MBL Infrastructure Limited vs State of Uttarakhand and others

SUDHANSHU DHULIA, J.

This petition has been filed by the petitioner before this Court under Section 14 and 15 of the Arbitration and Conciliation Act, 1996 with a prayer

that this Court may appoint an arbitrator as the mandate of the earlier Arbitral Tribunal has terminated.

The facts of the case are that the petitioner before this Court is in the business of Civil Engineering projects. The respondent is Public Works

Department of the Government of Uttarakhand. The two entered into a contract for “improvement/Strengthening of Roads in District Almoraâ€.

The date of commencement of the project was 27.12.2014 and the stipulated date of completion of the work was 14.06.2017. According to the

petitioner, due to non-fulfillment of the commitments at the hands of the respondent, such as delay in handing over of the site, delay in providing goods

for construction, drawings and inventory, delay in decisions, frequent revisions in the inventory, unseasonal rainfall and third party interference and

resistance from local residents, a delay was caused in the completion of the project. The petitioner later received a letter dated 18.7.2016 on

21.07.2016, whereby the contract was terminated under clause 15 (2) of the General Conditions of the Contract. Since the agreement had an

arbitration clause, the petitioner approached the respondent for appointment of an arbitrator as per clause 20.6 of the General Conditions of Contract,

which reads as under:

“20.6. Arbitration

Any dispute between the Parties arising out of or in connection with the Contract no settled amicably in accordance with Sub-Clause 20.5 above and

in respect of which the DB’s decision (if any) has not become final and binding shall be finally settled by arbitration.â€​

The petitioner appointed Hon’ble Ms. Justice Rekha Sharma (Retd.) as their Nominee Arbitrator. The respondent appointed Mr. K.B. Lal

Singhal as their Nominee Arbitrator. Thereafter both the arbitrators have jointly appointed Hon’ble Mr. Justice Jaspal Singh (Retd.) as the third

arbitrator to adjudicate the dispute between the parties. Admittedly under the arbitration clause, the venue of arbitration was Dehradun. The Arbitral

Tribunal Hence constituted proceeded with the matter.

The averment of the petition further disclose that although meetings had taken place on several occasions, but as there was no settlement between

the parties as to the payment of fee to the Arbitrators, effectively the matter did not proceed any further. Initially the respondent relied upon a

Government order of Uttarakhand dated 06.08.2015 whereby an arbitrator fee has been fixed. According to this Government Order dated 06.08.2015

for the claim amount upto Rupees Five Crore, a maximum of 2% of the claim amount or Rs. 2,50,000/- (Rupees Two Lakh Fifty Thousand only),

whichever is less, has to be paid as arbitral fee, and for the claim amount exceeding Rupees Five Crore, the maximum arbitral fee is 2% of the claim

amount or Rs. 5,00,000/- (Rupees Five Lakh only), whichever is less. Admittedly, while deciding the arbitration fee by the Government Order dated

06.08.2015, the provisions of the Arbitration and Conciliation Act, 1996 including sub-section (14) of Section 11 and the Fourth Schedule of the Act

have not been taken into consideration. Thereafter the arbitral tribunal vide its order dated 14.05.2017 fixed the arbitral fee. The operative portion of

the order dated 14.05.2017 reads as under:-

“…Keeping in view what has been noticed above, arbitral fee as regard the claims is fixed as Rs. 30 lacs per arbitrator to be shared by both the

sides. As regards counter claims, arbitral fee is fixed as Rs. 6,50,000/- per arbitrator to be shared equally by both the parties.

Each of the arbitrator shall also be paid Rs. 1 lac fifty thousand towards brief reading besides actual travel and stay and local travel expenses without

production of receipts. This too would be shared equally by both the parties. The Presiding Arbitrator shall be paid Rs. 30,000/- to be shared equally

towards secretarial charges. This modifies our earlier order regarding expenses etc….â€​

There were certain objections raised by the respondent as to the amount fixed by the arbitral tribunal. The dispute raised by the respondent was that

arbitrators cannot get an amount of Rs. 30 lakh each, and Rs. 30 lakhs is a consolidated amount liable to be shared between the three arbitrators.

According to the petitioner the respondent did not pay any amount as arbitration fee and thereafter the arbitral tribunal was constrained to pass the

order dated 06.01.2018, the operative portion of which reads as under :-

“As already noted above, today the statement of defense has been filed as noted above. Contents counter claims to the total value of Rs.

