Valecha Engineering Limited vs Delhi Metro Rail Corporation Limited

C. Hari Shankar, J

This is a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “1996 Actâ€), to refer certain

disputes, which have arisen between the petitioner and the respondent, to arbitration.

Having heard Mr. Rajeev Sharma, learned counsel for the petitioner and Mr. Prashant Mehta, learned counsel for the respondent at length, I

proceed to dispose of the present petition, the issue in the petition being limited.

Consequent to a letter of award, dated 30th November, 2011, a contract, for constructing underground link tunnel between the All India Institute of

Medical Sciences (AIIMS) and the Jai Prakash Narayan Apex Trauma Centre, was awarded to the petitioner by the respondent.

The Agreement provided for resolution of disputes between the parties, initially, by conciliation and thereafter, on failure of conciliatory process, by

arbitration. Clause 17.9 of the Agreement, which provided for arbitration, reads thus:

17.9. If the efforts to resolve all or any of the disputes through conciliation fails, then such disputes or differences, whatsoever arising between the

parties, arising out of touching or relating to construction/manufacture, measuring operation or effect of the Contract or the breach thereof shall be

referred to Arbitration in accordance with the following provisions.

(a) Matters to be arbitrated upon shall be referred to a sole Arbitrator if the total value of the claims is upto Rs. 5 million and to a panel of three

Arbitrators if total value of claims is more than Rs. 5 million. The Employer shall provide a panel of three arbitrators which may also include DMRC

officers for the claims upto Rs. 5 million and a panel of five Arbitrators which may also include DMRC officers for claims of more than Rs. 5 million.

The Contractor shall have to choose the sole Arbitrator from the panel of three and/or one Arbitrator from the panel of five in case three Arbitrators

are to be appointed. The Employer shall also chose one Arbitrator from this panel of five and the two so chosen will choose the third arbitrator from

the panel only. The Arbitrator(s) shall be appointed within a period of 30 days from the date of receipt of written notice/ demand of appointment of

Arbitrator from either party. Neither party shall be limited in the proceedings before such arbitrators) to the evidence of arguments put before the

Engineer for the purpose of obtaining his decision. No decision given by the Engineer in accordance with the foregoing provisions shall disqualify him

from being called as a witness and giving evidence before the arbitrator(s) on any matter, whatsoever, relevant to dispute or difference referred to

arbitrator/s. The arbitration proceedings shall be held in Delhi only. The language of proceedings, that of documents and communication shall be

English.

(b) The Employer at the time of offering the panel of Arbitrator(s) to be appointed as Arbitrator shall also supply the information with regard to the

qualifications of the said Arbitrator nominated in the panel along with their professional experience, phone nos. and addresses to the contractor.

(c) The award of the sole Arbitrator or the award by majority of three Arbitrators as the case may be shall be binding on all parties.â€​

(Emphasis supplied)

According to the petitioner, failure, on the part of the respondent, to fulfil certain obligations, cast on it under the aforesaid contract, resulted in

prejudice to the petitioner and delay in completion of the contract. The petitioner issued a notice of demand, to the respondent, on 23rd May, 2018,

raising several demands, for being recompensed itself for losses suffered by the petitioner owing to alleged default on the part of the respondent.

The communication also put the respondent on notice that in the event of default on the part of the respondent, to pay the alleged outstanding

differences of the petitioner within 28 days, the petitioner would seek reference of the dispute to the Conciliator, in accordance with Clause 17.9 of the

Agreement.

The respondent, in response to the request, appointed one Mr. S.N. Yadav as Conciliator vide letter dated 19th December, 2018. It is not in dispute

that formal discussions, between the parties, were held by the Conciliator on 9th January, 2019, 22nd January, 2019, 18th February, 2019, 14th March,

2019 and 4th October, 2019, but to no avail. Ultimately, on 30th October, 2019, the Conciliator declared the conciliation process as having been failed.

On 18th November, 2019, the petitioner addressed a notice to the respondent, calling on the respondent to provide a panel of three arbitrators, in

accordance with Clause 17.9(a) of the Agreement.

