TRF LTD.  v. ENERGO ENGINEERING PROJECTS LTD

* IN THE HIGH COURT OF DELHI AT NEW DELHI

% Judgment reserved on: 8^th March, 2016 Judgment pronounced on: 19^th April, 2016 + Arb. P. No.87/2016

TRF LTD. ..... Petitioner Through Mr.Ciccu Mukhopadhaya, Sr. Adv. with Mr.Kaushik Poddar and

Ms.Rashmi Gogoi, Advs.

versus

ENERGO ENGINEERING PROJECTS LTD ..... Respondent Through Mr.Rajiv Nayar, Sr. Adv. with Ms.Anannya Ghose, Ms.Reena

Choudhary and Mr.Saurabh Seth,

Advs.

CORAM:

HON'BLE MR.JUSTICE MANMOHAN SINGH

MANMOHAN SINGH, J.

1. The present petition has been filed by the petitioner under Section 11(5) read with Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'Act') seeking appointment of a retired Judge of the Supreme Court as an Arbitrator for adjudication of the disputes between the parties by declaring the Arbitrator already appointed by the respondent ineligible and further declaring such appointment void ab initio.

2. The petitioner is a Company duly incorporated under the Companies Act, 1956.

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3. The respondent is engaged in the business of procuring Bulk Material Handling Equipment for installation in Thermal Power Plants on behalf of its clients like National Thermal Power Corporation ('NTPC' in short) and/or Moser Baer, Lanco Projects Ltd. etc.

4. The respondent issued a Purchase Order dated 6^thMay, 2014 to the petitioner inter-alia for the complete design, manufacturing, supply, transport to site, unloading, storage, erection, testing, commissioning and performance guarantee testing of various Articles including wagon tippler, side arm charger, apron feeder etc. To secure the performance under the Purchase Order, the petitioner had submitted an Advance Bank Guarantee and a Performance Bank Guarantee.

5. The petitioner approached this Court by way of petition under Section 9 of the Act praying for an injunction against the respondent from exercising its contractual rights to encash the Advance Bank Guarantee and the Performance Bank Guarantee, both of which are admittedly unconditional. Thereafter, the petitioner filed set of petitions under Section 9 of the Act seeking an order for the respondent to furnish security for the purportedly outstanding amounts.

6. The details of the said 1^stset of petitions filed by the petitioners under Section 9 of the Act are given as under:-

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3. TRF Ltd. v. OMP(I) Petition under Respondent had Over Rs.11,13,95,500/- Energo Comm.No.20/ Section 9 of issued a Letter of Rs.2 Engineering 2016 the Arbitration Intent dated 1^stcrores Projects Ltd and January, 2014 for

Conciliation the work of

Act, 1996 supply, erection

and

commissioning of

'Wagon Tippler

and Side Arm

Charger' in

favour of the

petitioner. After a

lapse of almost

five months from

the issuance of

LOI, a Purchase

Order with

respect to supply

of Wagon Tippler

and Side Arm

Charger dated 6^th

May, 2014 was

issued by the sole

respondent.

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4. TRF Ltd. v. OMP(I) Petition under The Respondent Over Rs. Rs. 6,95,99,122/- Energo Comm.No.21/ Section 9 of had issued Letter 2 crores Engineering 2016 the Arbitration of Intent

Projects Ltd and dated 16^thApril,

Conciliation 2014, for supply,

Act, 1996 erection and

commissioning of

Wagon Tippler

and Side Arm

Charger. The

same was

followed

by Purchase

Order dated 10^th

May, 2014 for

supply of Wagon

Tippler and Side

Arm Charger.

7. The details of the 2^ndset of the petitions are given as under:-

S.No. Case Case Section Details Amount Prayer Name Number /Claim

1. TRF Ltd. O.M.P(I) Petition under Respondent No.1 Over Rs. Restrain the vs. Energo (Comm) Section 9 of issued purchase 2 crore respondent from Engineerin 65/2015 the Arbitration order to the encashing the Bank

g Projects and petitioner dated 6^thGuarantee

Ltd., Conciliation May, 2014 for Nos. Act, for supply of Wagon 1403831BGA00007

interim orders. Tippler and Side for Rs.4,62,92,400/-

Arm Charger. and

The petitioner was 1403831BGP00026

issued another for Rs.5,01,09,200/-

work order for executed by the erection and petitioner in favour commissioning of of the respondent in Wagon Tippler and pursuance to the Side Arm Charger agreement entered dated 26^thMay, between the parties.

