1. The petitioner has filed this petition under Section 11(6) read with Sections 12 and 14 of the Arbitration and Conciliation Act, (for short the Act).
2. The petitioner has sought for annulling the procedure adopted by the first respondent (Railways) for appointment of Shri Ashok Kumar Singh, a retired officer of the Railways, as an Arbitrator, on the ground that he was ineligible to be appointed by virtue of Section 12(5) read with Schedule-VII of the Act.
3. A further prayer is sought to appoint a sole Arbitrator to resolve the existing disputes and consequentially hold that the appointment made by the first respondent of Shri Ashok Kumar Singh was bad in law.
4. The facts which would be necessary for resolving the dispute raised in this petition are that on 21.08.2017, the petitioner entered into a contract with the Railways. The Contract stipulated that the petitioner provide guaranteed freight revenue to the Railways and the Railways, in turn, : 3 : agreed to evacuate the traffic so offered by providing Wagons and connected services.
5. The stated objective of the agreement was that the Railways would provide freight incentives in the form of rebate on the total gross freight revenue as a consideration for the commitment of the petitioner to provide minimum guaranteed gross freight revenue during the contractual period.
6. The said agreement provided for an Arbitration clause, reads as under: Section 13.5 Arbitration: In the event of any question or difference arising out of or under this Contract in connection therewith (except as to matters, the decision to which is specifically provided under this Contract) the same shall be resolved by amicable settlement failing which the matter will be referred to the Sole Arbitrator appointed by the Competent Authority i.e., General Manager of concerned Zonal Railways. The Arbitration shall be conducted in accordance with the provisions of Arbitration and Conciliation Act, 1996 as amended in 2015 and the Rules made there under. The decision of the Arbitrator shall be final and binding upon the parties.
7. It appears that the disputes arose between the petitioner and the first respondent, and this led to the petitioner invoking arbitration by its letter dated 05.12.2019 : 4 : and requested the General Manger of the Railways to refer the issue to the sole Arbitrator as per the provisions of the Act as amended in 2015.
8. The Railways responded by their letter dated 07.01.2020 stating that the request of the petitioner to appoint a neutral Arbitrator like some retired High Court Judge was not acceptable as it had been opined that the requirement of the independent Arbitrator as per the provisions of the amended Act, could be met by appointing a retired officer as his sole Arbitrator.
9. The Railways also called upon the petitioner to enter into an agreement, waiving the applicability of Section 12(5) of the Act and in case the petitioner was not prepared to waive the applicability of Section 12(5) of the Act, the matter would be proceeded for appointment of a retired officer, as per the Railway Board Letter dated 18.10.2017.
10. This request of the Railways was not acceded to by the petitioner and the petitioner requested the General Manger to appoint a retired Judge as a sole Arbitrator. : 5 :
11. Subsequently, by another letter dated 30.08.2020, the petitioner stated that it was not agreeable for waiving the applicability of Section 12 of the Act and informed the Railways that it was nominating a Former Judge of this Court as an Arbitrator.
12. The Railways addressed a communication in the month of November-2020 informing the petitioner that the General Manger had nominated four retired officers for constitution of an Arbitral Tribunal consisting of a sole Arbitrator and the petitioner was requested to suggest two names out of the panel of four names furnished to him within thirty days.
13. Thereafter, the General Manager proceeded to appoint Shri Ashok Kumar Singh, a retired officer of the Railways as a sole Arbitrator to adjudicate upon the dispute arising out of the agreement and called upon him to enter into a reference and adjudicate the following claim: Claim Claimant claims description Claimed amount
1. 1. Whether the Contractor should refund the excess payment of LTTC rebate amount as demanded by PCCM/SWR Office. 27,30,00,000.00 (Rupees Twenty Seven Crores Thirty lakhs only) : 6 :
14. The petitioner stated in the reply that they did not consent to the unilateral action on the part of the Railways in appointing Shri Ashok Kumar Singh and reiterated its demand to nominate the retired Judge of this Court as a sole Arbitrator.
15. The sole Arbitrator, thereafter, addressed an Email to the petitioner and to the Railways calling upon them to submit their claims/counter claims. The Railways by their communication dated 10.05.2021, informed the petitioner that a sole Arbitrator had already been appointed and the terms of the reference had also been issued and since the Arbitral Tribunal was competent to rule on its own jurisdiction, it was open for the petitioner to raise his grievances before the Arbitrator. It was stated that a retired officer of the Railways did not have any relationship as contemplated under Schedule-VII and therefore request for appointment of a neutral Arbitrator was untenable.