Mr. Rajeev Sharma, learned counsel for the petitioner, submits that as the respondent did not act in accordance with Clause 17.9(a) of the contract

within a period of 30 days as stipulated therein, there was failure of the process contemplated in the contract for invocation of arbitration by the

parties, resulting in the necessity of an arbitrator being appointed by this Court.

As against this, Mr. Prashant Mehta, learned counsel for the respondent, seeks to refute the aforesaid submission of Mr. Sharma, by reference,

essentially, to a communication, dated 23rd June, 2020, from the petitioner to the respondent, which read thus:

“Ref: VEL/DMRC/AIIMS-01/49

Date: 23/06/2020

To,

Office of the Chief Project Manager-3,

Delhi Metro Rail Corporation Ltd.,

Gr. Floor, Mayur Vihar, phase -1,

Metro Station,

New Delhi 110091.

Sub: Design and Construction of Road Tunnel, Ramps and Grade Road between AIIMS and JPN Apex Trauma Center by Cut &

Cover method. (Contract no. AIIMS-01)

Reg:- Application for appointment Arbitrator

Ref:- Our letter No. VEL/DMRC/AIIMS-01/SBW/31 dated 18/11/2019

Dear Sir,

We refer to our earlier letter dated 18 11 2019, wherein we have requested for appointment of the arbitrator.

However now we understand that a new Dispute Resolution Mechanism has been in prevalence recently in DMRC so you may refer our dispute to

this panel at the earliest in order to achieve early resolution.

Kindly note that as all our records are in Delhi and in Covid 19 situation it may not be possible for us to present our case now hence we shall revert to

when possible.

Warm Regards,

Thanking you,

With Regards

For VALECHA ENGINEERING

Sd/Seal

(AUTHORISED SIGNATORY)â€​

Mr. Mehta submits that, having thus reopened the conciliatory avenue, by addressing the aforesaid communication dated 23rd June, 2020 to the

respondent, the petitioner could not again seek to rely on its earlier communication dated 18th November, 2019. The counter affidavit filed by the

respondent, to the present petition, gave serious exception to the fact that, having thus written to the respondent on 23rd June, 2020, requesting that the

dispute be referred for settlement under the Dispute Resolution Mechanism, the petitioner, nevertheless, filed the present petition before this Court on

9th July, 2020.

Mr. Mehta submits that even after filing the present petition, the petitioner wrote, to the respondent, 30th July, 2020 and 5th August, 2020, seeking

that the dispute be referred for amicable settlement to the Dispute Resolution Board of the DMRC.

Mr. Rajeev Sharma, learned counsel for the petitioner, however, points out that the petitioner had clearly stated in its communication that the

request was made without prejudice to his right to invoke arbitration and its claim in the present petition pending before this Court.

On 12th August, 2020, the respondent wrote to the petitioner, providing a list of five arbitrators and calling on the petitioner to select an arbitrator

out of the said list. This, submits Mr. Mehta, is in accordance with the protocol prescribed in Clause 17.9(a) of the Agreement between the parties.

Mr. Mehta submits that once the respondent had provided a list of arbitrators to the petitioner on 12th August, 2020, and called on the petitioner to

choose an arbitrator from the said list, this petition was no longer maintainable. He relies, for the purpose, on the judgment of the Supreme Court in

Datar Switchgears Ltd. v. Tata Finance Ltd. (2000) 8 SCC 151. He also submits that a mechanism, similar to that in the present case, was specifically

held, by the Supreme Court in Central Organization for Railway Electrification v. ECI-SPIC-SMO-MCML (JV) 2019 SCC OnLine SC 1635, to be in

accordance with law and not to infract Section 12(5) of the 1996 Act or the earlier decisions of the Supreme Court in Bharat Broadband Network

Ltd. v. United Telecom Ltd. (2019) 5 SCC 755 and Perkins Eastman Architects DPC & Anr. v. HSCC (India) Limited 2019 SCC Online SC 1517.

As such, submits Mr. Mehta, the present petition is not maintainable any further, and the petitioner would be required to select an arbitrator from the

list of five arbitrators, provided by the respondent under cover of its letter dated 12th August, 2020.

