M/s. RCC Infra Ventures Limited vs The Engineer in Chief, Military Engineer Services & Ors.

Factual Background

RCC Infra Ventures Limited (hereinafter “Petitioner”), a registered Public Limited Company engaged in civil construction, successfully secured a contract for construction of building by participating in a tender floated by the Respondents. The contract was awarded on 03 May 2016, subject to the Military Engineer Services General Conditions of Contracts (IAFW-2249). After completing the tendered work, the Petitioner was not paid due amounts by the Respondents.

Consequently, a notice was sent by the Petitioner on 26 September 2023, for the settlement of dues. Despite receiving the notice, the Respondents did not come forward to settle the dues. Though it was agreed between the parties to appoint an Arbitrator from the list of approved panel of Arbitrators maintained by the Respondents, since it is against the provisions of the law and in order to have a fair and impartial adjudication of the disputes between the parties, the Petitioner filed this Arbitration Original Petition under Sections 11(5) and 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter “A&C Act”) seeking appointment of arbitrator.

Extract of Relevant Clauses

Clauses 70 and 71 of the General Conditions of the Contract, which read as under:-

70. Arbitration

All disputes, between the parties to the contract (other than those for which the decision of the CWE or any other person is by the Contract expressed to be final and binding) shall, after written notice by either party to the contract to the other of them, be referred to the sole arbitration of a Serving Officer having degree in Engineering or equivalent or having passed final/direct final Examination of sub division II of Institution of Surveyor (India) recognised by the Government of India to be appointed by the authority mentioned in the tender documents…….

71. Conciliator

If dispute (other than those for which the decision of the CWE or any person is by the contract expressed to be final and binding) of any kind whatsoever arises between the parties to the contract during the execution of the works, or after completion or after determination/ cancellation/ Termination of the contract, including any disagreement by either party with any action, inaction, opinion, instruction, certificate or valuation by the Accepting Officer or his nominee, the matter in dispute shall, in the first place be referred to the Disputes Resolution Board (DRB) in case of contracts valuing Rs.10 crore or more and to conciliation by a sole conciliator, in case of contracts valuing less than Rs.10 crores. In case of disagreement with the decision of such a DRB or Conciliator, any party may invoke an arbitration clause.

Issues

Whether an independent Arbitrator be appointed other than the Arbitrator as agreed by the parties in the contract?

Whether the appointed arbitrator must possess expertise in the specific field related to the dispute?

Petitioner’s Position

The Petitioner argued that appointing an Arbitrator from the panel approved and maintained by the Respondents would compromise the fairness and impartiality of the arbitration process. Since the impaneled Arbitrator is an employee of the Respondents, this could lead to potential bias or undue influence during the proceedings, raising justifiable doubts regarding the Arbitrator’s independence and impartiality.

Furthermore, the Petitioner contended that, under Clause 71 of the Contract, if value of contract is less than 10 crores, then sole conciliator is to be appointed, which is not applicable here as the contract value is more than 10 crore. While Clause 70 allows for appointing an Arbitrator from the Respondents’ approved panel, this contradicts the provisions of Section 12(5), Schedules 5 and Schedule 7 of the A&C Act as well as the Supreme Court’s ruling in Perkins Eastman Architects DPC v. HSCC (India) Ltd. Therefore, the Petitioner requested the appointment of an independent Arbitrator, not from the Respondents’ panel, to ensure fair and impartial adjudication.

Respondent’s Position

The Respondents contended that the Petition itself is not maintainable since the dues between the parties stand settled. Apart from that, based on Clauses 70 and 71 of the General Conditions of Contract (IAFW-2249), the Respondent asserted that the Sole Arbitrator must be appointed by the Engineer-in-Chief, in accordance with the contract terms.

Further, the Respondents submitted that since the Petitioner had already consented to the Arbitrators in the panel named in the contract, they cannot now object to the validity of the appointment in terms of the law and decisions of the Supreme Court. In any event, the Arbitrator from the agreed panel has to be appointed according to the terms of the contract.

The Respondents further submitted that the dispute at hand requires special knowledge in the construction field and, therefore appointment of a retired Judge as an independent Arbitrator would be inappropriate as such an arbitrator may not have expertise in the construction field for adjudication.

Decision and Reasoning

On Issue 1

It is a well-established principle that wherever a statute prescribes a particular manner for doing an act, it must be done in that very manner, and an action taken contravening the provisions of the law or the Supreme Court’s decisions should not be entertained. In this respect, Schedule 5 and Schedule 7 of the A&C Act set the basis for raising justifiable doubts about the independence or impartiality of arbitrators, particularly in connection with their relationships with the parties involved. Clause (1) of the Schedule 5 says that appointment of an employee as an Arbitrator, who has past or present business relationship with the party, to adjudicate the dispute between the parties, would give rise to justifiable doubts as to the independence or impartiality of such an Arbitrator. Furthermore, section 12(5) of the A&C Act states that a person is ineligible to act as an arbitrator if there is a relationship between the arbitrator with any party in an arbitration or counsel or the subject-matter of the dispute which is listed under Schedule 7 to A&C Act.

In the present case, the parties have accepted and agreed to a person being appointed as an arbitrator who is the employee of the Respondents. However, the condition in Clause 70 of the contract for the appointment of an employee of Respondents as an arbitrator directly conflicts with the Schedule 7 and Section 12(5) of the A&C Act and the law laid down by the Supreme Court. Thus, the said condition is not to be taken into consideration.

On Issue 2

The second issue that Respondent raised is that an Arbitrator should have expertise in the construction field. The Court in similar cases, which relate to the construction field, appointed independent persons to act as Sole Arbitrators to adjudicate the dispute between the parties. Even if expertise is required, it is for the Arbitrator to appoint a technical expert to assist the Arbitrator.

Therefore, the lack of technical expertise for an independent person to act as a Sole Arbitrator is not a ground for refusing to appoint a Sole Arbitrator other than the person from the panel of past employees of the Respondents.

Thus, the Court ordered the appointment of an independent person to act as a Sole Arbitrator to decide the dispute between the parties.

Author(s)

Nitin Pandey

Student at NLU, Vishakhapatnam