Case Note & Summary
The Supreme Court considered an application under Section 11(6) read with Section 11(12)(a) of the Arbitration and Conciliation Act, 1996, and the Appointment of Arbitrators by the Chief Justice of India Scheme, 1996, filed by Perkins Eastman Architects DPC and Edifice Consultants Private Limited (the applicants) against HSCC (India) Ltd. (the respondent). The dispute arose from a contract dated 22 May 2017 for comprehensive architectural planning and designing for the proposed All India Institute of Medical Sciences at Guntur, Andhra Pradesh, under the Pradhan Mantri Swasthya Suraksha Yojna (PMSSY). The contract contained Clause 24 for dispute resolution, which provided for a multi-tiered mechanism culminating in arbitration by a sole arbitrator appointed by the Chairman and Managing Director (CMD) of the respondent. The applicants alleged that the respondent failed to cooperate, issued a stop work notice on 3 November 2017, and terminated the contract on 20 February 2019. The applicants invoked Clause 24 on 11 April 2019, raising a claim of Rs.20.95 crores. After the respondent's failure to respond within the stipulated time, the applicants appealed to the Director (Engineering) and then requested the CMD to appoint an arbitrator on 28 June 2019. The CMD did not appoint an arbitrator within 30 days, but on 30 July 2019, the Chief General Manager (CGM) of the respondent appointed Major General K.T. Gajria as the sole arbitrator. The applicants challenged this appointment, arguing that the CGM was not the competent authority, the appointment was beyond the prescribed period, and the process lacked impartiality. The respondent contended that the appointment was valid and that the arbitration was not an international commercial arbitration. The Supreme Court, relying on the decisions in Walter Bau AG v. Municipal Corporation of Greater Mumbai and TRF Limited v. Energo Engineering Projects Limited, held that the appointment process under Clause 24 was invalid because the CMD, being an employee of the respondent, could not act as an arbitrator and thus could not appoint one. The Court appointed Justice (Retd.) A.K. Sikri as the sole arbitrator to adjudicate the disputes, with the arbitration to be conducted under the aegis of the Delhi International Arbitration Centre (DIAC). The Court did not decide on the issue of international commercial arbitration.
Headnote
A) Arbitration Law - Appointment of Arbitrator - Section 11(6) read with Section 11(12)(a) of the Arbitration and Conciliation Act, 1996 - Clause 24 of Contract - The dispute arose from a contract for architectural planning and designing for AIIMS Guntur. The applicants invoked arbitration, but the respondent's CMD failed to appoint an arbitrator within 30 days; later, the CGM appointed Major General K.T. Gajria. The Supreme Court held that the appointment process under Clause 24, which gives sole discretion to the CMD, is invalid as it lacks impartiality. The Court appointed Justice (Retd.) A.K. Sikri as the sole arbitrator. (Paras 1-10) B) Arbitration Law - International Commercial Arbitration - Section 2(1)(f) of the Arbitration and Conciliation Act, 1996 - The respondent argued that the arbitration is not international commercial arbitration. The Court did not decide this issue as it appointed an independent arbitrator. (Para 4) C) Arbitration Law - Precedent - TRF Limited v. Energo Engineering Projects Limited, (2017) 8 SCC 377 - The Court relied on this decision to hold that a person who is ineligible to act as an arbitrator cannot appoint an arbitrator. The CMD, being an employee of the respondent, is ineligible to act as arbitrator, and thus cannot appoint one. (Para 8)
Issue of Consideration
Whether the appointment of a sole arbitrator by the Chairman and Managing Director of the respondent under Clause 24 of the contract is valid and impartial, and whether this Court should appoint an independent arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.
Final Decision
The Supreme Court allowed the application, set aside the appointment of Major General K.T. Gajria, and appointed Justice (Retd.) A.K. Sikri as the sole arbitrator to adjudicate the disputes between the parties. The arbitration shall be conducted under the aegis of the Delhi International Arbitration Centre (DIAC).
Law Points
- Section 11(6) read with Section 11(12)(a) of the Arbitration and Conciliation Act
- 1996
- Appointment of Arbitrators by the Chief Justice of India Scheme
- Clause 24 of Contract dated 22.05.2017
- International Commercial Arbitration under Section 2(1)(f) of the Act