85,39,86,000/-(Eighty Five Crores Thirty Nine Lakhs Eighty Six Thousand Only). For that fee has to be fixed over and above already fixed by us and

as noted above. In this regard we may refer to Section 38 of the Act of 1996. Keeping in view the aforesaid Section 38 of the Act and so also the IV

Schedule we fix fee of Rs. 30.00 Lakhs payable to each of the arbitrator constituting this tribunal. This fee shall be payable by the parties in equal

share in terms of sub-section 2 of Section 38 of the Act. We order accordingly.â€​

Subsequently, thereafter, the arbitral tribunal passed the order dated 07.01.2018 which reads as under:-

“The first sitting of the Tribunal took place on December 12, 2016. On March 12, 2017 the Tribunal took up the matter of arbitral fee and, after

hearing the learned Counsel for the parties fixed the fee. That order may be treated as part of this Order. But then, that was only a tentative order as

till then pleadings were not complete. On completion of the pleadings a detailed order with regard to the payment of arbitration fee to each member of

the Tribunal was passed on May 14, 2017. We passed that order only after hearing the parties counsel. The said order be also treated as part of this

order. Subsequent to the said order of May 14, 2017 number of sittings have taken place and the parties were repeatedly reminded that Arbitral fee

had not been received and that the order with regard to it needed to be complied with. The result is that till today both the orders referred to above

have not been complied with. All those directions had no effect. Consequently, we called upon the parties to address arguments as to why the

proceedings with regard to the Claims and Counter Claims be not terminated. Once again we were assured compliance. The matter is now ripe for

final arguments on merits. However, keeping in view the past conduct of the parties and not compliance of the orders, we see no reason to any further

rely upon the assurances of the parties. Consequently, the proceedings relating to both the claims and counterclaims stand terminated.â€​

The language of the aforesaid order is self evident. It appears that the learned arbitral tribunal was constrained to pass such an order in view of the

default being made at the hands of the respondent who has not paid the required fee to the arbitrators as fixed by the arbitral tribunal.

Be that as it may, the fact of the matter is that as of now in terms of sub-section (1)(a) of Section 15 of the Arbitration and Conciliation Act, 1996,

the mandate of the arbitral tribunal stands terminated. Section 15 of the Arbitration and Conciliation Act, 1996 reads as under:

“15. Termination of mandate and substitution of arbitrator. â€" (1) In addition to the circumstances referred to in section 13 or section 14, the

mandate of an arbitrator shall terminate-

(a) where he withdraws from office for any reason; or

(b) by or pursuant to agreement of the parties.

(2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the

appointment of the arbitrator being replaced.

(3) Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2) any hearings previously held may be repeated at the

discretion of the arbitral tribunal.

(4) Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section

shall not be invalid solely because there has been a change in the composition of the arbitral tribunal.â€​

(Emphasis supplied)

Therefore, the petition which has been filed by the petitioner is maintainable before this Court as there seems to be no dispute that mandate of the

Arbitral Tribunal has come to an end. Consequently, Section 15 of the Arbitration and Conciliation Act, 1996 will come into play.

Contrary arguments have been raised on both the sides as to what should be the number of arbitrators here. According to the petitioner,

consequent to the termination of the mandate of the Arbitral Tribunal, it had offered the respondent to appoint a new arbitral tribunal, but this has been

in vain.

As per sub-section (2) of Section 15, once the mandate of the arbitral tribunal is terminated, the substitute arbitrator can be appointed only as per

the Rules which were applicable for the appointment of the arbitrator which has to be replaced. Learned counsel for the respondent before this Court

who has filed his written submission before this Court though could not show any contract or document which may show that there is a provision for

appointment of three arbitrators, as was done earlier, though he insists that the earlier procedure of three arbitrators must be followed.

Under these circumstances, where the procedure for appointment of arbitrators has not been prescribed, sub-section (3) of Section 11* would

come into play which would mean that then each party has to appoint an arbitrator and the two appointed arbitrators shall appoint a third arbitrator

who shall act as the Presiding Arbitrator. This procedure has therefore to be followed now, particularly in view of the fact that even earlier the parties

had followed the procedure as given in sub-section (3) of Section 11 of the Arbitration and Conciliation Act, 1996.

Arbitration petition stands disposed of accordingly in the light of the above findings as follows:

Parties must follow the procedure as contemplated in sub-section (3) of Section 11 of the *Section 11(3) - Failing any agreement referred to in

sub-section (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 arbitrators.

Arbitration and Conciliation Act, followed by them earlier as well. The place of arbitration shall be at Dehradun, subject to any decision taken by the

Arbitral Tribunal, in accordance with law. The petitioner and the respondent shall have a meeting at Dehradun in the week commencing 05.08.2018 on

any working day to be decided mutually where they shall nominate their arbitrator who in turn shall appoint the third arbitrator as visualized under

Section 11(3) of the Arbitration and Conciliation Act, 1996. Let the entire formalities as to the constitution of the Arbitral Tribunal be completed, as

per sub-section (3) read with sub-section (4) of Section 11 of the Act.