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Case Analysis: S.P. Singla Constructions (Pvt) Limited V. State Of Himachal Pradesh

S.P. Singla Constructions (Pvt) Limited v. State of Himachal Pradesh
Case Citation: (2019) 2 SCC 488
Decided On: December 04, 2018
Judges: Justice R Banumathi & Justice Indira Banerjee

Facts
S.P. Singla Construction (Private) Limited Company was awarded construction work contract on 19 December 2006 for a sum of Rs.14,29,81,500. The period allowed for completion of work was on or before 04 January 2009. However, extension was granted to the appellant up to 30 June 2010. The work was completed by the appellant approximately a year late on 04 June 2011 and payment for the execution of work was made. An agreement was also entered into between the parties and clause (65) of the General Conditions of Contract contains arbitration clause.

The appellant raised a dispute and requested for the appointment of arbitrator vide its letter dated 18 October 2013. On the pursuant to the request of the appellant, the Chief Engineer, HPPWD appointed the "Superintendent Engineer, Arbitration Circle, HPPWD, Solan" as the arbitrator on 30 October 2013 and the said appointment had been made in terms of clause (65) of the agreement. The arbitrator entered upon reference on 11 November 2013. The appellant after requesting for the appointment of arbitrator either remained absent from the proceedings or sought for adjournments stating that he intends to challenge the appointment of arbitrator before the Chief Justice as per the provisions of Arbitration and Conciliation Act 1996.

Even after hearing, no statement of claim was filed by the appellant. On 06 August 2014, arbitration proceedings were terminated under Section 25(a) of the Arbitration and Conciliation Act, 1996. Being aggrieved by the appointment of "Superintendent Engineer, Arbitration Circle, Solan, HPPWD" as the arbitrator, the appellant filed petition before the High Court under Section 11(6) of the 1996 Act praying for appointment of independent arbitrator. The High Court dismissed the petition by stating that the appointment of arbitrator could not be challenged by way of an application under Section 11(6) of the 1996 Act.

Issues Raised
There were three issues raised in this case:
  • Whether under Section 11(6) of the Arbitration Act 1996, a party can apply for appointment of arbitrator when an arbitrator has been already appointed?
  • Whether the provisions of Amendment Act 2015 have retrospective operation in arbitral proceedings which have already commenced unless parties otherwise agree?
  • Whether the termination of arbitral proceeding by arbitrator is correct?
Contention of the Parties
Appellant: Mr Maninder Singh appeared on behalf of the appellant. He submitted that any appointment made after the commencement of Arbitration and Conciliation Act 1996 shall only be made as per Section 11 of the Act. Therefore any appointment by office is no more permissible. The learned senior counsel further submitted that the arbitrator appointed by office, is an employee in service of the HPPWD which is barred as per the provision of Section 12(5) of the Act.

Appellant contended that the wordings in Clause (65) "that the agreement is subject to any statutory modification or re-enactment thereof and the rules made there under and for the time being shall apply to the arbitration proceeding under this clause" would certainly attract Section 12(5) of the Act as amended with effect from 23.10.2015. The counsel placed their reliance upon the case of Ratna Infrastructure Projects Pvt. Ltd. v. Meja Urja Nigam Private Limited (2017) SCC Online Del 7808.

Respondent: The learned counsel of respondent State submitted that the appointment of arbitrator is made as per clause (65) of the agreement and as per the provisions of law. The learned counsel further submitted that the provisions of the Amendment Act, 2015 shall apply in relation to arbitral proceedings commenced on or after the date of commencement of the Amendment Act, 2015 and shall not apply to the arbitral proceedings commenced prior to the Amendment Act, 2015 unless the parties otherwise agree.

It was further submitted that the provision contained in clause (65) of the general conditions of the Contract would not amount to agreement of the parties so as to imply application of the provisions of the Amendment Act, 2015. The counsel placed their reliance upon the case of Board of Control for Cricket in India v Kochi Cricket Private Limited and others (2018) 6 SCC 287.

Judgment and Reasoning
The court observed that as per clause (65) of the agreement, the appointment of arbitrator by designation was allowed. The court placed their reliance on sentence of clause (65) of agreement "the arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason the Chief Engineer is to appoint another person�.". It was reasoned by the court that if the appointment of arbitrator was on basis of name then there was no requirement for provision in case of vacating his office or transfer of such person.

The court held that in present case the appointment of an arbitrator was already made as per clause (65) of the agreement and as per the provisions of law at the insistence of the government. The arbitration agreement could not be invoked for the second time. The Supreme Court relied on the observations made by High Court in Antrix Corporation Limited v. Devas Multimedia Private Limited (2014) 11 SCC 560 and observed that once arbitrator is appointed as per the agreement then section 11(6) of the Act cannot be invoked.

The court further observed that in case if the other party is dissatisfied or aggrieved by the appointment of an arbitrator in terms of the agreement, his remedy would be by way of petition under Section 13 and thereafter while challenging the award under Section 34 of the 1996 Act. The court found this view of High Court correct.

