Citation Codes: (2017) 4 Supreme Court Cases 665; (2017) 2 Supreme Court Cases (Civ) 607; 2017 SCC OnLine SC 172
Date of Judgment: 10 February 2017
Court: Supreme Court of India
Judges: Justice A.K. Sikri & Justice R.K. Agrawal
Facts of the case
The Respondent, Delhi Metro Rail Corporation Ltd. (‘DMRC’), had awarded a tender for procurement of 8000 Metric Tons (MT) of Head Hardened Rails (HHRs) to the Petitioner, Voestalpine Schienen GmbH (‘Voestalpine’). Voestalpine contended that the same had been duly delivered in three successive deliveries to the Bombay Port, but there were subsequent delays vis-à-vis delivery from Bombay to DMRC depots in Delhi, which DMRC construed to be default on part of Voestalpine, even as the latter demurred.
With the imposition of liquidated damages by DMRC, there arose a dispute regarding the encashment of bank guarantees for the same. After failure of attempts to amicably resolve this dispute, Voestalpine invoked the arbitration clause. Taking into account the quantum of claims and counterclaims, there thus arose the constitution of a three-arbitrator tribunal. Furthermore, in accordance with the contractual terms and agreed-upon procedure, DMRC was to create a panel of serving or retired engineers of government departments or public sector undertakings, from which five would be narrowed down by DMRC, and this would be followed by the selection of one arbitrator each from such a list by either party, with the two arbitrators so selected in turn choosing a third from the list. DMRC supplied a list of five arbitrators, all of them were former employees of Indian Railway Services of Engineers [IRSE].
Voestalpine asserted that such a procedure would involve appointment of ‘ineligible persons’ as discernible from a combined reading of Section 12(5) and Schedule 7, Entry 1 of the Arbitration and Conciliation Act, and nominated a retired judge as sole arbitrator; DMRC instead stuck to procedure, asking Voestalpine to choose an arbitrator from the list of five. Consequently, Voestalpine filed a petition seeking the abovementioned retired judge be appointed as sole arbitrator, or an independent and impartial three-member arbitral tribunal under Section 11(6) read with Section 11(8).
Issue involved in the case
Whether the arbitral tribunal insisted upon by DMRC is in contravention with Section 12(5) of the Arbitration and Conciliation Act, 1996?
Arguments Raised
Petitioner argued that the tribunal being constituted by ‘serving or retired engineers of Government departments or public sector undertaking’ was in contravention to the spirit and substance of Section 12(5) read with Entry 1 of Seventh schedule, due to likelihood of bias. The petitioner argued that to maintain impartiality, those with ties to the government—even if they are not directly employed by the respondent (DMRC)—should not be permitted to serve as arbitrators.
Respondents argued that they had forwarded a fresh list, a panel consisting of a far greater number of arbitrators, with most of them being detached from the railways and instead being ex-officers at other bodies like Delhi Development Authority (DDA) and CWPD. Further, a person should not be barred from serving as arbitrator due to prior employment in other governmental bodies. They also argued that that it was necessary to have retired engineers on the arbitration panel to help settle disputes due to technicalities involved in the dispute.
Judgment & Reasoning
Highlighting the fact that none of the individuals empaneled in the list forwarded by Respondents were hit by Schedules 5 or 7 of the Arbitration and Conciliation Act, the court held that bias or likelihood of bias cannot be imputed to such professionals in the manner Voestalpine proposed; being a retired officer who was employed by the government would not disqualify such individuals when they had no connection with DMRC, the party in dispute. The court stressed that taking such an interpretation would make every person ineligible to be appointed as arbitrator, due to prior employment in PSU or governmental body.
The schedules 5 and 7 contains a comprehensive list and if the intention of the legislature was to bar such persons from acting as arbitrator, it would have been explicitly mentioned in the schedules.
However, the court criticized the dispute resolution clause providing restricted options available to the Voestalpine when choosing an arbitrator [only out of 5 members] and the DMRC’s latitude in selecting those 5 members. Therefore, the court deleted those provisions allowing the parties to choose any person from the entire panel of arbitrators. Similarly, the two arbitrators nominated by the parties would have the freedom to select the third arbitrator from the whole panel.
The court also questioned the limitation of the panel to serving or retired engineers from government departments or public sector undertakings. To instill confidence in the other party and align with the amended provision’s spirit, it was suggested that the panel be broadened. This should include prominent engineers from the private sector, judges and lawyers of repute, and individuals with expertise in accountancy and other relevant fields, as disputes may involve complex legal or financial issues beyond technical matters.
Reiterating the wide choice that had been offered to Voestalpine through the 31-person list, the Court elected not to appoint and constitute the arbitral tribunal.
Author(s)
Advait Arunav
Student at NLU, Delhi
Alika Priya
Student at KIIT School of Law