Mr. Sharma contends, on the other hand, that, having invoked the arbitration clause vide notice dated 18th November, 2019 after exhausting the

conciliatory mechanism provided in the contract, and the respondent having failed to appoint an arbitrator within 30 days of the said notice, the present

petition was clearly maintainable under Section 11(6) of the 1996 Act. The pre-arbitration dispute resolution mechanism, which was thereafter devised

by the respondent and in respect of which communications were exchanged between the petitioner and the respondent, according to Mr. Sharma, can

make no difference as no such mechanism was contemplated in the contract between the parties. Besides, submits Mr. Sharma, the petitioner had, in

its communications, to the respondent, clearly stated that its request for referring the dispute for resolution under the said mechanism was without

prejudice its claim in the present petition.

Datar Switchgears Ltd. (2000) 8 SCC 151, submits Mr. Sharma, has no application to the facts of this case, as the principles in that case were

expressly enunciated in the context of the fact that the arbitration agreement in the said case did not contemplate appointment of the arbitrator within

30 days of issuance of notice by one party to the other. Where such stipulation is specifically contained in the contract between the parties, as in the

present case, Mr. Sharma submits that Datar Switchgears Ltd. (2000) 8 SCC 151can have no application at all.

Analysis

There is no dispute about the fact that, prior to invoking the arbitration agreement with the respondent, as contained in Clause 17.9(a), the

petitioner exhausted the provision for conciliation, contained in the Agreement. Equally, it is not in dispute that though Clause 17.9(a) of the

Agreement, specifically, required the arbitrator to “be appointed within a period of 30 days from the date of receipt of written notice/demand of

appointment of Arbitrator from either partyâ€, the respondent did not take any action within 30 days of receipt of notice dated 18th November, 2019

from the petitioner. Section 11(6) of the 1996 Act reads thus:

“(6) Where, under an appointment procedure agreed upon by the parties, â€

(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 the

necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.â€​

The default on the part of the respondent, in appointing arbitrator or even in providing a panel of arbitrators to the petitioner within 30 days of

issuance, by the petitioner, of its notice invoking arbitration on 18th November, 2019, in my opinion, clearly resulted in failure, on the part of the

respondent, to act in accordance with the procedure for arbitration envisaged in the agreement between the petitioner and the respondent. Section

11(6) of the 1996 Act, therefore, directly applies.

The decision in Datar Switchgears Ltd. (2000) 8 SCC 151is expressly inapplicable to the facts of the present case. I say so because, in para 14 of

the report, the Supreme Court clearly observed thus:

“14. The above decision has no application to the facts of this case as in the present case, the Arbitrator was already appointed before the

appellant invoked Section 11 of the Act. The Counsel for the appellant contended that the Arbitrator was appointed after a long lapse of time and that

too without any previous consultation with the appellant and therefore it was argued that the Chief Justice should have appointed a fresh arbitrator.

We do not find much force in this contention, especially in view of the specific words used in the Arbitration clause in the Agreement, which is

extracted above. This is not a case where the appellant requested and gave a notice period for appointment of arbitrator and the latter failed to comply

with that requested. The 1st respondent asked the appellant to make payment within a stipulated period and indicated that in the event of non -

payment of the amount within fourteen days, the said notice itself was to be treated as the notice under the Arbitration clause in the Agreement. The

amount allegedly due from the appellant was substantial and the 1st respondent cannot be said to be at fault for having given a larger period for

payment of the amount and setting the dispute. It is pertinent to note that the appellant did not file an application even after the 1st respondent invoked

Section 9 of the Act and filed a petition seeking interim relief. Under such circumstances, it cannot be said that there was a failure of the procedure

prescribed under the contract.â€​

(Emphasis supplied)