16. The petitioner, as a consequence, has filed this petition seeking for annulling the appointment of the arbitrator made by the General Manager and for appointment of an independent Arbitrator. : 7 :
17. Shri Prashant F. Goudar, learned counsel appearing for the petitioner essentially contended that it was now settled law that a person, who was ineligible to be an Arbitrator could not appoint an Arbitrator. He submitted that since the General Manager, being an employee of the Railways and thereby being ineligible to be an Arbitrator (by virtue of ground No.1 of the Schedule-VII read with Section 12(5) of the Act) could not possess the power to appoint another person as an Arbitrator.
18. He elaborated on this submission and contended that even if there was an agreement to the contrary i.e., an agreement which provided for an employee to appoint an Arbitrator, nevertheless, by virtue of Section 12(5) of the Act, the employee would be ineligible for being an Arbitrator or for appointing an Arbitrator. He placed strong emphasis on the judgments rendered by three Judges of the Honble Supreme Court in the case of (a) TRF Limited Vs. Energo Engineering Projects Limited reported in (2017)8 SCC 377; (b) Bharat Broadband Network Limited V. United Telecoms Limited reported in (2019)5 SCC 755; (c) Perkins Eastman Architects DPC and Another V. HSCC (India) Ltd., reported in 2019 SCC Online SC 1517; : 8 : (d) Haryana Space Application Center (HARSAC) and another V. Pan India Consultants Private Limited, reported in (2021)3 SCC 103, (e) A judgment passed in a proceeding under Section 11 of the Act in CMP 7/2020 by a Coordinate Bench.
19. He submitted that since the appointment of the Arbitrator was nonest, the same could be ignored or if necessary be annulled by this Court in exercise its powers under Section 11(6) of the Act and appoint an independent Arbitrator.
20. Shri M.B. Nargund, learned Additional Solicitor General appearing for the learned counsel Shri Ajay U.Patil contended that the ineligibility contemplated under Section 12(5) of the Act, was ineligibility of an Arbitrator and not the ineligibility of an employee to appoint an Arbitrator. He submitted that it was permissible for the parties to enter into a contract, which provided for an employee to appoint an Arbitrator. He submitted that the contract in question had in fact been entered into after the Act was amended in 2015 and the parties were therefore consciously aware that an employee was being given the power to appoint an Arbitrator. : 9 :
21. He submitted that the Act did not create an absolute bar for the appointment of an employee, since by virtue of the proviso to Section 12(5) of the Act, after the disputes had arisen by way of an express agreement in writing, the parties still could accede to the appointment of an arbitrator who was otherwise ineligible for being appointed as per Schedule VII.
22. He submitted that the General Manager, in the instant case, being conscious of the demand raised by the petitioner for appointing an independent Arbitrator chose to give the petitioner an option of choosing any two former employees of the Railways to be the Arbitrator and since the General Manager had taken care to avoid the ineligibility as contemplated under 12(5) of the Act and had furnished a list of retired Railway officers, the petitioner could have no grievance as regards the eligibility of the Arbitrator.
23. He submitted that the Honble Supreme Court had in more than one case had held that a retired employee could be appointed as an Arbitrator and there was thus no ineligibility as such for such an appointment. : 10 :
24. The learned Senior Counsel contended that it was settled law that the contractual term agreed upon by the parties was to be respected and an appointment in terms of the agreed contractual term would have to be followed. He submitted that since the parties had even after the amendment to the Act in 2015 had consciously chosen to enable one of the employees of contracting party to appoint an Arbitrator, the said contractual term would have to be accepted and the other contracting party should not be permitted to resile from the contractual clause.
