1. This arbitration request is filed by the applicant, a company registered under the Indian Companies Act, 2013, seeking to terminate the mandate of appointment of the arbitrator as per Annexure-A7, and to appoint a new independent and impartial arbitrator to adjudicate upon Annexure-A3 final bill and such other disputes arose in connection with and incidental to the execution of Annexure-A1 agreement entered into between the applicant and the respondent. Material facts for the disposal of the arbitration request are as follows:
2. The applicant is engaged in civil construction works. The respondent is a public sector company managed and controlled by the Union of India and is also engaged in civil construction works. Respondent had undertaken a contract from Kerala Water Authority. The work was to carry out design, construction, laying, jointing and commissioning of sewer pipeline, pumping station etc. in Thiruvananthapuram District, Kerala State. The work was awarded to the respondent in the year 1998, as per an agreement dated 31.05.1998 for a value of Rs.11 crores.
3. Respondent sub-contracted the said work to the applicant for execution and implementation as per Annexure- A1 agreement dated 14.06.2001 for a total contract value of Rs.5,99,36,306/-. According to the applicant, the applicant has completed the said work in accordance with the agreement, and the project was commissioned on 02.07.2002, and was inaugurated by the then Chief Minister. Annexure-A2 is the completion certificate dated 31.12.2004. Annexure-A3 is the final bill for an amount of Rs.1,58,01,162/-. The final bill of the applicant was not settled for the reason that there was some dispute between the respondent and the Kerala Water Authority with regard to the final bill submitted by the respondent, evident from Annexures-A4 and A5 letters respectively.
4. It is also stated that, while the work was alive and the work was under progress, respondent was deducting amounts from every running bill of the applicant towards retention money, and accordingly, an amount of Rs.15 lakhs was available with the respondent during the completion of the work. Since the final bill was being delayed, applicant requested the respondent to release the retention money of Rs.15 lakhs, and as per the stipulation put forth by the respondent, a bank guarantee was offered by the applicant and the retention amount was released. However, the settlement of final bill is still pending to a tune of Rs.1.58 crores. Therefore, as per Annexure-A6, applicant requested the respondent to appoint an arbitrator to settle the disputes in accordance with the terms contained under Clause 13 of Annexure-A1.
5. As per Annexure-A7 dated 21.02.2005, respondent appointed an arbitrator as per the terms of contract to settle the issues. The sole arbitrator is an officer of the respondent itself. However, in spite of appointment of the arbitrator, there was no progress in the proceedings, consequent to which, applicant has issued Annexures-A8, A9 and A10 letters. However, there was no response. As per Annexure-A11 letter dated 27.04.2016, respondent directed the applicant to extend the bank guarantee, and accordingly, applicant has complied with the directives, evident from Annexure-A12. It is also stated that the renewal of period of the bank guarantee is an expensive affair, and the applicant incurred an amount of Rs.37,860/-. By this time, the bank guarantee is renewed on 11 occasions incurring a total amount of Rs.4 lakhs.
6. While matters being so, according to the applicant, the bank informed that the respondent had invoked the bank guarantee, and thereupon, Annexure-A13 communication is issued and thereafter, the applicant had filed O.A.No.638 of 2016 before the High Court of Madras for interim measures under Sec.9 of the Arbitration and Conciliation Act, 1996 [ for short, 'the Act, 1996'], and has obtained an order of 'status quo', evident from Annexure-A14.
7. Respondent has filed a detailed counter affidavit refuting the claims and demands raised by the applicant. Among other contentions, it is stated that, the application is highly belated and hopelessly barred by limitation, as the contract was terminated on 21.04.2004. It is also stated that, the application is bad for non-joinder of necessary parties, since the Kerala Water Authority is a necessary party. The prime contention advanced is that, the petition is not maintainable in the light of Sections 14 and 15 of the Act, 1996. It is also stated that, in view of the peculiar nature of Clause 13 of dispute resolution mechanism in Annexure-A1 agreement, applicant is not entitled to seek any relief under Sec.11(6) of Act, 1996. Other contentions are also raised to the effect that, applicant is not entitled to get any relief as is made in the arbitration request.
8. It is further stated that, as the work was not completed in all respects, the Kerala Water Authority has not released the payment and as per the agreement between the respondent and the applicant, payment will be passed on/released to the applicant on receipt of payment from the Water Authority. A meeting with the Chief Engineer of the Kerala Water Authority was held on 18.12.2007 as per letter dated 07.12.2007, which was attended and acknowledged by Shri George Joseph Neerakkal. The applicant is not eligible for any claim since the work was executed by them on back to back basis. That apart, it is stated that, the bank guarantee had to be got extended since the applicant could not solve the issue with Kerala Water Authority to get the payments released. Therefore, it is the contention of the respondent that applicant is not entitled to secure any relief from this Court.
9. I have heard learned counsel for the applicant and the learned counsel appearing for the respondent. Perused the documents on record and the pleadings put forth by the respective parties.
10. The question revolves around Sec.11(6) of Act, 1996. In order to appreciate the issue, I think it is only appropriate that sub-sections (1) to (6) of Sec.11 of Act, 1996 are extracted, which read thus:
'11. Appointment of arbitrators.--(1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
(3) Failing any agreement referred to in subsection (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.