2014.

2. TRF Ltd. O.M.P(I) Petition under Respondent No.1 Over Rs. Restrain the vs. Energo (Comm) Section 9 of issued purchase 2 crore respondent from Engineerin 66/2015 the Arbitration orders to the encashing the Bank

g Projects and petitioner dated Guarantee

Ltd., Conciliation 10^thMay, 2014 for Nos.

Act, for supply of Wagon 1403831BGP00028

interim orders. Tippler and Side for Rs.1,21,76,700/-

Arm Charger and and

for erection and 1403831BGA00010

commissioning of for Rs.1,12,26,700/-

Wagon Tippler and executed by the

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8. The said petitions under Section 9 of the Act are presently pending consideration before this Court.

9. The petitioner by letter dated 28^thDecember, 2015 invoked the arbitration in terms of Clause 33 of the General Terms and Conditions of the Purchase Order ("GTCPO") for reference of disputes between the parties to arbitration.

10. However, the petitioner objected to the procedure for appointment of Arbitrator provided under the Purchase Order who communicated the respondent its consent for appointment of an Arbitrator de hors the specific terms of the Purchase Order.

11. The contention of the respondent is that the submission of the petitioner is contrary to the binding contractual terms between the parties. The respondent denied such suggestion and by letter dated 27^thJanuary, 2016 informed the petitioner about the appointment of Justice Deepak Verma (Retd.) as the sole Arbitrator in terms of clause 33.d of the Purchase Order.

12. It is alleged by the respondent that with the sole purpose of defeating the arbitration proceedings, the petitioner has sought to invoke the jurisdiction of this Court under Section 11(5) read with Section 11(6) of the Act by way of the present petition.

13. The present petition has been filed under both Sections 11(5) and 11(6) of the Act. The fundamental procedure for invocation of this Court's jurisdiction under Section 11(5) of the Act, i.e. failure on part of the parties to agree on a procedure for appointment of Arbitrator under Section 11(2) of the Act is not made out.

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14. Clause 33.b of the GTCPO states that if the parties fail to amicably resolve the disputes, then either party may require that the dispute be referred to arbitration.

15. Clause 33.d of the GTCPO provides that any dispute between the parties in connection with the Purchase Order "shall be referred to sole arbitration of the Managing Director of the Buyer or his nominee".

16. The said terms of the Purchase Order makes it clear that the petitioner and the respondent have agreed on a procedure for appointing an Arbitrator as contemplated by Section 11(2) of the Act. In these circumstances, the disputes between the parties have to be decided in accordance with such procedure and recourse to Section 11(5) of the Act cannot be taken by the petitioner.

17. The petitioner has also contended that since the respondent's Managing Director has himself become "ineligible" to be appointed as an Arbitrator, he cannot also nominate any other person as an Arbitrator and any such appointment is contrary to the rule of law and that is the intent and purpose of the recent amendments to the Act. The petitioner has also alleged that the arbitration agreement under clause 33.d of the GTCPO is rendered void. The petitioner's arguments in this regard are without any merit, as the right of the Managing Director to nominate a sole Arbitrator under the Purchase Order is independent of his right to himself act as the sole Arbitrator.

18. The mere reason that the Managing Director of the respondent cannot act as a sole Arbitrator in the disputes between the parties does not take

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away his right to nominate an independent and neutral Arbitrator.

19. Appointment of an independent and impartial Arbitral Tribunal does not append the recent changes brought about in the Act, including Section 12(5) and the Seventh Schedule to the Act or in any manner contrary to the rule of law. Although, I must mention here and appreciate the fairness of the learned Senior counsel for the petitioner who has made his submission that he is merely arguing the matter on legal issue otherwise he and his client have full faith and respect for the learned sole Arbitrator appointed. He submits that since it is an important legal issue therefore, he is making his submissions on legal issue only.