25. The learned Senior Counsel, in support of his contention, relied upon the judgments rendered by the Honble Apex Court in the cases of (a) Central Organisation for Railways Electrification
V. ECI-SPIC-SMO-MCML (JV) a Joint Venture Company reported in (2020)14 SCC 172; (b) Union of India V. Pradeep Vinod Construction Company reported in (2020)2 SCC 464; (c) Union of India V. Paramar Construction Company reported in (2019)5 SCC 682; (d) Government of Haryana PWD Haryana (B and
R) Branch V. G.F. Toll Road Private Limited and others reported in (2019)3 SCC 505; (e) S.P. Singla Constructions Private Limited V. State of Himachal Pradesh and another, reported in (2019)2 SCC 488 : 11 :
26. After having heard the learned counsel, in my view, the following points would arise for consideration, in this petition: (a) Whether the General Manager, despite himself being ineligible to be appointed as an arbitrator, could still have the power to appoint an Arbitrator? (b) Whether under an agreement entered into after the 2015 amendment act, which provided for an employee being empowered to appoint an arbitrator, an arbitrator appointed by the employee be non-est and invalid? (c) Whether this Court acting in exercise of the power under S. 11 (6) of the Act hold that the appointment made by the General Manger as nonest and appoint another Arbitrator or Whether the petitioner would be required to take recourse to the remedy provided under Section 14(2) of the Act for termination of the mandate of the arbitrator appointed?
27. It is not in dispute that in the present case, the agreement of contract itself was entered into on 21.08.2017
i.e., after the Arbitration and Conciliation Act was amended in the year 2015. : 12 :
28. To answer these questions, a brief overview of the Act would have to be made.
29. The entire set of arguments advanced by both the learned counsel revolves around various case laws rather than on any statutory provision. The judgments relied upon by the learned counsel for the petitioners can be classified in the following manner: Citation/parties For the proposition (2017)8 SCC 377 TRF Limited V. Energo Engineering Projects Limited A Managing Director being ineligible to be an arbitrator by virtue of S. 12 (5) of the Act cannot in turn nominate an arbitrator (Para 50 & 54). (2019)5 SCC 755 Bharat Broadband Network Limited V. United Telecoms Limited The law stated in TRF Limited (supra) was followed and it held that the Managing Director being ineligible to be an arbitrator cannot by himself appoint another arbitrator. (Para 14) 2019 SCC Online SC 1517 Perkins Eastman Architects DPC and Another V. HSCC (India) Ltd., There would be a two categories of case, one in which the MD was himself the arbitrator and was required to conduct the arbitration and there was a second category of cases were the Managing director was himself not the arbitrator but was given the power to appoint another arbitrator In both categories of cases, the : 13 : ineligibility under Section 12(5) of the Act would stand attracted and the MD could not appoint an arbitrator. (Para 20 & 21) (2021)3 SCC 103 Haryana Space Application Center (HARSAC) and another V. Pan India Consultants Private Limited, It is held that Section 12(5) renders an employee ineligible to be appointed as an arbitrator. (Para 18)
30. As could be seen from the above case law, the thrust of the argument is on the fact that the General Manager being an employee of the Railways was ineligible for being appointed as an arbitrator and as a necessary consequence he would not possess the power to appoint an arbitrator, even though the arbitration clause did provide for such an appointment.
31. It cannot be in dispute that the Honble Supreme Court in the above mentioned cases has held that when there is a named arbitrator and he happens to be an employee, firstly, he cannot become an arbitrator and secondly, by virtue of this basic ineligibility, he cannot also appoint another arbitrator. : 14 :
32. However, Shri M.B. Naragund, learned Senior counsel relied upon the following decisions: Citation/parties For the proposition 2014 (11) SCC 560 Antrix Corporation Limited V. Devas Multimedia Private Limited Once an arbitrator is appointed, the said appointment cannot not be the subject matter of an application under Section 11(6) of the Act (paragraph 31) (2019)2 SCC 488 S.P. Singla Constructions, Private Limited V. State of Himachal Pradesh and another An employee can be appointed as an arbitrator and the challenge to the said appointment should be made only before the Arbitral Tribunal itself (para 11 and 14) (2019)3 SCC 505 Government of Haryana PWD Haryana (B and R) Branch V. G.F. Toll Road Private Limited and others A former employee is not debarred from being appointed as an arbitrator, despite section 12(5) of the Arbitration and Conciliation Act. (Para 20 & 21) (2019)15 SCC 682 Union of India V. PARMAR Construction Company A procedure agreed upon by the parties for appointing an arbitrator should normally be followed and only in case where the impartiality is in doubt or the Arbitral Tribunal was not functional and had failed either to conclude or pass an award, resort may be taken to an alternative procedure. (Para 42 & 44) (2020)14 SCC 712 Central Organization for Railway Electrification V. ECI- SPIC-MCML (JV) a Joint Venture Company The agreed procedure for appointment of an arbitrator should be resorted to and an independent arbitrator should not be appointed (para 22), A retired officer was not ineligible for being appointed as an arbitrator (para 27). : 15 : If the power of appointment by the General Manager is counter balanced with a power given to the contractor then it is permissible for the General Manager being the appointing authority (para 35 & 37)
33. In the case of Central Organization for Railway Electrification (Supra), the decision rendered in the cases of TRF Limited (Supra) and Perkins Eastman Architects DPC and Another (supra) case was distinguished by the Apex Court by holding that the power to appoint an arbitrator by the General Manager was counter balanced by the power given to the contractor to have a say in the appointment of the arbitrator and choose his nominee.
