$~61
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ARB.P. 1223/2023
M/S KAMLADITYYA CONSTRUCTION PVT
LTD .....Petitioner
Through: Mr. Avinash Trivedi, Ms.
Ritika Trivedi, Mr. Harleen Singh, Mr.
Harkeerat Singh, Mr. Jatin Arora, Mr.
Rhytham Nagpal, Mr. Anurag Kaushik and
Mr. Rahul Aggarwal, Advocates
versus
RAIL LAND DEVELOPMENT AUTHORITY .....Respondent
Through: Ms. Rashmi Malhotra and Mr.
Arnab Chanda, Advocates
CORAM:
HON'BLE MR. JUSTICE C.HARI SHANKAR
JUDGMENT (ORAL)
% 31.07.2024
1. The petitioner was awarded an EPC 1 contract by the respondent
on 30 October 2019 by the Indian Railways Stations Development
2
Corporation Ltd on 30 October 2019 for construction of a Railway
Station at Bijwasan.
2. Subsequently, by deed of novation dated 7 January 2022, the
work was handed over by the IRSDC to the respondent Rail Land
3
Development Authority .
3. The contract between the petitioner and the IRSDC envisaged
1 Engineering, Procurement and Construction
Signature Not Veri 2 fiIeRdSDC Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
ARB.P. 1223/2023 Page 1 of 9 By:CHANDRASHEKHARAN
KUMAR
HARI SHANKAR
Signing Date:01.08.2024
Signing Date:01.08.2024
16:41:51
16:24:19
resolution of disputes by arbitration. The arbitration clause read thus :
“26.3 Arbitration
Subject as hereinafter provided, any Dispute arising out of or in
connection with, this Agreement and not settled by Section 26.1 or
Section 26.2 above may regardless of the nature of the Dispute be
submitted by either party to arbitration and finally settled in
accordance with Indian Arbitration and Conciliation Act, 1996 as
amended by the Arbitration and Conciliation (Amendment) Act,
2015 or any statutory amendment thereof.
Arbitration proceedings shall be held at New Delhi and the
language of the arbitration proceedings and that of all documents
and communications between the parties shall be English.
IRSDC shall appoint arbitrator/s from a penal of arbitrators (the
“Arbitrator/s”) to carry out arbitration. Such panel of arbitrators
shall be empanelled by IRSDC for the purpose of arbitration/s.
The decision of the majority of arbitrators shall be final and
binding upon both parties. The expenses of the arbitrators shall be
shared equally by the Authority and the Contractor. However, the
expenses incurred by each party in connection with the preparation,
presentation, etc of its case prior to, during and after the arbitration
proceedings shall be borne by each party itself.”
4. According to the petitioner, there are considerable outstanding
dues from the respondent in connection with the contracted work. As
the respondent was not forthcoming regarding payment of the said
amounts, the petitioner addressed a notice to the respondent on 10
October 2023, invoking Clause 26.3 of the contract and seeking
reference of the disputes to arbitration. The total claim of the
petitioner against the respondent as quantified in the said notice is ₹
51,38,15,849.70.
5. The respondent, in its reply dated 25 October 2023, pointed out
that the petitioner had earlier approached this Court in a writ petition,
against the order in which LPA 736/2022 was preferred, and that the
Signature Not Verified Signature Not Verified
3 “RLDA” hereinafter
Digitally Signed By:AJIT Digitally Signed
ARB.P. 1223/2023 Page 2 of 9 By:CHANDRASHEKHARAN
KUMAR
HARI SHANKAR
Signing Date:01.08.2024
Signing Date:01.08.2024
16:41:51
16:24:19
Division Bench of this Court, in para 14 of its judgment dated 13
April 2023 disposing of the LPA, directed thus:
“14. Clause 26.3 of the EPC Contract provides for arbitration as
the dispute resolution mechanism. It is apposite that the parties
resolve this dispute by referring the dispute to arbitration in the
manner and method prescribed therein. There being no case made
out for interference, we are not required to delve into the merits of
the matter.”
6. The petitioner has, in these circumstances, approached this
Court by means of the present petition, contending that the petitioner
cannot be forced into choosing the Arbitrator to arbitrate on the
disputes from the panel provided by the respondent. As against this,
Ms. Rashmi Malhotra, learned counsel for the respondent, relies on
the judgment of the Supreme Court in Central Organization for
Railway Electrification v. ECI-SPIC-SMO-MCML (JV)4 .
7. Additionally, Ms. Malhotra submits that, in view of para 14 of
the order dated 13 April 2023 whereby a Division Bench of this Court
disposed of LPA 736/2022, there is no option but for the petitioner to
select its panel from the list of arbitrators forwarded by the respondent
to the petitioner.
Analysis
8. There is a fundamental difference between the arbitration clause
which was subject matter of consideration before the Supreme Court
in CORE and the arbitration clause that applies in the present case.
