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 Udham

Singh Nagarâ€. The date of commencement of the project was 16.10.2014 and the stipulated date of completion of the work was 4.04.2017.

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

15.2.2017, 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. A.K. Mishra

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 04.07.2017 fixed the arbitral fee. The operative portion of

the order dated 04.07.2017 reads as under:-

“…As already noted above, the claims admittedly would be around seventy three crores sixty seven lacs besides interest. Keeping in view the

Fourth Schedule of the Act of 1996, we direct that, as far as the claims are concerned, each member of the Arbitral Tribunal shall be paid Rs.

30,00,000/-(thirty lacs) towards arbitration fee to be shared equally by both the sides. As we were told that the record is going to be voluminous, each

member of the Tribunal shall also be paid Rs. 1,50,000/- towards reading fee to be shared equally by both the sides. The Presiding Arbitrator shall be

paid Rs. 30,000/- towards Secretarial charges. This too would be shared equally by both the sides. The parties shall also equally bear the expenses

towards the travel and stay of the members of the Tribunal.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. It contains 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 on the Claims. 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 19.01.2018 which reads as under:-

“On July 4, 2017, after having gone through the Statement of Claims and the fact that the claims were approxiamately to the tune of Rs.

73,67,00,000/-(Seventy Three Crores Sixty Seven Lacs) with interest therein, we heard the learned counsel for the parties with regard to arbitral fee.

It may be noted that till then Statement of Defence had not been filed and, therefore, we confined ourselves only to fixation of arbitral fee with regard

to the claims of the Claimant Company.

After hearing the parties we directed that, as far as the claims of M/s MBL Infrastructure Ltd. are concerned each member of the arbitral tribunal

shall be paid Rs. 30 lacs towards arbitration pee to be shared equally by both the sides. It was further directed that each member of the tribunal shall

also be paid Rs. 1,50,000/- towards reading fee. This was also to be shared equally by both the sides. The Presiding Arbitrator was to be additionally

paid Rs. 30,000/- towards secretarial charges and this amount too was to be shared equally by both the parties. Direction with regard to travel and

stay expenses was also issued. It was specifically directed that the fee so fixed be paid by the next date of sitting of the tribunal. The matter was

thereafter taken up on October 28, 2017. Till then the order with regard to payment of arbitral fee and other charges had not been complied with. An

assurance was given on that date that the said order with regard to payment of arbitral fee etc. would be complied with before the next date.

Consequently, the parties were directed to comply with the order before the next date of sitting. The matter was thereafter taken up on January 6,

2018. However, even before the said date the parties were informed that they had not complied with the order with regard to payment of arbitral fee

and that it be3 positively complied with. In that regard reference may be made to the order of December 14, 2017.

When the matter was taken up on January7 6, 2018, it was noticed that the order with regard to payment of arbitral fee had not been complied with.

As already noted above the arbitral fee had been fixed only with regard to the claims set up by M/s MBL Infrastructure Ltd. as, on that date, the

Statement of Defence had not been filed and Counter Claims by the Respondent were not before us. On January 6, 2018, the Respondent, namely,

Public Works Department, Government of Uttarakhand filed its Statement of Defence along with its Counter Claims. The total amount of Counter

Claims is Rs. 85,39,86,000/-(Eighty Five Crores Thirty Nine Lakhs Eighty Six Thousand Only). Consequently while maintaining earlier order, we

directed that as far as the Counter Claims are concerned fee for the said counter claims would be Rs. 30 lacs payable to each of the arbitrators

constituting this tribunal which shall be payable by the parties in equal share in terms of sub-section 2 of Sectin 38 of the Act and that this would be

over and above the fee already fixed on the claims of M/s MBL Infrastructure Ltd.

Since the Claimant Company M/s MBL Infrastructure Ltd. and the Respondent namely Public Works Department, Government of Uttarakhand had

till date not complied with the aforesaid directions/reminders with regard to payment of arbitral fee as regards the claims of M/s MBL Infrastructure

Ltd. we heard arguments on the question as to why the proceedings be not terminated as far as the claims of the Claimant Company are concerned

on account of non-compliance of the order of July 4, 2017.

Before we proceed further it may be mentioned that on January 6, 2018 the Respondent had moved an application for revision of the aforesaid order.

It was contended by the learned counsel for the Respondent that the aforesaid order of July 4, 2017 needed to be revised in the light of section 11 (14)

of the Act of 1996 read with the IVth Schedule. That application was dismissed by us on January 6, 2018 itself and that order shall form part of this

order too.

As would be borne out from above both the parties have not complied with our order of July 4, 2017. And, this, despite repeated reminders. IN fact no

cogent reason has been put forth for non-compliance of the said order.

On January 6, 2018 itself we cold pass an order terminating the proceedings as far as the claims of M/s MBL Infrastructure Ltd. are concerned. We

purposely did not do so as we stil wanted the parties to comply with the order and thereby avoid termination of the proceedings. And yet they have not

availed of even that opportunity. Thus, in ters of the second proviso to sub-section 2 of section 38 of the Act of 1996, the proceedings, as far as the

claims of the Claimant Company are concerned, 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 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.

*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.