ANALYSIS OF — CENTRAL ORGANISATION FOR RAILWAY ELECTRIFICATION v. M/S ECI-SPIC-SMO-MCML (JV) A JOINT VENTURE COMPANY
CIVIL APPEAL NOS. 9486-9487 OF 2019
Background Of The Case
On 29 March 2019, Allahabad High Court passed an order appointing a sole arbitrator outside the scope of appointing an arbitrator as per arbitration agreement, aggrieved by the order Central Organisation For Railway Electrification (COFRE) filed a Special Leave Petition (SLP) before the Supreme Court. The issue that arose before the court was that the application filed under section 11 of the Arbitration and Conciliation Act 1996 in regards to the appointment of an arbitrator, in that, is the court can appoint an arbitrator outside the scope of the procedure prescribed in the arbitration agreement or the court have to follow the procedure for appointing an arbitrator as per the procedure set out in arbitration agreement.
Facts Of The Case
Central Organisation For Railway Electrification (COFRE) terminated the contract with ECI as ECI failed to complete its work within the prescribed period as per the contract between them.
ECI challenge the termination of the contract while filing a petition (Petition 1). Before that High Court, High Court, in the order of this petition, directed ECI to go for an alternative by resolving their differences by invoking an arbitration clause with which the court dismissed the petition.
ECI invoked arbitration as per General Conditions of Contract (GCC), requested the same to COFRE. On ECI request, COFRE sent a list of railways electrification officers (JA grade) to set out the arbitral tribunal and asked ECI to select any 2 out of 4 from the list. After that, COFRE sent a second list consisting of four retired railway officers. However, ECI did not give any response on that list and filed a petition (Petition 2) under section 11 of the arbitration and conciliation act, in which it sought appointment of an arbitrator from the High Court in which ECI stated that as no neutral arbitrator can be appointed as per GCC, it has no other option except applying section 11(6) of the act.
COFRE in this petition argued that arbitrator is only appointed from a panel of arbitrators as per the GCC, but this argument of COFRE was rejected by the High Court, Proceeded with the appointment of a sole arbitrator, i.e., the retired judge of a High court and ordered the same on 29 March 2019. COFRE, aggrieved by order of the High Court, filed a special leave petition challenging the appointment of a sole arbitrator.
Contention Given During Appeal
ECI stated that the lists sent by COFRE violated section 12 (5) with schedule VII of the Arbitration and Conciliation Act. On the counter, COFRE argued that the appointment of arbitrators is governed by the GCC’s clause 64(3) (a) (i) and 64 (3) (a) (ii) and as per these clause section 12 (5) of the act have been waived off, so arbitral tribunal should consist of either Two serving officers and one retired officer or three serving railway officers, further COFRE stated that in clause 64 (3) (b) of the GCC applicability of section 12 (5) had not been waived off. COFRE argue that when an arbitration agreement expressly provides a procedure for the appointment of an arbitrator, then the appointment of the arbitrator should be made according to that procedure only, so the appointment of a sole arbitrator by the High Court intervenes GCC, which governs the procedure of appointment of the arbitrator and the same was stated, in Union of India versus Parmar construction company, 2019 SCC OnLine and union of India versus Pradeep Vinod construction, 2019 SCC OnLine SC 1467.
Supreme Court, following the precedents of Parmar construction company and Pradeep Vinod construction, stated that the procedure for the appointment of an arbitrator is governed in GCC. Therefore, the High Court's appointment of a sole arbitrator is not justified without proceeding with the procedure prescribed in GCC.
Referring to Voestapline Schinen Gmbh versus Delhi Metro Rail Corporation Limited, (2017) 4 SCC 665, Supreme Court stated that the mere fact that the arbitrators’ panel is the retired employees of any of the party it doesn’t make them ineligible to be an arbitrator in the dispute in support of this court said performing as an arbitrator being a retired employee ensues understanding the technical aspects of the dispute and resolving it suitably.
The court observed that sending the list of arbitrators for the panel selected by the COFRE was following GCC only. Nevertheless, ECI was the one who didn’t respond to the list, so ECI cannot argue that the appointment of an arbitrator was not made before the filing of petition 2. Hence the COFRE right to constitute an arbitral tribunal was not extinguished in filing petition 2.
While setting aside the High Court decision, Supreme Court directed COFRE to set and send a new list of four retired officers according to the terms of clause 64 (3) (b) of the GCC and asked the parties to establish an arbitral tribunal as per GCC terms.
In this case, Supreme Court gave weightage to the party autonomy in arbitration and reiterated that courts should adhere to the procedure prescribed in the arbitration agreement for the appointment of an arbitrator.
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