KMA CATERERS versus INDIAN RAILWAY CATERING AND TOURISM CORPORATION (IRCTC)KMA CATERERS

Neutral Citation Number: 2022/DHC/004522

Decided on: 31.10.2022

CORAM: Hon’ble Ms Justice Mini Pushkarna

Summary:

The current petitions [ARB.P. 765/2022-DEL HC] & [ARB.P. 766/2022, I.A. 16700/2022] have been filed for the appointment of a sole arbitrator under subsection 6 of Section 11 of the Arbitration and Conciliation Act, 1996. The appointment of an independent arbitrator was submitted to the court on the grounds that the arbitration clause’s unilateral appointment procedure violates the law laid down by the Supreme Court.

Case Timeline:

The petitioner in this case has been in the business of catering and operating food outlets/stalls across various railway stations in India. The respondent, on the other hand, is a Central Public Sector Enterprise under the Ministry of Railways, Govt, of India. It is a company registered under the Companies Act,1956 which provides the facilities of ticketing, catering, and tourism services to the Indian Railways.

At the Patliputra and Tata Nagar Railway Stations, the petitioner awarded the licences to establish and run food plazas. After disagreements between the parties, the petitioner invoked the arbitration clause and proposed a name for the appointment as sole arbitrator.

Issue Raised:

1. Whether the stipulation relates to the “seat” of arbitral proceedings or “venue” as the geographical location for conducting proceedings and whether the present court has the territorial jurisdiction to entertain the petition.
2. Whether the unilateral appointment procedure as envisaged in the arbitration clause is violative of the law laid down by the Supreme Court?

Contentions Raised

Appellant’s Arguments:

The learned Counsel for the Petitioner submitted that the Court has territorial jurisdiction to entertain the present petition. And further contended that the unilateral appointment procedure as envisaged in the arbitration clause was against the law laid down by the Supreme Court. 

Respondent’s Argument:

The learned Counsel for the Respondent vehemently opposed the contention of the Petitioner on the ground that the same is not maintainable before the Court due to lack of territorial jurisdiction. It is submitted that the arbitration clause in both matters itself specifies that the venue of arbitration shall be the place of Zonal Headquarters i.e., Patliputra and Tata Nagar.

It is further submitted that the respondent has its procedure for the appointment of arbitrators and its panel of arbitrators. Hence, it is contended that an arbitrator is to be appointed according to the terms of the procedure as envisaged in the arbitration clause between the parties and from the list of arbitrators maintained by the respondent.

Judgement& Observations Made:

The Delhi High Court granted a petition according to Section 11 of the Arbitration & Conciliation Act, 1996, and assigned a lone arbitrator after noting that the respondent was not permitted to select an arbitrator from its panel in accordance with the arbitration clause’s specified method.

Following Section 12(5) of the Act, Justice Mini Pushkarna stated that “Any person whose relationship with the parties, the counsel, or the subject matter of the dispute falls under the Seventh Schedule shall not be qualified to be appointed as an arbitrator.”

The Hon’ble Bench observed and take note of the arbitration clause in the present case which shows that the clauses mentioned do not specifically lay down which place shall be the juridical seat for the arbitration proceedings. All that the arbitration clause specifies is that venue of arbitration shall be the place of the Zonal Headquarters. The clause does not designate any juridical significance to the said Zonal Headquarters. The Hon’ble Bench, placing reliance on theSupreme Court in the case of Mankastu Impex Private Limited Vs AirVisual Limited, reported as (2020) 5 SCC 399 which held that “the seat of arbitration and venue of arbitration cannot be used interchangeably and the same is not allowed. The intention of the parties as to the seat to be determined from the clauses in the agreement and the conduct of the parties.” And considering the clauses of the Tender Document in ARB. P. 765/2022 and ARB. P. 766/2022 of the petition, the Hon’ble Bench clarifies that the disputes with respect to the licence, are primarily within the jurisdiction of the Headquarters in New Delhi. As such, the cause of action arises, either wholly or in part, in New Delhi in terms of Section 20 of the Code of Civil Procedure. And further observed that the Tender Document and the Master Licence Agreement give jurisdiction to Courts in Delhi concerning the award of the licence.

It is also noted by the Hon’ble Bench that the effective control in the institutional hierarchy vests with the Headquarters at the New Delhi office. And, all meaningful dealing concerning the contract is being done with the Headquarters at New Delhi. Thus, the designation of the Zonal Headquarters as the venue of arbitration is merely a suggestion as to the possible geographical location of the arbitration proceedings, and not to the juridical seat of the arbitration, which in this present petition is New Delhi.

In view of the aforesaid observation, The Hon’ble Bench held that the present petition is maintainable. The Bench concluded that as a result, the Courts in Delhi would qualify as “Court” for purposes of Section 2(1)(e) of the Arbitration and Conciliation Act, 1996, and would have territorial jurisdiction over the current petitions.

The Hon’ble Bench while observing the second argument put forth on behalf of the respondent regarding its right to select an arbitrator from its panel of arbitrators in accordance with the procedure outlined in the arbitration clause, the Hon’ble Bench observed that“The arbitration clause between the parties contemplates the unilateral appointment of an arbitrator by the respondent, which is impermissible under the law in light of the various judgments of the Hon’ble Supreme Court.”Thus, any unilateral appointment made by the respondent, regardless of anything stated in the arbitration clause will be de jure void ab initio. The Hon’ble Bench placed its reliance on Perkins Eastman Architects DPC & Anr. vs. HSCC (India) Ltd. and Janajal Yatri Gana Vs Indian Railway Tourism and Corporation, where it was categorically stated that “a person who has an interest in the outcome or decision or the subject matter in respect of dispute must not have the power to appoint an arbitrator”.

Furthermore, the Hon’ble bench observed that in light of the law after amendments made to the Act, a party cannot unilaterally appoint an arbitrator, regardless of anything stated in the arbitration clause and the respondent’s past or present employee would be ineligible to be appointed as an arbitrator. And noted that “Any person who is having a relationship or interest with the parties or the counsel or the subject matter of the dispute falls under the Seventh Schedule shall not be eligible to be appointed as arbitrator in light of Section 12(5) of the Act.” Thus, it is not permissible for the respondent to appoint an arbitrator in terms of the procedure as laid down in the arbitration clause in the present case from its panel, as the same would be in violation of the law as laid down by Supreme Court in various judgments.

Analysis:

Regarding the question of territorial jurisdiction, the Bench stated that the Zonal Headquarters’ designation as the arbitration venue was merely a suggestion as to the potential geographic location of the arbitration proceedings and not the arbitration’s legal seat. The Bench stated that an employee of the respondent or even a retired employee would not be qualified to be appointed as an arbitrator due to changes made to the Arbitration & Conciliation Act.It is undoubtedly evident from this case that the respondent was not permitted to choose an arbitrator from its panel following the arbitration clause’s procedure because doing so would have complete violation of the law after amended to the Act as well as the laws laid down by the Supreme court in a catena of cases.