Section 12 Of Arbitration Act As Amended By 2015 Amendment Applicable To Proceedings Initiated Before 2015 Amendment Act: Delhi Court

The Delhi Commercial Court Bench of Justice MR. SATYABRATA PANDA held that Section 12 of the A&C Act as amended by the 2015 Amendment Act would be applicable to arbitral proceedings initiated prior to coming into force of the 2015 Amendment Act as well.

Brief Facts

The petitioner has filed the present petition u/s. 34 of the Arbitration and Conciliation Act, 1996 challenging the arbitral award dated July 21, 2017 passed by the sole arbitrator Sh. Ashu Sharma.

The respondent had on March 4, 2013 floated tender for parking sites at Dwarka Sector-21 and Dwarka Sector-11 metro stations. Letter of acceptance (LOA) dated June 28, 2013 was issued by the respondent declaring the petitioner as the successful bidder. As per LOA, the period of tender was three years and license fee of Rs.5,00,000/- was payable monthly by the petitioner to the respondent.

Moreover, the area of parking sites handed over was also rendered unusable since there were trees, footpath and fire roads on both sides of the parking which were earmarked for quick ingress and egress of fire brigade vehicles. Various letters were written by the petitioner to the respondent in this regard but to no avail. Hence, disputes arose between the parties.

The petitioner issued letter dated June 3, 2014 invoking the arbitration clause and seeking resolution of the disputes.

Ultimately, the sole arbitrator passed the impugned award dated July 21, 2017 dismissing the claims of the petitioner and awarding claims to the respondent/counter claimant to the tune of Rs. 40,15,831/- along with interest @ 24% per annum.

Being aggrieved by the aforesaid award dated July 21, 2017, the petitioner has now preferred the present challenge u/s. 34 of the Arbitration Act.

Contentions

The petitioner submitted that in the present case, admittedly, the sole arbitrator Sh. Ashu Sharma, who was a serving employee of the respondent being the Senior General Manager/Financial of the respondent, was unilaterally appointed as arbitrator by the respondent. It was further submitted that this unilateral appointment of the arbitrator was directly hit by Section 12(5) read with Schedule VII of the A&C Act as inserted by the Arbitration and Conciliation (Amendment) Act, 2015 ('2015 Amendment Act') and that as such, the award was liable to be set aside.

It relied on judgment of the Hon'ble Supreme Court in Ellora Papers Mills Limited Vs. State of Madhya Pradesh (2022) wherein it was held that Section 12 of the A&C Act as amended by the 2015 Amendment Act would be applicable to arbitral proceedings initiated prior to coming into force of the 2015 Amendment Act as well.

It was further submitted that the principles of natural justice dictated that a party ought not to be a judge in its own case. It is submitted that in the present case, the arbitrator was a serving employee of the respondent corporation and was unilaterally appointed by the respondent, and as such, there was violation of this basic principle of natural justice.

Per contra, the respondent submitted that Section 12(5) and Schedule VII of the A&C Act which were introduced vide the 2015 Amendment Act with effect from 23.10.2015 would not apply to the present case, since the arbitration proceedings in the present case had already commenced and were pending when the 2015 Amendment Act came into effect on 23.10.2015.

They relied on the Calcutta High Court judgment in West Bengal Housing Board Vs. Abhishek Construction (2023) wherein it was held that the 2015 Amendment Act would not apply to arbitral proceedings which had commenced prior to the coming into force of the 2015 Amendment Act.

It was further submitted that Section 26 of the 2015 Amendment Act was very clear to the effect that the 2015 Amendment Act would not apply to arbitral proceedings which had commenced prior to the commencement of the 2015 Amendment Act i.e. on 23.10.2015, unless the parties otherwise agreed. They relied on the Supreme Court judgment in BCCI Vs. Kochi Cricket Private Limited.

Court's Analysis

The court at the outset addressed the contention pertaining to applicability of the 2015 amendment to the present case and observed that there is no dispute that in case Section 12(5) read with Schedule VII of the A&C Act is to apply in the present case, then the arbitral award would certainly be unsustainable given the nature of relationship between the arbitrator and the respondent. However, the dispute is whether Section 12(5) read with Schedule VII would apply to the present case.

The court further referred to section 26 of the same Amendment Act and observed that a perusal of Section 26 of the 2015 Amendment Act clearly shows that even in cases of arbitration proceedings commenced prior to the commencement of 2015 Amendment Act, the 2015 Amendment Act would apply in case the parties agreed to the same.

The court further closely analysed the words used in the arbitration clause and observed that importantly, the parties have agreed that the arbitration proceedings would be governed by the A&C Act “as amended from time to time” “including” the provisions in force at the time when reference is made. The use of the word “including” is most crucial.

The use of the word “including” clearly shows that the parties had agreed that all amendments to the A&C Act till the time of passing of the award would govern the arbitration proceedings, and this would also “include” the provisions in force at the time of the reference of the dispute to arbitration.

Based on the above, the court held that the parties had clearly agreed that the arbitration proceedings would be governed by the A&C Act and that all future amendments to the A&C Act would apply. Hence, clearly, the 2015 Amendment Act would apply in the present case by virtue of the agreement of the parties.

The court further observed that the arbitrator in the present case was clearly ineligible to act as arbitrator and the award is unsustainable and is liable to be set aside.

The court further rejected the contention of the respondent on the Delhi High Court judgment in OM 360 Degrees Advertisement and Entertainment Private Limited Vs. Delhi Metro Rail Corporation Limited (2023) and observed that the Hon'ble High Court of Delhi has in OM 360 Degrees (supra) specifically noted the decision of the Hon'ble Supreme Court in Ellora Paper Mills Limited (supra) and has interpreted the said decision to observe that the said decision holds that Section 12 of the A&C Act, as amended by the 2015 Amendment Act, would be equally applicable to arbitral proceedings initiated prior to the coming into force of the 2015 Amendment Act. This Court is bound by this interpretation.

Accordingly, the petition under section 34 of the A&C Act was allowed and the impugned award dated was set aside.

Case Title: Sh. Pankaj Vs. Delhi Metro Rail Corporation Ltd.

Case Reference: ARBTN No.7418/17

Judgment Date: 23/10/2024

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