34. It has been the decision rendered in the cases of TRF Limited (Supra) and Perkins Eastman Architects DPC and Another (supra) were in situations where the other contracting party had no say in the appointment of an arbitrator and the appointment was basically an unilateral act by one party. It was held that in the case of Railways, the power to appoint an arbitrator was counter balanced by granting an option to the Contractor to pick his nominee and : 16 : hence the said decisions could not lead to the conclusion that an employee did not have the power to appoint an arbitrator.
35. Thus, from the line of the citations relied upon by the learned Senior counsel, it is sought to be contended that though the General Manager was ineligible to be the arbitrator, in cases where he had been given the power to appoint the arbitrator, if he had chosen to follow a procedure where the concept of counter balancing of the power of the contracting parties laid down in the decision of the Honble Supreme Court was followed, the appointment was not vitiated.
36. He contended that in the present case, despite the fact that the General Manager was not obliged to give an option to the petitioner to choose his nominee, the General Manager had adopted a procedure by which it had been ensured that the Contractor was given the counterbalancing power in the matter of appointment of an arbitrator and since care has been taken to ensure that ineligibility stipulated under Section 12(5) was not attracted by appointing an arbitrator who was a retired officer, the appointment was valid and permissible in law. : 17 :
37. Though there is considerable force in the arguments advanced both by the petitioners counsel and by the arguments advanced by the learned Senior Counsel, in my view, by virtue of the decision rendered by the Honble Supreme Court by the recent three Judges decision of the Honble Supreme Court in the case of Vidya Drolia Vs. Durga Trading Corporation reported in (2021)2 SCC 1, the complexion of the entire case has stood changed.
38. In the above concurring judgment of three Judges, two opinions have been rendered, which both lay down the same proposition and which supplement each other.
39. In the leading opinion of the Honble Judge at para 139, it has been held as follows:
139. We would not like to be too prescriptive, albeit observe that the court may for legitimate reasons, to prevent wastage of public and private resources, can exercise judicial discretion to conduct an intense yet summary prima facie review while remaining conscious that it is to assist the arbitration procedure and not usurp jurisdiction of the Arbitral Tribunal. Undertaking a detailed full review or a long- drawn review at the referral stage would obstruct and cause delay undermining the integrity and efficacy of arbitration as a dispute resolution mechanism. Conversely, if the court becomes too reluctant to intervene, it may undermine effectiveness of both the arbitration and the court. There are certain cases where the prima facie examination may require a deeper consideration. The court's challenge is to find : 18 : the right amount of and the context when it would examine the prima facie case or exercise restraint. The legal order needs a right balance between avoiding arbitration obstructing tactics at referral stage and protecting parties from being forced to arbitrate when the matter is clearly non-arbitrable.
40. To ensure that the jurisdiction of the Arbitral Tribunal is not usurped and the matters which are to be decided by the Tribunal are not decided in a proceedings under Section 11 of the Act.
41. It may be pertinent to state here that the Parliament had inserted sub-Section (6-A) to Section 11 of the Act, which had fundamentally restricted the scope of examination of a request made for appointment of an arbitrator in a proceeding under S. 11 (6) to considering whether there existed a valid arbitration agreement.
