Walter Bau Ag, Legal Successor, Of … vs Municipal Corp. Of Greater Mumbai … on 20 January, 2015

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Supreme Court of India
Walter Bau Ag, Legal Successor, Of … vs Municipal Corp. Of Greater Mumbai … on 20 January, 2015Author: ………………..

Bench: Ranjan Gogoi

REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
ARBITRATION CASE (CIVIL) NO.35 OF 2014

WALTER BAU AG,LEGAL SUCCESSOR,
OF THE ORIGINAL CONTRACTOR,
DYCKERHOFF & WIDMANN A.G. …PETITIONER

VERSUS

MUNICIPAL CORPORATION OF GREATER
MUMBAI & ANR. …RESPONDENTS

JUDGMENT

1. A works contract No.3AAA dated 20th December, 2000
was executed by and between the petitioner and the Municipal
Corporation of Greater Mumbai (respondent No.1 herein) for
execution of city tunnel rehabilitation works for the purposes
of transporting the city’s sewage. Disputes and differences
having arisen between the parties under the said contract, the
petitioner invoked the arbitration clause contained therein and
by letter, dated 24th February, 2014, nominated one Shri R.G.
Kulkarni as its Arbitrator. By the said communication, the
petitioner called upon the respondent No.1 to appoint its
Arbitrator within 30 days of the receipt of the aforesaid
letter/notice.

2. The arbitration clause in the agreement between the
parties would require to be specifically noticed and, therefore,
is being extracted herein below:
|”Modified Sub-Clause 67.3 |
|Arbitration |
| |
|Sub-clause 67.3 is modified to read as follows: |
| |
|Any dispute, in respect of which the |
|Recommendation(s), if any, of the Board has not |
|become final and binding pursuant to Sub-clause |
|67.1, shall be finally settled by arbitration as|
|set forth below. The Arbitral Tribunal shall |
|have full power to open-up, review and revise |
|any decision, opinion, instruction, |
|determination, certificate or valuation of the |
|Engineer and any Recommendation(s) of the Board |
|related to the dispute: |
|I) |A dispute with and Indian contractor |
| |shall be finally settled by arbitration |
| |in accordance with the Indian |
| |Arbitration and Conciliation Act, 1996 |
| |or any statutory amendment thereof. The|
| |Arbitral Tribunal shall consist of 3 |
| |Arbitrators, one each to be appointed by|
| |the Employer and the Contractor. The |
| |third arbitrator shall be chosen by two |
| |arbitrators so appointed by the parties |
| |and shall act as Presiding Arbitrator. |
| |In case of failure of the two |
| |arbitrators, appointed by the parties to|
| |reach upon a consensus within a period |
| |of 30 days from the appointment of the |
| |arbitrator appointed subsequently, the |
| |presiding arbitrator shall be appointed |
| |by the International Centre for |
| |Alternative Dispute Resolution in India.|
| |For the purpose of this Sub-Clause, the |
| |term “Indian Contractor” means a |
| |contractor who is registered in India |
| |and is a juridical person created under |
| |Indian Law as well as a Joint Venture |
| |between such a Contractor and a Foreign |
| |Contractor. |
|II. |In case of a dispute with a foreign |
| |Contractor, the dispute shall be finally|
| |settled in accordance with the |
| |provisions of UNCITRAL Arbitration |
| |Rules. The arbitral tribunal shall |
| |consist of 3 Arbitrators one each to be |
| |appointed by the Employer and the |
| |Contractor. The third arbitrator shall |
| |be chosen by the two arbitrators so |
| |appointed by the parties, and shall act |
| |as presiding arbitrator. In case of the|
| |failure of the two arbitrators appointed|
| |by the parties to reach upon a consensus|
| |within a period of 30 days from the |
| |appointment of the arbitrator appointed |
| |subsequently, the presiding arbitrator |
| |shall be appointed by the International |
| |Centre for Alternative Dispute |
| |Resolution in India. For the purposes |
| |of this clause 67, the term “Foreign |
| |Contractor” means a contractor who is |
| |not registered in India and is non |
| |juridical person created under India |
| |Law. |
|III. |Neither party shall be limited in the |
| |proceedings before such tribunals to the|
| |evidence nor did arguments already put |
| |before the Engineer or the Board, as the|
| |case may be, for the purpose of |
| |obtaining its/his said Recommendations/ |
| |decision. No such |
| |Recommendations/decision shall |
| |disqualify the Engineer or any of the |
| |members of the Board, as the case may |
| |be, from being called as a witness and |
| |giving evidence before the arbitrators |
| |or any matter whatsoever relevant to the|
| |dispute. |
|IV) |Arbitration may be commenced prior to or|
| |after completion of the works, provided |
| |always that the obligations of the |
| |Employer, the Engineer, the contractor |
| |and the Board shall not be altered by |
| |reason of the arbitration being |
| |conducted during the progress of the |
| |works. |
|V) |If one of the parties fails to appoint |
| |its arbitrator in pursuance of |
| |Sub-clause (i) and (ii) above, within 30|
| |days after receipt of the notice of the |
| |appointment of its arbitrator by the |
| |other party, then the International |
| |Centre for Alternative Dispute |
| |Resolution in India, both in cases of |
| |foreign contractors as well as Indian |
| |Contractors, shall appoint an |
| |arbitrator. A certified copy of the |
| |order of the International Centre for |
| |Alternative Dispute Resolution in India |
| |making such and appointment shall be |
| |furnished to each of the parties. |
|VI) |Arbitration proceeding s shall be held |
| |at Mumbai, India, and the language of |
| |the arbitration proceedings and that of |
| |all documents and communications between|
| |the parties shall be English. |
|VII |The decision of the majority of the |
| |arbitrators shall be final and binding |
| |upon both parties. The cost and the |
| |expenses of arbitration proceedings will|
| |be paid as determined by the arbitral |
| |tribunal. However, the expenses |
| |incurred by each party in connection |
| |with the preparation, presentation, etc.|
| |of its case as also the fees and |
| |expenses paid to the arbitrator |
| |appointed by such party or on its behalf|
| |shall be borne by each party itself.” |

