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M/s. Suresh Goel & Associates a Proprietorship Concern Havint its Office at C-85, Shivalik, Rep. by its Proprietor, Suresh Goel, New Delhi v/s Indian Institute of Technology Dharwad, Rep. by its Director, Dharwad

    CMP. No. 100006 of 2021

    Decided On, 30 June 2021

    At, High Court of Karnataka Circuit Bench At Dharwad

    By, THE HONOURABLE MR. JUSTICE P. KRISHNA BHAT

    For the Petitioner: P.B. Appaiah, Shivaraj S. Balloli, Advocates. For the Respondent: Bidan Chandran, Shivasai M. Patil, M.V. Kini, Padmanabha Holla, G. Hanumthareddy, T. Shashidhar, T. Prashantha, C. Ramesh, M.K. Nityananda, Advocates.



Judgment Text

(Prayer: This Petition is filed Under Section 11(5) & (6) read with Section 11 (12)(B) of the Arbitration and Conciliation Act, 1996 and paragraph 2 of the appointment of Arbitrators by the Chief Justice of Karnataka High Court Scheme, 1996, praying to appoint such person as this Hon'ble Court deems fit as the sole arbitrator to adjudicate the disputes that have arisen between the petitioner and Respondent Under Clause 2.4.7 of the General Conditions of contract in the technical bid Section of the contract dated 10.04.2018 entered into by and between the petitioner as at Annexure-A, award to the petitioner the costs of these proceedings, in the interest of justice and equity.)

1. This is a petition filed under Section 11(5)(6) and 12(b) of the Arbitration and Conciliation Act, 1996 seeking appointment of sole arbitrator to adjudicate the disputes that have arisen between the petitioner and the respondent under Clause 2.4.7 of the General Conditions of the Contract in the Technical Bid Section of Contract dated 10.4.2018 entered into by and between the petitioner and respondent (Annexure-A).

2. Brief facts are that the petitioner who is an architectural and planning firm by name M/s. Suresh Goel & Associates and the respondent-IIT Dharwad entered into a Design Consultancy Contract dated 10.4.2018 pursuant to a letter of Intent dated 5.2.2018. The contract work for the petitioner was to render service of Planning and Design Consultancy for Phase-I of the respondent's New Campus at Dharwad for a contract fee of Rs.10,40,06,125/-. The said agreement contained arbitration clause at Clause 2.4.7 of the contract. During the execution of the contract work, the petitioner raised 1 s t bill dated 10.07.2018 for Rs.20,00,000/-, 2 n d bill dated 16.1.2019 for Rs.1,22,02,990/- and 3 r d bill dated 15.4.2019 for Rs.2,80,07,475/-, which were all paid by the respondent.

3. On 4.10.2019, the respondent through its Project Manager-CPWD, uploaded its tender for the construction project of its New Campus, using the approved designs and drawings prepared by the petitioner. Thereafter, the petitioner raised its 4th bill dated 11.10.2019 for Rs.5,04,13,455/- and 5th bill dated 27.1.2020 for Rs.1,81,59,294/- and another bill for additional works dated 8.6.2020 for Rs.2,06,3,556/-. However, the respondent did not make payment towards those three bills and non-payment of the bills is subject matter along with other claims for the proposed arbitration proceedings. The petitioner issued a claim notice dated 7.9.2020 making a detailed presentation on the claims to the respondent. However, the respondent disputed the petitioner's claim by its letter dated 6.1.2020 and refused to make payment. The petitioner issued a letter dated 20.10.2020 to the Secretary, Department of Education, Ministry of Higher Education, Government of India, pointing out that an arbitrable dispute has arisen between the parties as the said Secretary was holding office as the Chairman of the Board of Governors of the respondent (IIT, Dharwad) requesting him to appoint sole arbitrator. Thereafter, as per his letter dated 17.11.2020, Sri. Vinayak Chaterjee, Chairman of the Board of Governors of the respondent (IIT, Dharwad) appointed Sri. Jose Kurian as the Sole Arbitrator. However, the petitioner disagreed with the said appointment by its letter dated 5.12.2020 suggesting the names of three other persons for consideration of the respondent to appoint a sole arbitrator. The respondent issued a letter dated 2.2.2021 directing Sri. Jose Kurian to decide on the petitioner's objection to his appointment and to conduct the arbitration proceedings.

