GANGOTRI ENTERPRISES LTD. Versus GENERAL MANAGER NORTHERN RAILWAYS

[Neutral Citation Number:2022/DHC/004520]

CORAM: HON'BLE MS. JUSTICE MINI PUSHKARNA

JUDGEMENT DATE:31.10.2022

• Summary: The parties entered into Contract Agreements on different dates for execution of various works as awarded to the petitioner by the respondent. The process of invocation and appointment of Arbitral Tribunal in all the four cases is provided under Clauses 63 and 64 of the General Conditions of Contract (GCC). Clause 63 of GCC provides for settlement of disputes by referring the disputes to GM, Railways, who has to decide the same within 120 days of receipt of the same. This process is required to be followed before appointment of any Arbitral Tribunal. Clause 64 provides for the process of appointment of arbitrator.

Respondent claims that Clause 64 of GCC has been modified vide respondent’s letter dated 11.11.2016 and that the petitioner was required to provide waiver of Clause 12 (5) of the Act. Thus, in terms of clause 63 of GCC, petitioner referred and raised the disputes in its communication dated 24.08.2019 addressed to the General Manager, Northern Railways respectively in all the matters.

• Case Timeline: Reserved on : 14.10.2022 - Decided on: 31.10.2022

• Issue Raised:

Issue I – Whether the current petitions filed under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred as ‘Act’) is maintainable?

Issue II - Whether Respondent can unilaterally propose a panel of four names and sought the petitioner’s choice of its nominee out of the said proposed four names without invocation of Clause 64 by petitioner?

• Appellant’s Arguments:

Contention I – As contended by the petitioner, respondent was obligated to provide the decision on the claims raised by the petitioner in accordance with Clause 63 of the GCC, and the stage for establishing a panel, if allowed, would have only come upon invoking Clause 64 of the GCC. As a result, the petitioner raised disputes under Clause 64 that would be referred to arbitration.

Contention II – The petitioner contends that the respondent's general manager is ineligible to appoint the petitioner's nominee arbitrator because he has an interest in the arbitration's outcome. Furthermore, under the wording of revised Section 12(5) read in conjunction with the Act's Seventh Schedule, the individuals recommended for appointment as arbitrators pursuant to Clause 64(3)(a)(2) of the GCC are disqualified for appointment. It is further claimed that the petitioner is unwilling to waive Section 12(5) of the Act as requested by the respondent's office.

• Respondent’s Arguments:

Contention I - It is argued that in circumstances where Section 12(5) of the Act is relevant and has not been waived, Railways must follow the procedure for arbitrator appointment set forth in Section 64 (3)(b) of the GCC. It is argued that under GCC Clause 64 (1) (ii), the petitioner can, at best, request that a disagreement be resolved by arbitration but cannot nominate the arbitrator.

Contention II - The learned counsel for the respondent argued that the Supreme Court held in “Voestalpine Schienen GMBH vs. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665”[1] that the fact that arbitrators chosen by Delhi Metro Rail Corporation ('DMRC') are current or former government employees does not make them illegible to act as arbitrators of DMRC. The learned counsel argued that in a case with the same facts and the same clauses, the Supreme Court had upheld the same.

• Judgement:

In the present cases, it is seen that the panel of arbitrators as sent by the respondent contained only four names, which cannot be considered to be broad-based by any extent of the imagination. Thus, the said panel as given by the respondent does not satisfy the concept of neutrality of arbitrators as held by Supreme Court in the case of Voestalpine Schienen GMBH (supra)[2].  In view thereof, it is held that the petitioner herein was within its right to nominate its Arbitrator.

It is decided that the current petitions filed under Section 11 of the Act are maintainable and that there is no impediment in appointment of a nominee Arbitrator on behalf of respondent.  In light of this, Hon'ble Ms. Justice Mini Pushkarna nominates Justice (Retd.) Indira Banerjee, a former Supreme Court judge. A Presiding Arbitrator will be chosen by the two experienced arbitrators in the relevant cases.

• Analysis:As correctly held and observed by Hon'ble Ms. Justice Mini Pushkarnathat the said panel as given by the respondent does not satisfy the concept of neutrality of arbitrators as held by Supreme Court in the case of Voestalpine Schienen GMBH (supra)[3] and further held by the court in the case of “SMS Limited vs. Rail Vikas Nigam Ltd., reported as 2020 SCC Online Del 77[4],” while setting aside the appointment procedure the court observed that the panel was not broad based as it majorly comprised of retired or serving employees of respondent thereby creating a reasonable apprehension of bias and partiality in the delivery of justice.

[1]Voestalpine Schienen GMBH vs. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665

[2]Id at 1.

[3]Id.

[4]SMS Limited vs. Rail Vikas Nigam Ltd., reported as 2020 SCC Online Del 77