3. A reading of the aforesaid clause of the agreement
would go to show that after one of the parties thereto invokes
the arbitration clause; appoints its arbitrator and thereafter
give notice to the other party to appoint its arbitrator, if the
same is not done within 30 days or if the two arbitrators
appointed by both sides fail to nominate a third arbitrator, the
matter is to be referred to the International Centre for
Alternative Dispute Resolution in India (for short “ICADR”). For
appointment of the Arbitrator on behalf of one of the parties
who has failed to so act or for appointment of the third
arbitrator, as may be, ICADR is governed by certain norms
contained in Rules 5 and 35 of the ICADR Rules, 1996 governing
the procedure for appointment of Arbitrators. The same rules may
be usefully extracted herein below:

|5. Appointment of arbitrators.- (1) Unless |
|otherwise agreed by the parties, a person of any|
|nationality may be an arbitrator. |
| |
|(2) Where the arbitration agreement provides |
|that each party shall appoint one arbitrator, |
|and the two appointed arbitrators shall appoint |
|the presiding arbitrator, 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 appointed arbitrators fail to agree on |
|the presiding arbitrator within thirty days from|
|the date of their appointment, the appointment |
|shall be made, upon request of a party, by the |
|ICADR. |
| |
|(3) 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 ICADR. |
| |
|(4) A decision by the ICADR on a matter |
|entrusted to it by sub-rule (2) or sub rule (3) |
|will be final and binding on the parties. |
| |
|(5) Upon receipt of a request under sub-rule (2)|
|or sub-rule (3), the ICADR will- |
|(a) make the appointment as promptly as |
|possible, |
|(b) follow the procedure specified in rule 35, |
|(c) have regard to- |
| |
|(i) any qualifications required of the |
|arbitrator by the agreement of the parties |
| |
|(ii) such considerations as are likely to secure|
|the appointment of an independent and impartial |
|arbitrator; and |
| |
|(iii) in the case of appointment of a sole or |
|presiding arbitrator in an international |
|commercial arbitration, the advisability of |
|appointing a person of a nationality other than |
|the nationalities of the parties. |
| |
| |
| |
|35. Services as appointing authority.- (1) On |
|receipt of a request to appoint an arbitrator in|
|pursuant of rule 5(2) or 5(3), the ICADR will |
|follow the following procedure- |
|(i) the ICADR will communicate to each party a |
|list containing the names, addresses, |
|nationalities and a description of |
|qualifications and experience of at least three |
|individuals from the panel of arbitrators; |
| |
|(ii) within thirty days following the receipt of|
|the list, a party may delete any name to which |
|he objects and after re-numbering the names in |
|the order of his preference, return the list to |
|the ICADR; |
| |
|(iii) on receipt of the list returned by the |
|party, the ICADR will appoint the arbitrator |
|from the list taking into account the order of |
|preference indicated by the parties; |
| |
|(iv) if for any reason the appointment cannot be|
|made according to the procedure specified in |
|clauses (i) to (iii), the ICADR may appoint the |
|arbitrator from the panel of arbitrators. |
| |
|(2) In appointing an arbitrator the ICADR will |
|have regard to the matters referred to in rule |
|5(5)(c) and will carefully consider the nature |
|of the dispute in order to include in the list, |