42. Though this sub-section (6-A) was omitted by the Act 33 of 2019, however, the Honble Supreme Court in the aforementioned decision had held as follows (para 144 and 145):
144. As observed earlier, Patel Engg. Ltd. explains and holds that Sections 8 and 11 are complementary in nature as both relate to reference to arbitration. Section 8 applies when judicial proceeding is pending and an application is filed for stay of judicial proceeding and for reference to arbitration. Amendments to : 19 : Section 8 vide Act 3 of 2016 have not been omitted. Section 11 covers the situation where the parties approach a court for appointment of an arbitrator. Mayavati Trading (P) Ltd. , in our humble opinion, rightly holds that Patel Engg. Ltd. has been legislatively overruled and hence would not apply even post omission of sub-section (6-A) to Section 11 of the Arbitration Act. Mayavati Trading (P) Ltd. has elaborated upon the object and purposes and history of the amendment to Section 11, with reference to sub- section (6-A) to elucidate that the section, as originally enacted, was facsimile with Article 11 of the UNCITRAL Model of law of arbitration on which the Arbitration Act was drafted and enacted. Referring to the legislative scheme of Section 11, different interpretations, and the Law Commission's Reports, it has been held that the omitted sub-section (6-A) of Section 11 of the Arbitration Act would continue to apply and guide the courts on its scope of jurisdiction at stage one, that is, the pre-arbitration stage.
145. Omission of sub-section (6-A) by Act 33 of 2019 was with the specific object and purpose and is relatable to by substitution of sub-sections (12), (13) and (14) of Section 11 of the Arbitration Act by Act 33 of 2019, which, vide sub-section (3-A) stipulates that the High Court and this Court shall have the power to designate the arbitral institutions which have been so graded by the Council under Section 43-I, provided where a graded arbitral institution is not available, the High Court concerned shall maintain a panel of arbitrators for discharging the function and thereupon the High Court shall perform the duty of an arbitral institution for reference to the Arbitral Tribunal. Therefore, it would be wrong to accept that post omission of sub-section (6-A) of Section 11 the ratio in Patel Engg. Ltd. would become applicable.
43. It therefore follows from the said decision that despite omission of sub-section (6-A) of Section 11 of the Act, the said provision would continue to apply and guide the Court on the scope of jurisdiction at pre-arbitration stage. : 20 :
44. Ultimately, in the leading opinion regarding on the question Who decides arbitrarbility it has been stated as follows as regards the scope of a judicial review (para 154.2): 154.2. Scope of judicial review and jurisdiction of the court under Sections 8 and 11 of the Arbitration Act is identical but extremely limited and restricted.
45. In the concurring opinion, after a study of all the precedents, propositions of law concerning Section 11 of the Act have been stated. The proposition reads as follows: (Para 206.1 206.2 and 206.3): 206.1. Reference power under Section 11 of the Act is judicial and not administrative. 206.2.There was a wide discretion for judicial interference at the stage of reference under Section 11 of the Act, prior to the Arbitration Amendment Act of 2015. 206.3.The amendment in 2015 was brought into force to limit the power of judicial interference under Section 11 of the Act.
46. It thus emerges that the sight discretion available earlier for judicial interference under Section 11 of the Act prior to the amendment to the act in 2015 has been limited by amendment. In other words, the power of interference under Section 11 has stood curtailed. : 21 :
47. Ultimately in the concurring opinion at para 225, after a study of the precedents, the conclusions with respect to adjudication of subject-matter arbitrability under Section 8 &
11 are enumerated. Para 225.2, which would be relevant for this case reads as follows: 225.2. Post the 2015 Amendment, judicial interference at the reference stage has been substantially curtailed.
48. Further, at paragraph 227 it is stated as under:
227. However, post the 2015 amendment, the structure of the Act was changed to bring it in tune with the pro-arbitration approach. Under the amended provision, the court can only give prima facie opinion on the existence of a valid arbitration agreement. In line with the amended language and the statutory scheme, the examination of the subject-matter arbitrability may not be appropriate at the sate of reference under Section 8 of the Arbitration Act. It is more appropriate to be taken up by the court at the stage of enforcement under Section 34 of the Act. Having said so, in clear cases where the subject-matter arbitrability is clearly barred, the court can cut the deadwood to preserve the efficacy of the arbitral process.
49. It is therefore clear from the above, the Court while acting under Section 11 of the Act is required to appoint an arbitrator and while doing so, the scope of interference is rather limited and that scope of the Court is restricted to consider as to whether the arbitration agreement is in writing, : 22 : whether the core contractual ingredients in relation to the arbitration agreement were fulfilled and on rare occasions, whether subject matter of the dispute is arbitrable.