Signature Not Veri 4 fi(e2d020) 14 SCC 712, hereinafter referred to as CORE Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
ARB.P. 1223/2023 Page 3 of 9 By:CHANDRASHEKHARAN
KUMAR
HARI SHANKAR
Signing Date:01.08.2024
Signing Date:01.08.2024
16:41:51
16:24:19
5
Clause 64(3)(b) of the General Conditions of Contract which applied
in the CORE read thus :
“64. (3)(b) Appointment of Arbitrator where applicability
of Section 12(5) of A&C Act has not been waived off.
The Arbitrator Tribunal shall consist of a Panel of three retired
Railway Officer retired not below the rank of SAO officer, as the
arbitrator. For this purpose, the Railway will send a panel of at
least four names of retired Railway Officer(s) empanelled to work
as Railway. Arbitrator indicating their retirement date to the
contractor within 60 days from the day when a written and valid
demand for arbitrators is received by the GM.
Contractor will be asked to suggest to General Manager at least
two names out of the panel for appointment as contractor’s
nominee within 30 days from the date of dispatch of the request by
Railway. The General Manager shall appoint at least one out of
them as the contractor’s nominee and will, also simultaneously
appoint the balance number of arbitrators other from the panel or
from outside the panel, duly indicating the ‘presiding arbitrator’
from amongst the three arbitrators so appointed CM shall complete
its exercise of appointing the Arbitral Tribunal within 30 days from
the receipt of the names of contract’s nominees. While nominating
the arbitrators, it will be necessary to ensure that one of them has
served in the Accounts Department.”
9. Section 12(5) 6 of the Arbitration and Conciliation Act, 1996 7
disentitles any person who is related to either of the parties to
arbitration or to the subject matter of disputes, within any of the
categories specified in the VII Schedule to the 1996 Act, from being
appointed as an arbitrator. This is, however, subjected by the proviso
to Section 12(5) to the parties expressly waiving the applicability of
Section 12(5) in writing. The scope of Section 12(5) of the 1996 Act
5 GCC
6 (5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the
parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the
Seventh Schedule shall be ineligible to be appointed as an arbitrator:
Provided that parties may, subsequent to disputes having arisen between them, waive the
applicability of this sub-section by an express agreement in writing.
Signature Not Veri 7 fi“etdhe 1996 Act” hereinafter Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
ARB.P. 1223/2023 Page 4 of 9 By:CHANDRASHEKHARAN
KUMAR
HARI SHANKAR
Signing Date:01.08.2024
Signing Date:01.08.2024
16:41:51
16:24:19
has been expanded by the Supreme Court in Perkins Eastman
8
Architects DPC v. H.S.C.C. (India) Ltd , Bharat Broadband
9
Network Ltd v. United Telecoms Ltd and TRF Ltd v. Energo
10
Engineering Projects Ltd to hold that a person who is invalidated
from acting as an arbitrator under Section 12(5) is equally invalidated
from appointing an arbitrator to arbitrate on the disputes.
10. The offshoot of the afore-noted decisions of the Supreme Court
is that any clause which enables one of the parties to the dispute to
unilaterally appoint an arbitrator is ex facie invalid and incapable of
implementation. Unlike the clause which was in consideration in
CORE, which envisaged the Railways providing a panel of suggested
Arbitrators to the contractor who had with him the option to choose a
name out of the said panel, Clause 26.3 does not contemplate
providing of any choice by the Railways to the contractor in the matter
of choosing the arbitrator. Rather, the clause envisages the unilateral
appointment of the Arbitrator, by the respondent, from the panel of
arbitrators maintained by it. The clause is, therefore, squarely hit by
Perkins, Bharat Broadband and TRF.
11. The Court cannot re-write the arbitration clause. Ms. Malhotra
then sought to contend that, even if the respondent cannot be
permitted to appoint the arbitrator, in view of the law laid down in
Perkins et al, the petitioner should be directed to choose the arbitrator
out of the panel suggested by the respondents.
8 (2020) 20 SCC 760
Signature Not Veri 9 fi(e2d019) 5 SCC 755 Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
ARB.P. 1223/2023 Page 5 of 9 By:CHANDRASHEKHARAN
KUMAR
HARI SHANKAR
Signing Date:01.08.2024
Signing Date:01.08.2024
16:41:51
16:24:19
12. This, however, would require the Court to rewrite the
contractual arbitration clause, which is completely impermissible in
law. The arbitration clause must stand, or fall, as it exists. The court
cannot modify the arbitration clause to bring it in conformity with the
law. The terms of the contract, executed ad idem by the parties,
cannot thus be modified by the Court.
13. If the arbitration clause, as it exists in the contract between the
parties, is illegal in view of the law enunciated in Perkins, Bharat
Broadband and TRF and, consequently, unenforceable, it becomes ex
facie invalid and has to be ignored. The Court cannot substitute, in its
place, another arrangement by which the respondent provides a panel
of arbitrators to the petitioner and the petitioner selects one out of the
said panel. CORE was a case in which the arbitration clause between
the parties expressly so provided and it was in that context that the
Supreme Court held that the right of the Railways to provide a panel
of arbitrators stood counter-balanced by the right of the contractor to
select arbitrators out of the said panel. No such arrangement being
envisaged by Clause 26.3 of the GCC which applies in the present
case, the judgment in CORE would have no application.