|persons having appropriate professional or |
|businiess experience,language ability and |
|nationality. |
| |
|(3) All appointments on behalf of the ICADR will|
|be made by the Secretary-General and in his |
|absence by such member of the Governing Council |
|as is designated by the Chairperson: |
|Provided that where the Secretary-General is to |
|be appointed as the arbitrator, the appointment |
|will be made by the Chairperson. |

4. The respondent Corporation having failed to respond
to the notice dated 24th February, 2014 of the petitioner, an
approach was made to the ICADR by the petitioner on 19th May,
2014. On the basis thereof, the ICADR by its letter dated 3rd
June, 2014 called upon the respondent Corporation to make
appointment of an Arbitrator from a panel of three names that
was furnished to the respondent Corporation or to independently
appoint an arbitrator. The respondent Corporation pursuant to
the said communication of the ICADR appointed Mr. Justice
(Retd.) A.D. Mane as its arbitrator by communication dated 3rd
July, 2014. Thereafter, this application/petition under Section
11(6) of the Arbitration and Conciliation Act, 1996 (for short
“the Arbitration Act”) was filed on 21st August, 2014.

5. Mr. Shamik Sanjanwala, learned counsel appearing for
the petitioner has submitted that the arbitration clause in the
agreement read with Rules 5 and 35 of the ICADR Rules embody a
procedure that was agreed upon by the parties with regard to
appointment of the arbitrator(s). Clearly and evidently, the
appointment of Mr. Justice A.D. Mane by the respondent
Corporation is contrary to the procedure agreed upon inasmuch as
under the relevant Rules governing the ICADR, the said Body was
required to communicate the respondent Corporation a panel of
three names and it is from the said panel that the respondent
Corporation was required to name its Arbitrator. The Rules do
not contemplate an alternative procedure giving the respondent
Corporation liberty to appoint an Arbitrator of his choice once
the respondent Corporation failed to appoint its arbitrator
within the agreed upon period of thirty days from the receipt of
the notice from the petitioner. The appointment of Mr. Justice
A.D.Mane as Arbitrator is, therefore, non-est, leaving it open
for this Court to exercise its powers under Section 11(6) of the
Act to appoint an Arbitrator on behalf of the respondent
Corporation. It is also pointed out that the petitioner has a
serious basis to question the impartiality and independence of
the arbitrator purported to be appointed by the respondent
Corporation.

6. Mr. Mukul Rohatgi, learned Attorney General,
appearing for the the respondent Corporation, on the other hand,
has submitted that the present petition would not be
maintainable inasmuch as an Arbitrator has already been
appointed and any exercise of power under Section 11(6) of the
Arbitration Act, at this stage, would operate as an ouster of
the said Arbitrator. It is submitted that the remedy of the
petitioner, if any, lies elsewhere and under different
provisions of the Arbitration Act and not by way of an
application under Section 11(6) thereof. Reliance has been
placed on the decision of this Court in Antrix Corporation
Limited versus Devas Multimedia Private Limited [(2014) 11 SCC
560] and another recent pronouncement of this Court dated 16th
December, 2014 in Pricol Limited versus Johnson Controls
Enterprise Ltd. & Ors. [Arbitration Case (Civil) NO.30 of 2014].