50. While exercising the power to appoint an arbitrator under Section 11 of the Act, the essential requirements would be to ascertain whether there existed an arbitration agreement and thereafter it would have to be seen whether the contractual terms for appointment as provided under the arbitration agreement have been fulfilled.
51. In fact, the opportunity to appoint an arbitrator under Section 11 of the Act would present itself only if an appointment is not made as agreed under the arbitration agreement. In the normal course, if an arbitrator is appointed by the party or parties, the question of invoking Section 11 of the Act would not even arise.
52. Since the jurisdiction to invoke section 11 of the Act becomes available only if there is a default on the part of the contracting party, a party cannot seek for its invocation as a matter of right and in that process call upon the designate to decide on the validity of an arbitrator already appointed. : 23 :
53. No doubt, in a case where arbitrator is yet to be appointed and the question of complying with the requirements in appointing arbitrator is being examined and is being undertaken, then the designate can exercise its powers and ensure that an arbitrator is appointed in accordance with the contractual terms and also in adherence to the provisions of the act.
54. In the ultimate analysis, in the light of the decision rendered in the case of Vidya Drolia (supra), the scope of a proceeding under Section 11 of the Act is very limited and is confined only to the examination of few fundamental issues.
55. Thus, in the light of the law laid down in the case of Vidya Drolia (supra), it will have to be held that the power to sit in a judgment over the appointment of an arbitrator would not be available under Section 11(6) of the Act and if any attempt in that regard is undertaken, the same would not be in consonance with the law laid down by the Apex Court.
56. In the instant case, the General Manager has not unilaterally appointed an arbitrator. He has chosen to give an : 24 : option to the petitioners to choose their nominee from among a panel of two arbitrators and he has taken care to ensure that the arbitrators proposed do not fall foul of the ineligibility laid down in Section 12(5) of the Act.
57. The General Manager has ensured that the power in appointing an arbitrator has been counter balanced by granting power to the petitioner to choose his nominee.
58. In the light of the decision laid down by the Apex Court in the case of Central Organization for Railway Electrification (Supra), where the judgments in the case of TRF Limited (Supra) and Perkins Eastman Architects DPC and Another (supra) have been considered and distinguished and it has been held that when the power to appoint an arbitrator by one party is counter balanced with an option given to the other contracting party in the matter of appointment, it cannot be said that the appointment made by the General Manager in the instant case is illegal.
59. However, the fact remains that the General Manager who was ineligible to be appointed as an arbitrator has appointed another arbitrator. According to the learned : 25 : counsel for the petitioner, by virtue of Section 12(5) of the Act, the arbitrator appointed by the General Manager has de jure become unable to function as an arbitrator.
60. In such a situation, as per the decision rendered in HRD Corporation (Marcus Oil and Chemical Division) V. GAIL (India) Limited (Formerly Gas Authority of India Limited) reported in (2018)12 SCC 471, Section 14 (2) of the Act would come into operation. In the said decision it has been held as follows:
12. xxxxx Since such a person would lack inherent jurisdiction to proceed any further, an application may be filed under Section 14(2) to the Court to decide on the termination of his/her mandate on this ground. xxxxx.
61. Section 14 of the Act states that the mandate of an arbitrator stands terminated if he becomes de jure unable to perform his function and he would have to be substituted by another arbitrator. Section 14(2) of the Act also states that if a controversy remains concerning the aspect as to whether the arbitrator had become de jure unable to perform, a party would have to apply to the Court to decide the termination of the mandate. : 26 :
62. Thus, if the petitioner is of the view that the arbitrator appointed by the General Manager has de jure become unable to perform his functions by virtue of Section 12(5) of the Act, it is open for him to apply to the Court as provided under Section 14 (2) of the Act and seek for termination of the mandate.
63. In view of this specific provision being available under Section 14 of the Act, the necessity of examining the validity of the appointment in a proceeding under Section 11 of the Act would not be appropriate.
64. The petition is therefore, dismissed reserving liberty to the petitioner to invoke the remedy under Section 14(2) of the Act and seek for termination of the mandate, if so advised. Sd/- JUDGE Vnp*
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