With respect to contention of applicability of section 12 (5), the court did not went into the merits of the contention of appellant regarding the application of provisions of the Amendment Act of 2015 in the clause (65) of the agreement. The court relied on Board of Control for Cricket in India v. Kochi Cricket Private Limited and others, (2018) 6 SCC 287 in which the court held that Amendment Act does not have retrospective operation in the arbitral proceedings which has already commenced unless the parties otherwise agrees. In the instant case, the general condition between the parties cannot be treated as agreement between the parties.

The court held that despite extending time, the appellant-contractor had not filed statement of claim. Thus, the arbitrator terminated the proceedings under Section 25(a) of the 1996 Act. This act of arbitrator was incorrect as he could have issued notice warning the appellant for no more adjournment would be granted under any circumstances. Since, no such warning was given the court set aside the order of termination.

The court considered that the appellant should get an opportunity to go before the departmental arbitrator thus the proceedings of the arbitrator dated 06.08.2014 terminating the proceedings was set aside. The Amendment Act 2015 will not be invoked in arbitral proceedings.

The court disposed the appeals and allowed opportunity to appellants to go before the arbitrator.

Analysis
There were basically three issues raised in this case.

The first issue was whether a party can apply for an arbitrator if another arbitrator is already appointed. The appellant contended that the arbitrator is appointed by office and not by name as decided. This was against the procedure and therefore section 11(6) of the act can be invoked. Section 11(6) states if the parties failed to appoint the arbitrator as per the procedure decided then a party may request Supreme Court or High Court or any authorized person, institution to take necessary measures.

After examining the impugned clause 65 of the agreement it is clear that appointment of arbitrator by designation was allowed. The agreement mentioned the effect of vacating the office or transfer of such person these wordings of the clause indicates the appointment by designation was recognized in clause.

The provisions of section 11(6) can only be invoked if the arbitrator is not appointed as per the procedure decided. In the present case the arbitrator was appointed correctly as per the procedure by the respondents therefore, no relief can be granted to appellant under the said provision. The remedy in such scenario is appeal under section 13 of the act or if any award made by such arbitrator then it can be challenged under section 34 of the act.

Second issue was whether the Section 12(5) of the act would be applicable over this agreement or not. The section 12(5) of the act was inserted in the act by an amendment in 2015. It laid down the list of people who, in spite of an agreement to the contrary, fall under any categories of seventh schedule would become ineligible to be appointed as an arbitrator.

Schedule 07 tabled 18 kinds of relationships of arbitrator. It includes arbitrator relation as an employee, consultant, advisor or any business relationship. The court held that the amendment does not have any retrospective effect and unless both the parties do not agree it can have effect on agreements prior to the amendment date.

In present case the proceedings were initiated in 2013 way before the required date of October 23rd 2015 so the section 12(5) will not be applicable on the current case. Section 26 of the Arbitration Amendment Act 2015 provides that if parties agreed then the amendment act will be applicable. The apex court did not examined correctness of the judgment of Delhi High Court which was relied by the appellant.

The wordings in Clause (65) "that the agreement is subject to any statutory modification or re-enactment thereof and the rules made there under and for the time being shall apply to the arbitration proceeding under this clause" was held as a general condition and not an agreement between parties by the apex court. This leads to two contrasting decision by the judiciary.

 The Delhi High Court had previously held very similar wordings "any statutory modification or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration" as an agreement between parties.

The third issue was regarding the termination of arbitration proceedings by the arbitrator. The arbitrator terminated the proceedings when the appellant party did not file any statement of claim and continued to ask for extension of time. The court held such termination was incorrect as no warnings were given by the arbitrator before terminating the procedure. Section 25(a) states if a claimant fails to communicate his statement of claims according to section 23(1), the arbitral tribunal shall terminate the proceedings.

In Srei Infrastructure Finance Limited v Tuff Drilling Private Limited, the Supreme Court laid down that a notice to the concerned parties for termination of proceedings should be given before passing an order of termination of proceedings under section 25(a). It is duty of arbitral tribunal to inform the claimant that he has failed to communicate his statement of claim on the required date and should asked the claimant to show the reason why the proceedings should not be terminated.

Conclusion
In this case the court made explicitly clear that once the arbitrator is appointed under the agreement made between the parties, then the section 11 of the Arbitration and Conciliation Act 1996 cannot be enforced by the aggrieved party. The remedy available is under section 13 of the act and section 34 for challenging the award made by such arbitrator.

The case also made clear that the amendment act of 2015 will not have any effect on agreements made prior to amendment date. Also in case of government contracts, any appointment of arbitrator who is employee of department will not barred by section 12(5) of the Act and are not void and unenforceable.

The court also set aside the termination of proceedings and provides the opportunity to the appellant to go before the departmental arbitrator. Since no warning was given by arbitrator, the court found termination of arbitration proceeding incorrect.

Award Winning Article Is Written By: Mr.Sarthak Chauhan
Awarded certificate of Excellence
Authentication No: JL220938926689-28-0722

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