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M/s Simplex Infrastructures Ltd., Through its Director, Kolkata v/s The State of Manipur, Represented by the Chief Secretary/Commissioner (Works), Government of Manipur & Others

    ARB. P. (J2) No. 4 of 2020

    Decided On, 19 March 2021

    At, High Court of Manipur

    By, THE HONOURABLE CHIEF JUSTICE MR. SANJAY KUMAR

    For the Petitioner: S.D. Singh, Tayenjam Momo, Advocates. For the Respondents: Lenin Hijam, Addl. A.G.



Judgment Text

[1] By way of this petition filed under Section 11(6) of the Arbitration & Conciliation Act, 1996 (hereinafter , ‘the Act of 1996’), read with Section 10 of the Commercial Courts Act, 2015, the petitioner company seeks appointment of a competent arbitrator to resolve its disputes with the State of Manipur and its Public Works Department.

[2] The petitioner company entered into an agreement on 03.01.2006 with the State of Manipur for designing and constructing the Capital Complex (Assembly Component) at Chingmeirong, Imphal. Clause 29 of this agreement provided for resolution of all questions and disputes arising out of or in relation to the said agreement through arbitration by a person appointed by the Chief Engineer/Additional Chief Engineer of the Public Works Department, Manipur. This eventuality having occurred, the petitioner company addressed arbitration notice dated 19.05.2020 to the Executive Engineer, Public Works Department, Government of Manipur, in relation to quantified claims to the tune of Rs.6,292.25 lakh. Despite receipt of thearbitration notice, the State remain unmoved. Hence, this petition.

[3] In its replies to this petition, the Public Works Department of the State, speaking through its Executive Engineer, admitted the existence of the arbitration agreement. It however asserted that it should be permitted to appoint an arbitrator, in terms of the aforestated clause in the agreement dated 03.01.2006.

[4] Heard Mr. S.D. Singh, learned counsel for the petitioner company, and Mr. Lenin Hijam, learned Additional Advocate General, Manipur, appearing for the respondents.

[5] Given the consensus between the parties as to the existence of an arbitration agreement, the only point that remains for consideration is whether the Chief Engineer/Additional Chief Engineer of the Public Works Department of the State can presently assert the right to unilaterally appoint an arbitrator.

[6] It may be noted that the Act of 1996 was amended by the Arbitration and Conciliation (Amendment Act), 2015, (Act 3 of 2016), with retrospective effect from 23.10.2015. Thereby, Section 12(5) was inserted in the statute and it provided that, notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject matter of the dispute fell under any of the categories specified in the 7th Schedule shall be ineligible to be appointed as an arbitrator. Category 5 in the 7th Schedule of the Act of 1996 comprises a manager, director or part of the management or a person who has a similar controlling influence in an affiliate of one of the parties, if the affiliate is directly involved in the matter in dispute in the arbitration. Category 12 of the 7th Schedule speaks of a manager, director or part of the management or someone who has a similar controlling influence in one of the parties. Category 13 of the 7th Schedule speaks of a person who has a significant financial interest in one of the parties or the outcome of the case. It is therefore clear that, after the aforestated changes, the arbitrator cannot be an internal arbitrator from within the organization or someone who has direct links with it or the matter in dispute.

[7] While so, the question, presently, is whether an external arbitrator can be unilaterally appointed by one of the parties to the dispute after the above referred amendments under Act 3 of 2016. The respondents assert such right by virtue of the arbitration clause in the agreement dated 03.01.2006. However, this issue is no longer res integra. The decision of the Supreme Court in Perkins Eastman Architects DPC and another Vs. HSCC (India) Ltd. [AIR 2020 SC 59] turned upon this very aspect and settled it in clear and comprehensive terms. The edict laid down in this decision may be summed up thus: There are two categories of cases - (1) where the head of the institution is himself named as the arbitrator with an additional power to appoint any other person as an arbitrator; and (2)where the head of the institution is not to act as an arbitrator himself but is authorized to appoint another person of his choice or discretion as an arbitrator. In its earlier decision in TRF Limited Vs. Energo Engineering Projects Ltd. [(2017)8 SCC 377], the Supreme Court had held that the head of the institution is incompetent to act as an arbitrator after the amendment of the Act of 1996 by Act 3 of 2016.This was based on the logic that the head of the institution would have an interest in the outcome or result of the dispute. Continuing this line of thought in Perkins Eastman Architects DPC(supra), the Supreme Court observed that if that be the test, similar invalidity would arise even in a case falling in the second category. The Supreme Court pointed out that if the interest that the head of the institution had in the outcome of the dispute is taken to be the basis for the possibility of bias, it would always be present irrespective of whether the case fell within the first or the second category and a person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. In the light of this settled legal position, it is not open to the Chief Engineer/Additional Chief Engineer of the Public Works Department of the State to assert any right under the arbitration clause to unilaterally appoint an arbitrator. Be it noted that the amendment of the Act of 1996 by Act 3 of 2016 is to override any prior agreement to the contrary.

[8] Mr. Lenin Hijam, learned Additional Advocate General, Manipur, would further contend that there are serious objections regarding the tenability of the claims raised by the petitioner company. In so far as this argument is concerned, in Uttarakhand Purv Sainik Kalyan Nigam Limited Vs. Northern Coal Field Limited [(2020) 2 SCC 455], the Supreme Court made it clear that after the insertion of Section 11(6-A) in the Act of 1996, by way of Act 3 of 2016, the Court dealing with an application under Section 11(6) of the Act of 1996 should confine itself only to examination of the existence of an arbitration agreement and no more. All other preliminary/threshold issues are to be left to be decided by the arbitrator, including his/her own jurisdiction. That being so, the Public Works Department of the State would be at liberty to raise all such issues before the arbitrator and this Court cannot go into the tenability or otherwise of the petitioner company

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’s claims at this stage. [9] Making this position clear and leaving all issues open, this arbitration petition is ordered. Hon’ble Mr. Justice Deepak Gupta (Retired), Judge, Supreme Court of India, presently residing at D-1/48, Second Floor, Vasant Vihar, New Delhi – 110057, is appointed as the sole arbitrator to resolve the disputes and differences between the parties, arising out of and/or relating to the agreement dated 03.01.2006, as per the provisions and procedure of the Act of 1996. Registry is directed to forthwith communicate a copy of this order to Hon’ble Mr. Justice Deepak Gupta (Retired), Judge, Supreme Court of India, residing at D-1/48, Second Floor, Vasant Vihar, New Delhi – 110057.
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