The Supreme Court, therefore, was cautious in conditioning the law enunciated by it in Datar Switchgears Ltd. (2000) 8 SCC 151, with a caveat

that it was not considering the case in which the notice invoking arbitration called on the respondent to appoint an arbitrator within a particular period,

and the respondent failed to do so. Inasmuch as there was no stipulated period, within which the arbitrator was to be appointed by one party after

receipt of notice from the other, and no such period was to be found in Section 11(6) of the 1996 Act, either, the Supreme Court went on to observe

that merely by failing to appoint the arbitrator within 30 days of receipt of notice from the other side, the right of the respondent before it to appoint the

arbitrator did not stand eviscerated. It is in these circumstances that the Supreme Court held that in the absence of any statutory or contractual

stipulation, requiring appointment of the arbitrator by either party to the contract within 30 days of receipt of notice from the other, the arbitrator could

be appointed till such of filing of the petition before the Court under Section 11(6) of the 1996 Act. Per contra, in the present case, the contract

expressly prescribes a period of 30 days, from the date of receipt of notice invoking arbitration by one party, for the other party to appoint the

arbitrator. That period having elapsed, and the respondent having failed to appoint the arbitrator, Section 11(6) is clearly applicable and the judgment in

Datar Switchgears Ltd. (2000) 8 SCC 151 is, equally clearly, distinguishable.

Mr. Prashant Mehta seeks to submit, apropos the italicized observation in the paragraph above from Datar Switchgears Ltd. (2000) 8 SCC 151,

that there is no distinction between the situation that obtained in that case and in this. In the present case, too, submits Mr Mehta, the notice invoking

arbitration, dated 18th November, 2019, did not call on the respondent to appoint its arbitrator within 30 days. To my mind, this distinction cannot make

Datar Switchgears Ltd. (2000) 8 SCC 151 applicable to the facts of the present case. The notice dated 18th November, 2019 did not merely invoke

Clause 17.9 of the Agreement, but extracted, in extenso, the entire Clause (as extracted in para 4 (supra)). Clause 17.9 required, in express and

unmistakable terms, for “the Arbitrator(s) (to) be appointed within a period of 30 days from the date of receipt of written notice/demand of

appointment of Arbitrator from either partyâ€. It was hardly required for the petitioner, having extracted the said Clause in full, to again call upon the

respondent to appoint the arbitrator within 30 days. In fact, after extracting the Clause, the notice calls on the respondent to provide a list of five

arbitrators “as per operation of this Clauseâ€. The respondent, however, did not do so. Ergo, the facts in the present case are clearly

distinguishable from the facts in Datar Switchgears Ltd. (2000) 8 SCC 151and in fact, attract the exception engrafted in para 14 of the report in the

said case.

The Supreme Court did, in certain later decisions, hold that, even where the notice invoking arbitration called on the opposite party to appoint its

arbitrator within 30 days, the right to appoint the arbitrator continued till the first party approached the Court under Section 11(6) of the 1996 Act,

notably in Punj Lloyd Ltd. v. Petronet MHB Ltd. (2006) 2 SCC 638 and U.O.I. v Bharat Battery Manufacturing Co. (P) Ltd. (2007) 7 SCC 684 in

which, despite the notice invoking arbitration calling on the opposite party to appoint its arbitrator, the right of the opposite party to do so was held to

stand forfeited only on the first party approaching the Court under Section 11(6), following Datar Switchgears Ltd. (2000) 8 SCC 151. Those,

however, were not cases in which a period for appointing of arbitrator, reckoned from the issuance of the notice invoking arbitrator, was contained in

the arbitration agreement between the parties. Where such a time period was contained in the arbitration agreement between the parties, the Supreme

Court, in U.O.I. v. Premco-DKSPL (JV) (2016) 14 SCC 651 held, in unmistakable terms, that “the terms of the agreement bind the parties unless

they have chosen to repudiate the sameâ€. In a similar vein, Arijit Pasayat, J., heading a bench of three Hon’ble Judges of the Supreme Court,

observed, in Northern Railway Administration v. Patel Engineering Co. Ltd. (2008) 10 SCC 240, that “a bare reading of the scheme of Section 11

shows that the emphasis is on the terms of the agreement being adhered to and/or given effect as closely as possibleâ€. This is no more than a judicial

recapitulation of Section 11(6), for the applicability of which “failureâ€, on the part of a party, “to act as required under†the agreed procedure

for appointment of the arbitrator, is the statutory sine qua non.