7. Alternatively, it has been urged by Mr.Rohatgi that
as the appointment of Mr. Justice A.D. Mane was made before the
present application/petition was filed in this Court, the said
appointment would be valid in law. It is submitted that the
requirement of appointment within 30 days of receipt of a notice
is only in cases covered under Section 11(4) and 11(5) of the
Arbitration Act, whereas in cases falling under Section 11(2)
read with Section 11(6) of the Arbitration Act, so long the
appointment is made before the concerned aggrieved party moves
the Court under Section 11(6), such appointment will not be
invalidated. In this regard, reliance has been placed on Datar
Switchgears Ltd. Versus Tata Finance Ltd. and another [(2000) 8
SCC 151] and Deep Trading Company versus Indian Oil Corporation
and others [(2013) 4 SCC 35].

8. While it is correct that in Antrix (supra) and
Pricol Limited (supra), it was opined by this Court that after
appointment of an Arbitrator is made, the remedy of the
aggrieved party is not under Section 11(6) but such remedy lies
elsewhere and under different provisions of the Arbitration Act
(Sections 12 and 13), the context in which the aforesaid view
was expressed cannot be lost sight of. In Antrix (supra),
appointment of the Arbitrator, as per ICC Rules, was as per the
alternative procedure agreed upon, whereas in Pricol Limited
(supra), the party which had filed the application under Section
11(6) of the Arbitration Act had already submitted to the
jurisdiction of the Arbitrator. In the present case, the
situation is otherwise.

9. Unless the appointment of the arbitrator is ex facie
valid and such appointment satisfies the Court exercising
jurisdiction under Section 11(6) of the Arbitration Act,
acceptance of such appointment as a fait accompli to debar the
jurisdiction under Section 11(6) cannot be countenanced in law.
In the present case, the agreed upon procedure between the
parties contemplated the appointment of the arbitrator by second
party within 30 days of receipt of a notice from the first
party. While the decision in Datar Switchgears Ltd. (supra) may
have introduced some flexibility in the time frame agreed upon
by the parties by extending it till a point of time anterior to
the filing of the application under Section 11(6) of the
Arbitration Act, it cannot be lost sight of that in the present
case the appointment of Shri Justice A.D. Mane is clearly
contrary to the provisions of the Rules governing the
appointment of Arbitrators by ICADR, which the parties had
agreed to abide in the matter of such appointment. The option
given to the respondent Corporation to go beyond the panel
submitted by the ICADR and to appoint any person of its choice
was clearly not in the contemplation of the parties. If that be
so, obviously, the appointment of Shri Justice A.D. Mane is non-
est in law. Such an appointment, therefore, will not inhibit
the exercise of jurisdiction by this Court under Section 11(6)
of the Arbitration Act. It cannot, therefore, be held that the
present proceeding is not maintainable in law. The appointment
of Shri Justice A.D. Mane made beyond 30 days of the receipt of
notice by the petitioner, though may appear to be in conformity
with the law laid down in Datar Switchgears Ltd. (supra), is
clearly contrary to the agreed procedure which required the
appointment made by the respondent Corporation to be from the
panel submitted by the ICADR. The said appointment, therefore,
is clearly invalid in law.

10. Consequently, we allow the present petition and
appoint Shri Justice S.R. Sathe, a retired judge of the Bombay
High Court as the Arbitrator on behalf of the respondent
Corporation. Both the Arbitrators shall now name the third
Arbitrator forthwith whereafter the arbitration proceedings will
be held and concluded as expeditiously as possible. The terms of
appointment of Shri Justice S.R. Sathe as the Arbitrator on
behalf of the respondent Corporation will be settled in
consultation with the respondent Corporation.

11. The arbitration petition is disposed of in the above
terms.

………………..,J.
(RANJAN GOGOI)

NEW DELHI
JANUARY 20, 2015