20. The Fifth and the Seventh Schedule reveal that the grounds provided thereunder are in relation to the appointed Arbitrator himself and thus, the petitioner's argument that the nominee Arbitrator being ineligible to act as an Arbitrator is without any force and against the scheme of the Act. The Purchase Order does not stipulate that the Managing Director of the respondent will have a right to nominate a sole Arbitrator only so long as he is also qualified to act as such.

21. The right of one party to a dispute to appoint a sole Arbitrator prior to the amended Act has been well-recognized and the amended Act does not take away such a right. Had the intent of the amended Act been to take away a party's right to nominate a sole Arbitrator as suggested by the petitioner, the same would have found mention in the detailed list of ineligibility criteria enumerated under the Seventh Schedule to the Act. Therefore, the petitioner's submission, that the arbitration clause under

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clause 33.d of the GTCPO has been rendered void, is without any merit. Thus, the petitioner has been able to make out a case for exercise of powers by this Court under Section 11(5) of the Act.

22. The recourse to Section 11(6) of the Act can be had only if there are any of the contingencies provided under Section 11(6) (a), (b) or (c). The petitioner is not able to indicate as to how any of the contingencies contemplated by Section 11(6) of the Act arise in the present case.

23. The petitioner has contended that the appointment of the Arbitral Tribunal is contrary to Item Nos.22 and 24 of the Fifth Schedule to the Act. The Fifth Schedule to the Act does not per se provide for grounds for disqualification of an Arbitrator. The said Schedule merely provides an indicative list of the grounds which give rise to justifiable doubts as to the independence or impartiality of Arbitrators. Under Section 12(1) of the Act, a person who is approached in connection with his possible appointment as an Arbitrator is to be guided by the Fifth Schedule while determining whether the circumstances exist which give rise to justifiable doubts and if so, he shall disclose the same in the form specified in the Sixth Schedule.

24. The petitioner's argument that the appointment of the Arbitral Tribunal is bad in view of Item 22 of the Fifth Schedule to the Act is entirely frivolous and without any basis whatsoever. Insofar as the petitioner's challenge in terms of Item 24 of the Fifth Schedule is concerned, the said argument has no consequence as Justice Verma (Retd.) has been appointed as an Arbitrator in relation to similar disputes between the same parties

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under three Purchase Orders pertaining to the projects at Khorba, Sipat and Kudgi. With regard to Item 29 of the Fifth Schedule to the Act, it stipulates that if the Arbitrator has within the past three years received more than three appointments by the same counsel or the same law firm, the Item would show that the same is in relation to the counsel or the law firm who makes the appointment and does not pertain to the counsel or the law firm of the opposite side to an arbitration proceeding.

25. Even otherwise, I agree with the suggestion of learned counsel for the respondent that the objections, if any, against the constitution of the Arbitral Tribunal on any ground whatsoever including under the Fifth and the Seventh Schedule of the Act can only be raised before the Arbitral Tribunal.

26. Before consenting to act as the learned sole Arbitrator, Justice Verma (Retd.) by letter dated 28^thJanuary, 2016 had given the requisite disclosures under the Sixth Schedule wherein he had indicated that as per him, there are no circumstances which are likely to give rise to justifiable doubts as to his independence and impartiality.

27. The Arbitral Tribunal has already been constituted and has entered into reference who has already ensured the compliance of the provision under the amended Act about no conflict. Now, the petitioner cannot be allowed to change the Arbitral Tribunal.

28. Even, besides the stipulation of the agreement/purchase order governing the parties, this Court inclines to appoint Hon'ble Mr.Justice Deepak Verma (Retd.) as sole Arbitrator to decide the dispute between the parties.

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29. For the reasons stated above, there is no merit in the petition and the same is accordingly dismissed.

(MANMOHAN SINGH)

JUDGE

APRIL 19, 2016

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