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M/s Simplex Projects Ltd., through its Director, Kolkata v/s The State of Manipur, through its Chief Secretary, Imphal & Others

    Arbitration Petition (J2) No. 5 of 2020 with MC (Arb.P. (J2)) No. 2 of 2021

    Decided On, 23 September 2021

    At, High Court of Manipur

    By, THE HONOURABLE CHIEF JUSTICE MR. SANJAY KUMAR

    For the Petitioner: S.D. Singh, T. Momo Singh, Advocates. For the Respondents: Lenin Hijam, Addl. AG, Tejpriya, Advocate.



Judgment Text

CAV Order

1. Heard Mr.S.D.Singh, learned counsel, assisted by Mr. Tayenjam Momo Singh, learned counsel, for the petitioner company; and Mr. Lenin Hijam, learned Additional Advocate General, Manipur, assisted by Ms. Tejpriya, learned counsel, appearing for the respondents.

2. This petition was filed under Section 11 of the Arbitration and Conciliation Act, 1996 (for brevity, ‘the Act of 1996’), read with Section 10 of the Commercial Courts Act, 2015, seeking appointment of an independent, impartial and competent arbitrator to decide the petitioner company’s disputes with the State of Manipur and its Public Works Department.

3. The petitioner company entered into Contract Agreement No.EE/BD-I/Agrt/2010-11/26 dated 18.10.2010 with the Government of Manipur for construction of the Capital Complex (Civil Secretariat Component) at Mantripukhri, Imphal.

Clause 38(i) of the said Agreement is titled ‘Settlement of Disputes and Arbitration’. It provided that if the contractor, viz., the petitioner company, disputed any drawing, record or decision given in writing by the Engineer-in-charge on any matter in connection with or arising out of the contract, it should, within fifteen days, request the Superintending Engineer, in writing, for a written decision. The Superintending Engineer, in turn, was to give his decision within a month from the date of receipt of the contractor’s letter. However, if the Superintending Engineer failed to do so within that time or if the contractor was dissatisfied with his decision, the contractor could appeal to the Chief Engineer within fifteen days of the receipt of the Superintending Engineer’s decision. The Chief Engineer was required to afford an opportunity of hearing to the contractor, if desired, and then give his decision within thirty days of the receipt of the contractor’s appeal. If the contractor still remained dissatisfied, he was given thirty days from the date of receipt of the decision to give notice to the Chief Engineer for appointment of an arbitrator. Failing such action on his part, the decision of the Chief Engineer was to be final, binding and conclusive and not referable to adjudication by an arbitrator.

Clause 38 (ii) stated to the effect that the dispute or difference was to be referred for adjudication through arbitration by a sole arbitrator appointed by the Chief Engineer, Public Works Department, Manipur, or if there be no Chief Engineer, the Administrative Head, i.e., the Works Department, Government of Manipur. It provided that no person other than the person appointed by the Chief Engineer, Public Works Department, Manipur, or the Works Department, Government of Manipur, should act as an arbitrator. It further provided that the arbitration was to be conducted in accordance with the provisions of the Act of 1996 or any statutory modifications or re-enactment thereof and that the rules made thereunder for the time being in force would apply to the arbitration proceedings under this clause.

4. Disputes having arisen between the parties in relation to execution of the work, the Contract Agreement dated 18.10.2010 was terminated by the Executive Engineer, Building Division No.1, Public Works Department, Manipur, under letter dated 02.11.2019. The petitioner company addressed letter dated 15.01.2020 to the Executive Engineer, Building Division No.1, Public Works Department, requesting that it be allowed to continue with the work and complete it within a time frame but in the event the department did not agree to do so, it’s claims should be settled and it should be compensated to the tune of `21,655.23 lakh. Details of the claims were set out under 20 heads therein. Claiming that there was no response to this communication, the petitioner company addressed letter dated 11.03.2020 to the Superintending Engineer-II, Building Division No.1, Public Works Department, Manipur, reiterating the contents and claims as per its earlier letter. However, as this letter also failed to evoke a reply, the petitioner company addressed letter dated 22.04.2020 to the Chief Engineer (Building), Public Works Department, Government of Manipur, on the same lines. Finally, the petitioner company addressed letter dated 18.06.2020 to the Chief Engineer, Public Works Department, Government of Manipur, expressing an intention to get the disputes settled through arbitration. The statement of claims and the amounts claimed were set out in an appendix attached thereto, quantifying the total claims of the petitioner company at `21,950.38 lakh. Asserting that the Chief Engineer remained unmoved, despite the binding arbitration clause in the Agreement, the petitioner company filed this petition.

5. The Executive Engineer, Building Division No.1, Public Works Department, Government of Manipur, filed a counter on 03.03.2021 on behalf of the Public Works Department of the State and himself. Therein, he stated that the petitioner company had surrendered itself to the writ jurisdiction of this Court by filing W.P(C) No.32 of 2020 and that final judgment and order dated 06.03.2020 was passed therein by a learned Judge of this Court. He further stated that in terms of the order passed in W.P(C) No.32 of 2020 and the Division Bench order dated 13.01.2021 in WA No.39 of 2020 arising therefrom, at the behest of the State and its Public Works Department, final joint measurements were undertaken and all the disputes between the parties stood settled. He claimed that this petition was barred by the principle of res judicata and sought its dismissal.