4. Sri. P.B. Appaiah, learned counsel appearing on behalf of the petitioner vehemently contended before me that the respondent is a party to the dispute and the sole arbitrator is appointed by the Chairman of the Board of Governors of the respondent (IIT, Dharwad), he being a party has an interest in the outcome of the proceedings, and therefore, the appointment of sole arbitrator made by him is illegal and liable to be set-aside. In support of his contention, he places reliance on a decision of the Hon'ble Supreme Court in the case of Perkins Eastman Architects DPC and Another Vs. HSCCC (India) Ltd. reported in 2019 SCC Online SC 1517.

5. Sri. Bidan Chandran, learned counsel appearing for the respondent equally vehemently contended that the clause 2.4.7 of the contract, which is binding on both the parties, specifically empowers the Chairman of the Board of Governors of the respondent (IIT, Dharwad) to appoint Sole Arbitrator for adjudicating the arbitrable dispute arising under the contract. He further contended that the Chairman of the Board of Governors of IIT, Dharwad is the Secretary, Department of Education, Ministry of Higher Education, Government of India and he is a senior functionary in the government and therefore, it cannot be construed that he is having actual bias or operational bias and therefore, there is no disqualification attached to any appointment of the sole arbitrator made by him. He further contended that the objection taken by the petitioner for appointment of Sri.Jose Kurian as sole arbitrator is technical in nature and there is nothing pointed out, which would affect the independence or impartiality of the said Sri.Jose Kurian to conduct the arbitration proceedings. In this behalf, he places reliance on a decision of the Hon'ble Supreme Court in the case of HRD Corporation (Marcus Oil and Chemical Division) Vs. Gail (INDIA) Limited reported in (2018) 12 SCCC 471. He, therefore, submitted that the petition is liable to be dismissed.

6. The fact that the Chairman of the Board of Governors of respondent has appointed Sri. Jose Kurian as Sole Arbitrator to adjudicate the dispute arising under the contract between the parties itself shows that there is arbitrable dispute between the parties.

7. There is also no dispute between the parties before me about the contract document under which the petitioner has been appointed as Designed Consultant. The clause 2.4.7 which is regarding Dispute Settlement Mechanism, reads as under:

"2.4.7 Dispute Settlement Mechanism: Any dispute between the Parties as to matters arising to this Contract which cannot be settled amicably within thirty (30) days after receipt of a notice by one Party, the request for such amicable settlement may be submitted by either Party for settlement in accordance with the following provisions:

Any dispute or difference at any time arising between IIT Dh and the Consultant as to the construction, meaning or effect of the Contract or as to any clause, matter or thing herein contained or as to the rights and liabilities of the parties hereto shall be referred to a Sole Arbitrator to be appointed by the Chairman, Board of Governors, IITDh, who shall decide the cause in accordance with the contract provisions and subject to the provisions of the Indian Arbitration & Reconciliation Act, 1996 or any statutory modifications or re-enactment thereto or thereof for the time being in force and all proceedings in any such Arbitration shall be held in Dharwad."

8. Purporting to act in exercise of the power under clause 2.4.7, the Chairman of the Board of Governors of the respondent (IIT, Dharwad) has appointed Sri. Jose Kurian as Sole Arbitrator by his letter dated 17.11.2020. The only question that arises for consideration in this petition is, whether an appointment of sole arbitrator made by the Chairman of Board of Governors of respondent in exercise of power under the clause empowering the Chairman of the Board of Governors of the respondent (IIT, Dharwad) to appoint/nominate the sole arbitrator, falls foul of "independence or impartiality" required of the sole arbitrator so appointed on account of appointing authority being interested in the outcome of the proceedings?

9. The assertion of the learned counsel for the respondent is that the clause 2.4.7 empowers the Chairman of the Board of Governors of the respondent (IIT, Dharwad) to appoint/nominate the sole arbitrator. Even granting that the respondent is vitally interested in the outcome of the proceedings, contends the learned counsel, such disability which might attach to the respondent for making appointment of the sole arbitrator will not attach proprio vigore to the Chairman of the Board of Governors, who is an independent authority himself being ex-officio Chairman of the Board of Governors in his capacity as the Secretary, Department of Education, Ministry of Higher Education, Government of India. The submission of the learned counsel for the respondent is that since the Secretary, Department of Education, Ministry of Higher Education, Government of India is holding the position of the Chairman of the Board of Governors of the respondent (IIT, Dharwad), he is not actually interested in the outcome of the proceedings as he is holding that position only on account of being the Secretary, Department of Education, Ministry of Higher Education, Government of India.