(4) If the appointment procedure in subsection (3) applies and-
(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or
(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment,
the appointment shall be made, upon request of a party, by the Supreme Court, as the case may be, the High Court or any person or institution designated by such Court.
(5) Failing any agreement referred to in subsection (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court.
(6) Where, under an appointment procedure agreed upon by the parties,--
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,
a party may request the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court to take necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.'
11. Therefore, it is evident that when a procedure is agreed upon by and between the parties, and a party fails to act under that procedure; or the parties or the appointed arbitrators fail to reach an agreement expected of them under that procedure; or a person, including an institution, fails to perform any function entrusted to him or it, under that procedure, a party is entitled to request to this Court or any person or institution designated by this Court to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. A reference to clause 13 of Annexure-A1 would be worthwhile, which read thus:
'13. Except where otherwise provided in the contract, all question and dispute to the meaning of the specifications, designs, drawings and instructions aforementioned and as to any other question, claims, right matter of things, shall be referred to the sole arbitration of the person appointed by the Chairman and Managing Director of National Projects Construction Corporation Limited, acting as such at the time of dispute. There will be no objection to any such appointment that the Arbitrator so appointed is a Corporation Officer, that he had to deal with the matters to which the contract relates and expressed views on all/or any of the matters in dispute or difference. The Arbitrator to whom the matter is originally referred being transferred or vacating the office or being unable to act for any reason, the Chairman & Managing Director as aforesaid at the time of such transfer, vacation of officer's inability to act shall appoint another person to act as arbitrator in accordance with the terms of the contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by the predecessor. It is also a term of this contract that no person other than a person appointed by the Chairman and Managing Director as aforesaid should act as arbitrator and if for any reason, that is not possible, the matter is not to be referred to arbitrator at all. The arbitrator from time to time, with the consent or the parties enlarge the time for making and publishing the award. The Arbitrator shall give reason for the award.'
12. In accordance with the request made by the applicant as per Annexure-A6, the respondent has appointed an arbitrator viz., Shri Rajendra Singh, Deputy General Manager, National Projects Construction Corporation Ltd., North Zone, Faridabad, Haryana as the sole arbitrator to adjudicate the claims and counter-claims of the parties. Two things are discernible from Annexures-A6 and A7. The arbitration proceedings commenced consequent to the issuance of Annexure-A6 notice in accordance with the stipulations contained under Sec.21 of Act, 1996, which read thus:
'21. Commencement of arbitral proceedings.-- Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.'
13. Once a claim is raised and a demand is made in accordance with the stipulations contained under Sec.21 of Act, 1996, there is no question of any limitation arising to the claim in view of the mandate under Sec.43 of Act, 1996, which deals with limitation. Sub-section (2) of Sec.43 clearly stipulates that, for the purpose of Sec.43 and the Limitation Act, 1963, an arbitration shall be deemed to have commenced on the date referred to in Sec.21. Therefore, it is clear that, the dispute by and between the parties is not barred by limitation. Therefore, the contention advanced by learned counsel for the respondent based on limitation cannot survive.
14. Yet another predominant contention advanced by learned counsel for the respondent is that, in accordance with Clause 13 of Annexure-A1 agreement, an arbitrator was appointed, who has not entered on reference and the applicant has kept quiet all these years, and therefore, this Court is not vested with powers under Sec.11(6) to appoint an arbitrator of its choice, as is requested in the arbitration request.
15. First of all, I would state that the tenor and terms of the contentions contained in the counter affidavit speaks in volume that there is a dispute pending by and between the respondent and the Kerala Water Authority who has awarded the work to the respondent and carried out by the applicant as per Annexure-A1 sub-contract agreement. Secondly, from clause (c) to sub-section (6) of Sec.11 of Act, 1996, it is very clear that, if a person, including an institution, fails to perform any function entrusted to him, an aggrieved person is entitled to approach this Court. Here is a case where an arbitrator is appointed by the respondent, evident from Annexure-A7. However, the said arbitrator did not enter on reference, and therefore, there was no progress in accordance with
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the terms of appointment made in Annexure-A7. Respondent was well aware of such a situation, since the appointment was made by the respondent and it had every duty to ensure that the dispute is resolved by and between the parties. Even in 2016, as per the counter affidavit of the respondent, meetings were held by including the applicant also with the Kerala Water Authority. However, no settlement could be arrived at. Therefore, in my considered opinion, the inaction on the part of the arbitrator appointed by the respondent will have to be treated as a failure on the part of the respondent to perform its functions as provided under clause (c) of Sec.11(6), and therefore, this Court is vested with ample powers to entertain the request made by the applicant and appoint an arbitrator of its choice. 16. Accordingly, I allow the arbitration request and appoint Mr. Justice K. Padmanabhan Nair, former Judge of this Court, as the arbitrator to resolve the disputes by and between the applicant and the respondent. The arbitrator may enter on reference and proceed in accordance with law. The applicant is directed to produce a disclosure statement as contemplated under Sec.11(8) of Act, 1996. Registry is directed to release the certified copy of this order only on receipt of the disclosure statement. The original of the statement shall be retained by the registry and a copy shall be appended to the order. The arbitration request is allowed accordingly.