees. Petitioner 1 maintains that it completed the works and is owed substantial payments.
Pursuant to Clause 25 of the agreement, Petitioner 1 sent a letter dated 13-12-2013 to the Chairperson of the Council seeking appointment of an arbitrator. Receiving no response, the petitioners filed the present application under Section 11(6) of the Arbitration and Conciliation Act, 1996.
Legal Issues Presented
- Whether the existence of pending criminal proceedings initiated by the CBI bars or delays commencement of arbitration on the petitioners’ payment claims.
- Whether the respondent Council’s Chairperson can propose two arbitrators to act jointly despite Clause 25 of the contract stipulating arbitration by a sole arbitrator, and if not, whether the Court should assume the power to appoint a sole arbitrator.
Arguments of the Parties
Petitioners’ Arguments
- The contract work was executed and significant payments remain outstanding.
- The Council’s failure to appoint an arbitrator under Clause 25 necessitates the Court’s intervention under Section 11(6).
Respondents’ Arguments
- The petitioners’ claims are opposed on merits; a counter-claim has been filed.
- Arbitration should not begin until the CBI criminal proceedings are concluded.
- Given the “sensitivity of the case,” two arbitrators should be appointed to conduct the proceedings jointly.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court observed that demonstrable disputes exist over the petitioners’ entitlement to payment. It rejected the respondents’ contention that pending criminal proceedings constitute an embargo on arbitration, holding that civil claims for payment can be adjudicated independently and expeditiously.
Clause 25 of the contract expressly provides for arbitration by a sole arbitrator to be appointed by the Chairperson of the respondent Council. Although the Court had earlier allowed the Chairperson time to appoint an arbitrator, the Chairperson’s proposal of two arbitrators was deemed “plainly contrary” to the contractual clause. Consequently, the Court recalled its earlier leave and exercised its power under Section 11(6) to make the appointment itself.
Balancing contractual intent with the need for prompt dispute resolution, the Court appointed Shri Justice A.K. Patnaik, former Judge of the Supreme Court of India, as the sole arbitrator. It directed that the parties, in consultation with the arbitrator, settle the terms of appointment and proceed without undue delay.
Holding and Implications
DISPOSED OF: The Court recalled the Chairperson’s authority to appoint two arbitrators and instead appointed Shri Justice A.K. Patnaik as the sole arbitrator. The arbitration petition stands disposed of with no order as to costs.
Implications: The decision clears the way for arbitration to commence despite parallel criminal proceedings and enforces adherence to the contractual clause requiring a sole arbitrator. It sets no new precedent but affirms the Court’s readiness to intervene under Section 11(6) when a contractual appointing authority deviates from the agreed arbitration mechanism.
Order
1. By this application under Section 11(6) of the Arbitration and Conciliation Act, 1996, the petitioners seek appointment of an arbitrator to go into the disputes and differences that have arisen with the respondents from a contract/agreement signed on 9-6-2008 for “improvement/upgradation of Shivaji Stadium”, particularly “construction of Sport Facility Block, Hockey Stadium, Parking, Lifts, etc.”. After the said work was awarded to Petitioner 1 by resolution of the respondent Municipal Council dated 28-4-2008, Petitioner 1 claims to have appointed the second petitioner, an Indian Company as its agent pursuant to Clause 18 of the General Conditions of Contract.
2. It appears that an issue with regard to unauthorised sub-letting of the contract work in favour of the second petitioner arose which led to a criminal case being registered by the Central Bureau of Investigation (CBI), inter alia, against the first petitioner. As a sequel to the aforesaid criminal proceeding, the bank account of the first petitioner was frozen and resultantly the contract was also rescinded and attempts were made to invoke the bank guarantees that were furnished in connection with the work. Be that as it may, what transpires is that though, according to Petitioner 1, the works were executed, payment of substantial amounts are due and are not forthcoming.
3. In the above circumstances, Petitioner 1 had addressed a communication dated 13-12-2013 to the Chairperson of the New Delhi Municipal Council, invoking the arbitration clause contained in the Agreement dated 9-6-2008 (Clause 25), for appointment of an arbitrator as agreed to by and between the parties in the aforesaid arbitration clause.
4. As no response has been forthcoming, the present application has been filed.
5. The respondents have filed their counterclaim and have opposed the claims made by the petitioners and have also contended that the arbitration proceeding should not commence until the criminal case, instituted by CBI is finalised.
6. At the hearing today and pursuant to the earlier orders passed by this Court, the respondent Council has suggested the names of two arbitrators, who, according to it, should jointly conduct the proceedings “in view of the sensitivity of the case”.
7. The facts revealed by the respective pleadings of the parties clearly indicate that disputes and differences have arisen over the entitlement of the petitioners to receive payment for the work done under the agreement. The mere fact that a criminal case has been registered, in the considered opinion of the Court, cannot act as an embargo on the adjudication of the entitlement of the petitioners for payment so as to hold up the arbitration proceedings indefinitely. In fact, the arbitration proceedings can be conducted by taking into account the aforesaid issue for decision in addition to such other issues that may legitimately arise.
8. Admittedly, the arbitration clause (Clause 25) contemplates the conduct of the arbitration proceeding by a sole arbitrator. The Chairperson of the respondent Council is the competent authority under the agreement to make the appointment in terms of the arbitration clause. Though the time fixed under the agreement for making such appointment was over, yet the Court had permitted the Chairperson to so act. However, the communication placed before the Court on behalf of the Chairperson indicates the names of two arbitrators who, according to the Chairperson, should hold the proceedings jointly. As the said suggestion is plainly contrary to the arbitration clause the Court is of the view that the leave granted to the Chairperson of the respondent Council to appoint the arbitrator should be recalled. It is ordered accordingly. Instead, the Court appoints Shri Justice A.K. Patnaik, a former Judge of this Court to act as the sole arbitrator. The terms of appointment of the learned arbitrator will be mutually settled by the parties in consultation with the learned arbitrator.
9. Let this order be communicated to the learned arbitrator so that the arbitration proceedings can commence and conclude as expeditiously as possible.
10. The arbitration petition is disposed of accordingly. No costs.
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