Case Note & Summary
The petitioner, RPN Engineers Chennai Private Limited, was awarded a contract by the respondents (Integral Coach Factory, Chennai) vide Letter of Acceptance dated 17.11.2017. The agreement was executed on 08.02.2018, requiring completion within nine months. The contract period was extended, and the petitioner claimed they executed additional works beyond the original scope, completing the work on 13.03.2021 to the tune of Rs.4,14,54,212/- against the agreement value of Rs.3,21,24,118/-. Disputes arose over outstanding payments and non-issuance of work completion certificate. The petitioner invoked arbitration on 08.06.2021, expressly stating they were not waiving their rights under Section 12(5) of the Arbitration and Conciliation Act, 1996. The respondents appointed a three-member Arbitral Tribunal without obtaining the petitioner's waiver. The petitioner made 18 claims totaling Rs.2,43,37,981/-, while the respondents made a counterclaim of Rs.20,16,485/-. The Arbitral Tribunal partly allowed the petitioner's claim to the tune of Rs.5,29,277/- and rejected the counterclaim. Aggrieved, the petitioner filed the present petition under Section 34 of the Act. During final hearing, the petitioner raised a preliminary objection that the Arbitral Tribunal was improperly constituted as they had not waived their rights under Section 12(5). The court, after hearing arguments, found that the tribunal was indeed improperly constituted and set aside the award. However, instead of leaving the parties without remedy, the court exercised its power under Section 34(4) to remit the matter to a properly constituted arbitral tribunal for fresh adjudication, directing that the new tribunal shall not be influenced by the earlier award and shall decide the matter afresh.
Headnote
A) Arbitration Law - Constitution of Arbitral Tribunal - Section 12(5) read with Seventh Schedule of the Arbitration and Conciliation Act, 1996 - Waiver - The petitioner expressly refused to waive their rights under Section 12(5) in letters dated 08.06.2021 and 24.07.2021, yet the respondents appointed a three-member tribunal without obtaining waiver. The court held that the tribunal was improperly constituted and the award is liable to be set aside. (Paras 8-10) B) Arbitration Law - Remand under Section 34(4) - Section 34(4) of the Arbitration and Conciliation Act, 1996 - The court, instead of setting aside the award entirely, exercised its power under Section 34(4) to remit the matter to a properly constituted arbitral tribunal for fresh adjudication, as the defect was curable. (Para 10) C) Arbitration Law - Preliminary Objection - Section 34 of the Arbitration and Conciliation Act, 1996 - The court allowed the petitioner to raise a preliminary objection regarding the constitution of the tribunal even at the stage of hearing under Section 34, as the issue went to the root of the tribunal's jurisdiction. (Para 8)
Issue of Consideration
Whether the Arbitral Tribunal was properly constituted in light of the petitioner's express refusal to waive their rights under Section 12(5) of the Arbitration and Conciliation Act, 1996, and if the award passed by such tribunal is liable to be set aside.
Final Decision
The court allowed the petition in part, set aside the arbitral award dated 26.02.2022, and remitted the matter to a properly constituted arbitral tribunal for fresh adjudication under Section 34(4) of the Arbitration and Conciliation Act, 1996. The new tribunal shall not be influenced by the earlier award and shall decide the matter afresh.
Law Points
- Section 12(5) of the Arbitration and Conciliation Act
- 1996
- bars persons ineligible from being appointed as arbitrators
- waiver under Section 12(5) must be express and unambiguous
- an improperly constituted tribunal renders the award liable to be set aside under Section 34
- the court can remit the matter for fresh arbitration under Section 34(4) of the Act.