14. Rather, the position that obtains is that, as Clause 26.3, to the
extent it permits the respondent to unilaterally select an arbitrator, is in
the teeth of Perkins, Bharat Broadband and TRF, it is, therefore,
invalid and incapable of being enforced or implemented.
15. The order of the Division Bench of this Court in LPA 736/2022,
Signature Not Verified Signature Not Verified
10 (2017) 8 SCC 377
Digitally Signed By:AJIT Digitally Signed
ARB.P. 1223/2023 Page 6 of 9 By:CHANDRASHEKHARAN
KUMAR
HARI SHANKAR
Signing Date:01.08.2024
Signing Date:01.08.2024
16:41:51
16:24:19
to the extent it refers to Clause 26.3 and directs the said clause to be
followed, cannot be regarded as requiring that, even if the clause is
violative of the law down by the Supreme Court, it must nonetheless
be implemented.
16. In fact, the legality, or otherwise, of Clause 26.3 was never even
in issue before this Court in LPA 736/2022 and para 14 of the order
dated 13 April 2023 of the Division Bench cannot, therefore, be
regarded as according judicial imprimatur to the validity of the Clause.
LPA 736/2022, in which the said observation was returned, arose out
of WP (C) 15398/2022, whereby the petitioner sought to challenge the
decision of the respondent to terminate the EPC contract. The learned
Single Judge held that, as the disputes were factual in nature and the
EPC contract envisaged resolution of the disputes by arbitration, the
petitioner was not justified in invoking Article 226 of the Constitution
of India. It is this decision which was upheld by the Division Bench in
LPA 736/2022 and subsequently by the Supreme Court in the SLP.
17. The observation that there was an arbitration clause in the
agreement between the parties, by which the parties were bound, has
to be understood in the context in which it was returned. The only
sequitur of the said observation, as contained in the order passed by
the Division Bench of this Court and by the Supreme Court would be
that, instead of agitating their rights under Article 226 of the
Constitution of India, the petitioner would have to seek recourse to
arbitration, as the contract between the petitioner and the respondent
contained an arbitration clause.
Signature Not Verified Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
ARB.P. 1223/2023 Page 7 of 9 By:CHANDRASHEKHARAN
KUMAR
HARI SHANKAR
Signing Date:01.08.2024
Signing Date:01.08.2024
16:41:51
16:24:19
18. In the considered opinion of this Court, the order dated 13 April
2023 of the Division Bench and 6 July 2023 of the Supreme Court
cannot be regarded as incorporating a mandamus to the Court to
enforce the arbitration clause even if it is invalid in the light of the law
laid down in Perkins, Bharat Broadband and TRF. The said orders
no doubt would require the parties before the Court to be relegated to
arbitration, but that must be in accordance with the law laid down by
the Supreme Court.
19. Inasmuch as Clause 26.3 of the contract between the parties, as
it stands, is invalid, as it permits unilateral appointment of the
arbitrator by the respondent, the Court has no option but to exercise its
jurisdiction under Section 11(6) of the 1996 Act and to appoint an
Arbitrator.
20. Accordingly, this Court requests Hon’ble Ms. Justice Indermeet
Kaur Kochhar (Tel. 9910384614), a learned retired Judge of this Court
to arbitrate on the disputes between the parties.
21. The arbitration would proceed under the aegis of the Delhi
International Arbitration Centre (DIAC) and the learned Arbitrator
would be entitled to fees as per the Schedule of fees maintained by the
DIAC.
22. The learned Arbitrator is also requested to submit the requisite
disclosure under Section 12 of the 1996 Act within a week of entering
on reference.
Signature Not Verified Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
ARB.P. 1223/2023 Page 8 of 9 By:CHANDRASHEKHARAN
KUMAR
HARI SHANKAR
Signing Date:01.08.2024
Signing Date:01.08.2024
16:41:51
16:24:19
23. This Court has not expressed any opinion on merits. All aspects
of fact and law, both with respect to preliminary objections as well as
merits, would remain open to be urged before the learned arbitrator.
Should the respondent seek to urge any counter claims, it would be at
liberty to do so in accordance with law.
24. The petition is allowed in the aforesaid terms.
C.HARI SHANKAR, J
JULY 31, 2024/yg
Click here to check corrigendum, if any
Signature Not Verified Signature Not Verified
Digitally Signed By:AJIT Digitally Signed
ARB.P. 1223/2023 Page 9 of 9 By:CHANDRASHEKHARAN
KUMAR
HARI SHANKAR
Signing Date:01.08.2024
Signing Date:01.08.2024
16:41:51
16:24:19