Need For Broad Panel To Choose From To Ensure Arbitrator's Independence As Per Clause 64 of GCC: Delhi High Court

Brief Facts:

The disputes arose from a tender awarded to Braithwaite Burn and Jessop Construction Co Ltd. (“Petitioner”) by Northern Railway (“Respondent”) for the construction of a four-lane road over a bridge. Clause 64 of the applicable General Conditions of Contract (“GCC”) included an arbitration agreement between the parties. The Petitioner raised its claim before the General Manager/Northern Railway, but it remained unsettled. Subsequently, the Respondent requested the Petitioner to submit its claim as per Annexure XII of the GCC for arbitration. The Petitioner invoked the arbitration clause seeking the appointment of an independent sole arbitrator. However, the Respondent constituted an Arbitral Tribunal and referred only two out of six claims for arbitration.

The Petitioner objected to the exclusion of its four claims and requested their inclusion in the arbitration. However, the Respondent did not comply. The Respondent stated that certain claims were not referable to arbitration as they fell under excepted matters per the contract provisions and applicable GCC. The Petitioner protested before the Arbitral Tribunal regarding the exclusion of its claims and raised doubts about the neutrality and impartiality of the Tribunal. Despite these objections, the Tribunal rejected the Petitioner's application. Consequently, the Petitioner filed an application under Section 14 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) before the Delhi High Court (“High Court”) seeking termination of the arbitrators' mandate, alleging their bias due to their former employment with the Respondent. The High Court rejected the application.

After the expiry of the arbitrator's mandate, in the course of the arbitration, the Respondent requested the Petitioner to fill up the format of Annexure XV of modified GCC for reconstitution of the Arbitral Tribunal. The Respondent provided the Petitioner with a panel of four names, requesting the selection of two for the nomination of one arbitrator. Subsequently, the Petitioner filed applications under Sections 14 and 15 of the Arbitration Act in the High Court.

The Respondent opposed the petition, arguing that the appointment procedure prescribed in clause 64 of the GCC was valid. It contended that the Respondent has the power to reconstitute the Arbitral Tribunal as per the GCC. Additionally, it argued that the General Manager has the authority to notify arbitration claims, and the Petitioner's additional claims cannot be referred to arbitration according to clause 63 of the GCC.

Observations by the High Court:

The High Court referred to the decision in Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn. Ltd. [(2017) 4 SCC 665], where the Supreme Court highlighted concerns regarding the procedure for constituting the Arbitral Tribunal, particularly the limited choice afforded to the parties in selecting arbitrators. The High Court emphasized the importance of a broad-based panel of arbitrators to ensure impartiality and independence throughout the arbitration process.

The High Court held that the panel provided by the Respondent, consisting solely of four retired Railway Officers, was certainly not broad-based. The High Court held that this contradicted the principles established in Voestalpine and undermined the validity of the appointment procedure prescribed in Clause 64 of the GCC. The High Court held that the procedure proposed by the Respondent for appointing a sole arbitrator was not in accordance with the law. Instead, the High Court affirmed that there was no impediment in appointing an independent sole arbitrator to adjudicate the disputes between the parties.

Furthermore, the High Court rejected the contention of the Respondent that the remaining claims of the Petitioner couldn't be referred to arbitration. Under the GCC clause 63, the High Court noted that it was the responsibility of the General Manager to render a decision on all matters referred to it by the Petitioner within 120 days. However, there was no record to suggest that a decision was made by the General Manager regarding any of the claims falling under "excepted matters." Therefore, the High Court held that in the absence of a decision under Clause 63, the bar under the same clause would not apply. This means that all matters related to the clauses mentioned in Clause 63 would be treated as "excepted matters" only if a decision is taken by the Railways.

Consequently, the High Court appointed Justice (Retd.) Deepa Sharma, Former Judge of Delhi High Court, as the Sole Arbitrator to adjudicate the disputes between the parties.

Case Title: The Braithwaite Burn and Jessop Construction Co Ltd vs Northern Railway

Citation: 2024 LiveLaw (Del) 151

Case Number: O.M.P. (T) (COMM.) 73/2022

Advocate for the Petitioner: Mr. Pinaki Addy, Adv. (through VC) and Ms Neetu Singh, Adv.

Advocate for the Respondent: Mr Mukul Singh, CGSC along with Ms Ira Singh, Adv.

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