The reliance, by Mr. Mehta, on the communications between the petitioner and the respondent, commencing 20th June, 2020, in my view, cannot

be of any help to the respondent. Section 11(6) of the 1996 Act, which became applicable in favour of the petitioner, on the expiry of 30 days, from

18th November, 2019, cannot be treated as having become inapplicable merely because the petitioner was agreeable to reference of the dispute to the

pre-arbitration Dispute Resolution Mechanism devised by the respondent â€" incidentally after 18th November, 2019, when the notice invoking

arbitration was issued by the petitioner. The petition also asserts, in this regard, that the petitioner moved this Court only after the expiry of over two

weeks from the request dated 23rd June, 2020, for reference of the dispute to the pre-arbitration dispute resolution mechanism of the respondent. That

apart, as already noticed hereinabove, detailed attempts at conciliation were undertaken prior to the petitioner issuing the notice invoking arbitration to

the respondent on 18th November, 2019 and, therefore, the pre-arbitral regimen, as contemplated by the contract, stood exhausted. The petitioner

having waited for 30 days from 18th November, 2019 and, even after the notice dated 23rd June, 2020 having waited for two more weeks before

moving the present petition, it is clear that the petition is maintainable before this Court.

That being so, the respondent had, by 12th August, 2020, already lost its right to act in accordance with the procedure prescribed in Clause 17.9(a)

of the Agreement. That right continued only till the expiry of 30 days from 18th November, 2019. It could not be sought to be revived as late as on

12th August, 2020. The communication dated 12th August, 2020 from the respondent to the petitioner whereunder the respondent provided a list of

arbitrators and called on the petitioner to select one from the said list, was, therefore, incompetent. It cannot, therefore, militate against the

maintainability, or the merits, of the present petition.

In view thereof, there is no necessity for me to return any finding on the applicability on the judgment of the Supreme Court in Central

Organization for Railway Electrification 2019 SCC OnLine SC 1635, as the said decision basically seeks to justify the procedure to be followed by the

respondent under Clause 17.9(a) of the Agreement, and as I have already held hereinabove that the right of the respondent to act in accordance with

the said procedure was exhausted much prior to 12th August, 2020, when the respondent decided to do so.

I may observe, in this regard, that the petition does not make any reference to the communication dated 23rd June, 2020 from the petitioner to the

respondent, seeking reference of the dispute to the pre-arbitration dispute resolution mechanism of the respondent. This is unfortunate, and could have

been avoided. Mr. Sharma submits that the default was not deliberate. I am not inclined to enter into that controversy as, in my view, the right of the

petitioner to invoke Section 11(6) of the 1996 Act stood crystallized as far back as on 18th December, 2019, when the period of 30 days from the

notice, dated 18th November, 2019 from the petitioner to the respondent, invoking arbitration, had elapsed, with the respondent failing to act in

accordance with Clause 17.9(a) of the Agreement.

In view thereof, the petition deserves to succeed.

This Court appoints Hon’ble Ms. Justice G. Rohini, former Chief Justice of this Court, as the arbitrator to arbitrate on the disputes between the

parties. The contact details of the learned arbitrator are as under:

Flat No.1001, Tower -12,

Supreme Towers,

Sector-99

NOIDA-201304

Mobile Nos.8527027027 & 8826000333

Email ID: justicegrohini@gmail.com

The parties are directed to contact the learned arbitrator at the aforesaid contact details within 48 hours of receipt, from the Registry, of a copy of

this judgment by e-mail.

The fees of the learned arbitrator shall be fixed by the learned arbitrator in consultation with the parties. Mr Mehta contends that the DMRC has a

fixed “fee scheduleâ€. The arbitrator having been appointed by this Court under Section 11(6) of the 1996 Act, and not by the DMRC, the

applicability of this schedule may be questionable. It is, however, left open to the DMRC to so urge before the learned arbitrator, and for the learned

arbitrator to take a decision thereon.

The learned arbitrator will furnish the requisite disclosure under Section 12(2) of the 1996 Act, within a week of entering on reference.

This petition is, accordingly allowed in the aforesaid terms, with no orders as to costs.