6. In its rejoinder dated 15.03.2021, the petitioner company asserted that the Public Works Department of the State and its Executive Engineer had earlier served upon it a copy of their preliminary affidavit dated 27.02.2021 admitting the existence of the arbitration clause in the Contract Agreement and seeking leave of the Court to appoint an arbitrator within a time frame. The petitioner company contended that the Public Works Department and its Executive Engineer could not resile from their earlier stance, though the preliminary affidavit was not filed before the Court. As regards the contentions raised by the Public Works Department apropos W.P(C) No.32 of 2020 and the order passed therein, the petitioner company claimed that liberty had been reserved therein for it to invoke the arbitration clause and seek redressal of its grievances, as provided under the contract, including the claim for compensation or damages. The petitioner company asserted that the principle of res judicata was not applicable to the case and therefore, the stand taken by the Executive Engineer, Public Works Department, was untenable.

7. Thereafter, the respondents herein filed M.C.{Arb.P.(J2)} No.2 of 2021 for leave to raise a preliminary objection/issue as to the maintainability of this arbitration petition. Therein, they again contended to the effect that the petitioner company had forfeited its right to take recourse to the arbitration clause as it had opted to file a writ petition before this Court, viz., W.P(C) No.32 of 2020. They then referred to the judgment and order dated 06.03.2020 passed in the said writ petition and the judgment and order dated 13.01.2021 passed in Writ Appeal No.39 of 2020 filed by them. According to them, joint measurements of the executed works had been undertaken, resolving all disputes, and a final settlement had come about after such joint measurements, pursuant to the directions of this Court.

8. Given the aforestated rival contentions of the parties, it may be noted that this Court plays a limited role while exercising power under Section 11 of the Act of 1996. More so, after insertion of Section 11(6-A) in the Act of 1996 with retrospective effect from 23.10.2015, vide The Arbitration and Conciliation Act (Amendment) Act, 2015 (3 of 2016). This provision makes it clear that this Court, while considering an application under Sections 11(4) or 11(5) or 11(6), shall, notwithstanding any judgment, decree or order of any Court, confine itself to examination of the existence of an arbitration agreement. Therefore, existence of an arbitrable dispute and consequently, the issue of maintainability of this arbitration petition, cannot be looked into by this Court while exercising power under Section 11 of the Act of 1996.

Significantly, in Uttarakhand Purv Sainik Kalyan Nigam Limited vs. Northern Coal Field Limited [(2020) 2 SCC 455], the Supreme Court made it clear that after insertion of Section 11(6-A) in the Act of 1996, the Court dealing with an application under Section 11(6) of the Act of 1996 must confine itself only to examination of the existence of an arbitration agreement and no more.

Pertinent to note, Section 16 of the Act of 1996 confers power and competence upon the arbitral tribunal itself to rule on its own jurisdiction. Section 16(1) of the Act of 1996 goes to the extent of stating that the arbitral tribunal is empowered to rule not only on its own jurisdiction but also on any objection with respect to the very existence or validity of the arbitration agreement. In the light of the statutory scheme obtaining under the Act of 1996, the objections sought to be raised by the State of Manipur and its Public Works Department necessarily have to be raised before the arbitral tribunal only and not before this Court at this stage.

9. Further, though Clause No.38 in the Contract Agreement dated 18.10.2010 reserved the right of appointing an arbitrator only to the Chief Engineer, the same can have no effect in the light of the amendment of the Act of 1996. Notably, Clause No.38 also provided that the arbitration was to be governed by the Act of 1996 and the amendments made thereto. Section 12(5) was inserted in the Act of 1996 by way of the Amendment Act 3 of 2016 and it provides that, 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. Category 5 of the Seventh Schedule to the Act of 1996 bars a Manager, Director or part of the management or a person, who has a similar controlling influence, from being an arbitrator. Therefore, the arbitrator can no longer be an internal arbitrator from within the organization or someone who has a direct link with it or with the matter in dispute.

10. The question would then arise as to whether an external arbitrator could be unilaterally appointed by one of the parties to the dispute. The State of Manipur and its Public Works Department initially asserted this right by way of their preliminary affidavit dated 27.02.2021. However, such a claim cannot be accepted in the light of the edict of the Supreme Court in Perkins Eastman Architects DPC and another vs. HSCC (India) Limited, [AIR 2020 SC 59]. Therein, the Supreme Court held to the effect that if the head of the institution was incompetent to act as an arbitrator after the amendment of the Act of 1996 by Amendment Act 3 of 2016, a similar invalidity would arise even in a case where the head of the institution is authorized to appoint another person of his choice or discretion as an arbitrator. Reliance was placed on the earlier decision of the Supreme Court in TRF Limited vs. Energo Engineering Projects Limited [(2017) 8 SCC 377]. In the light of the above settled legal position, it is no longer open to the Chief Engineer of the Public Works Department of the State to assert any right to

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unilaterally appoint an arbitrator. 11. On the above analysis, this Court holds that it cannot go into the issues urged by the State of Manipur and its Public Works Department as to the existence of an arbitrable dispute as such an issue would be solely within the domain of the arbitral tribunal under Section 16 of the Act of 1996. Making this position clear and leaving all issues open, this arbitration petition is ordered. Hon’ble Mr. Justice Madan B Lokur (Retired), Judge, Supreme Court of India, now residing at A-26, First Floor, Gulmohar Park, New Delhi – 110049, is appointed as the sole arbitrator to resolve the disputes, differences and claims between the parties, arising out of and/or relating to the Contract Agreement dated 18.10.2010, as per the provisions and procedures of the Act of 1996. Registry is directed to forthwith communicate a copy of this order to Hon’ble Mr.Justice Madan B Lokur (Retired), Judge, Supreme Court of India, now residing at A-26, First Floor, Gulmohar Park, New Delhi – 110049. In the light of this final order, no separate order requires to be passed in the miscellaneous case, which shall stand disposed of. A copy of this order shall be communicated online/through WhatsApp to the learned counsel.
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