10. Insofar as the above submission of the learned counsel for the respondent is concerned, it needs to be observed that Sri.Vinayak Chaterjee, who is the Chairman of the Board of Governors of the respondent (IIT, Dharwad) and who has appointed Sri. Jose Kurian as Sole Arbitrator is part of the institution-or he is reasonably likely to be so viewed-which has vital interest in the outcome of the arbitration proceedings. It is hyper technical to contend that since he became the Chairman of the Board of Governors of the respondent only on account of his holding the primary position of the Secretary, Department of Education, Ministry of Higher Education, Government of India, he has a measure of independence vis--vis the institution of which he is holding the position of Chairman of the Board of Governors.

11. The Hon'ble Supreme Court in the case of Perkins Eastman Architects DPC (supra) has held as follows:

"20. We thus have two categories of cases. The first, similar to the one dealt with in TRF Limited where the Managing Director himself is named as an arbitrator with an additional power to appoint any other person as an arbitrator. In the second category, the Managing Director is not to act as an arbitrator himself but is empowered or authorized to appoint any other person of his choice or discretion as an arbitrator. If, in the first category of cases, the Managing Director was found incompetent, it was because of the interest that he would be said to be having in the outcome or result of the dispute. The element of invalidity would thus be directly relatable to and arise from the interest that he would be having in such outcome or decision. If that be the test, similar invalidity would always arise and spring even in the second category of cases. If the interest that he has in the outcome of the dispute, is taken to be the basis for the possibility of bias, it will always be present irrespective of whether the matter stands under the first or second category of cases. We are conscious that if such deduction is drawn from the decision of this Court in TRF Limited, all cases having clauses similar to that with which we are presently concerned, a party to the agreement would be disentitled to make any appointment of an Arbitrator on its own and it would always be available to argue that a party or an official or an authority having interest in the dispute would be disentitled to make appointment of an Arbitrator.

21. But, in our view that has to be the logical deduction from TRF Limited. Paragraph 50 of the decision shows that this Court was concerned with the issue, "whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an Arbitrator". The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter balanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) and recognized by the decision of this Court in TRF Limited."

(Emphasis supplied)

12. It is clearly held in the above decision by the Hon'ble Supreme Court that where the document of contract empowers only one of the parties to the dispute to appoint sole arbitrator, such power will have an element of exclusivity in determining or charting the course for dispute resolution. It is further held that the person who has an interest in the outcome or decision of the dispute must not have the power to a

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ppoint a sole arbitrator. 13. The Hon'ble Supreme Court has clearly said that, that has to be taken as essence of the amendment brought in by the Arbitration and Conciliation (Amendment) Act, 2015 and the said principle has been recognized by an earlier decision reported in 2017 (8) SCC 377 (TRF Limited Vs. Energo Engineering Projects Limited). 14. The above decision is squarely applicable to the present case. In that view of the matter, appointment of Sri.Jose Kurian as Sole Arbitrator made by Sri.Vinayak Chaterjee, Chairman of the Board of Governors of the respondent (IIT, Dharwad) is plainly illegal and therefore, Sri.Jose Kurian cannot proceed to hold the arbitration proceedings. This petition is entitled to be allowed. Hence, the following: ORDER a) The above petition is allowed. b) The appointment of Sri. Jose Kurian as Sole Arbitrator made by the Chairman, Sri.Vinayak Chaterjee, the Chairman of the Board of Governors of the respondent (IIT, Dharwad) is illegal. c) Sri. Justice P.G.M. Patil, Former Judge, High Court of Karnataka is appointed as Sole Arbitrator for conducting the arbitration proceedings arising out of the contract in question between the parties. He shall hold the arbitration proceedings in Dharwad. d) The parties shall share fees and expenses of the learned Arbitrator as fixed by him equally. e) Intimate Sri. Justice P.G.M. Patil, Former Judge, High Court of Karnataka about this order forthwith.
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