Application For Removal Of Arbitrator Must Be Made Before Same ‘Court’ As Envisaged In s.2 (i) (e) & s.42 Of Arbitration Act: Calcutta High Court

The Calcutta High Court recently dismissed an application filed by M/S Gammon Engineers and Contractors Private Limited (“petitioners”) u/s 11(6), 14 and 15 of the Arbitration and Conciliation Act, 1996 (‘Act’), for removal of arbitrator while challenging their unilateral appointment.

In dismissing the application, a single-bench of Justice Shekhar B Saraf held that a challenge for withdrawal/removal of arbitrator would not be maintainable before the High Court, since an earlier Section 9 application for interim relief had been filed before the Jalpaiguri District court.

In directing the petitioner to approach the District Judge at Jalpaiguri, due to the bar under Section 42 of the Act, the Bench held:

The understanding of ‘court’ under Section 42 is indisputably in terms of Section 2(1)(e) of the Act. The application under Section 9 is also made to a ‘court’ as understood under Section 2(1)(e) of the Act. Once such an application to a ‘court’ as understood under Section 2(1)(e) of the Act is made, all further applications under Part I to a ‘court’ must be to the ‘court’ to which the prior application has been made. This is the mandate of Section 42 of the Act. Therefore, it is palpably clear that the ‘court’ to be approached under Section 14(1)(a) for termination of an arbitrator’s mandate, for de jure or de facto reasons, is the ‘court’ under Section 2(1)(e). Therefore, the bar under Section 42 would lie and all applications to be made to a ‘court’ must be made to the District Judge at Jalpaiguri. In light of the above, A.P. 785 of 2022 is disposed of for not being maintainable before the High Court at this stage.

The dispute arose when the petitioners filed the present application, challenging the unilateral appointment of an arbitrator by the State-respondent, in alleged violation of Clause 25 of the ‘General Conditions of Contract (“Contract”).

It was submitted that in 2011, the respondent had offered bids for an e-tender for construction of the ‘Teesta Jaldhaka Main Canal’, and that in 2012 the petitioner’s bid was accepted by the respondent. A letter of acceptance for the same was issued, pursuant to which the respondent undertook the work and vouched to complete it by May 2014.

Petitioners submitted that they had expressed their concerns in writing in 2014, when the respondent was unable to complete the work, but the same was met with threats of legal action and thereafter the respondents terminated the contract on 1st August 2014.

Upon termination, it was submitted that the respondents invoked seven bank guarantees, which had been furnished by the petitioners.

The petitioners argued that they had submitted their final statement of accounts with dues of approx. Rs 50 lakhs owed ro them by the respondents, but the same was refused in December 2014, which led to the arbitral proceedings.

Petitioners argued that they had proposed names of retired judges for an arbitral tribunal to be constituted with three members, but the State-respondents on the other hand unilaterally appointed a former employee of the State-government as the sole-arbitrator.

Petitioners submitted that the aforesaid Clause 25 of the Contract gave specific authority to the Chief Engineer of the Department to be the sole arbitrator, and that there was no sanction under which the Chief Engineer could appoint someone else, as had been done in the present case.

It was further argued that Clause 25 did not empower the chief engineer to appoint a person who may have a likelihood of bias in favour of the State, and that the petitioners had not given their written consent to legitimise the appointment of the sole arbitrator, as required under Section 12(5) of the Act.

Petitioners argued that the arbitral proceedings continued for 8 years from 2014, and that the ‘unreasonable’ extension of such proceedings caused great prejudice to the petitioners and that the, “the arbitrator, being biased to the respondents, for all practical purposes, denied justice to the petitioner, which is against the principles envisaged by the UNCITRAL model.”

Petitioners finally argued that although the sole-arbitrator has been formally employed by the State, he had failed to disclose his bias as required u/s 12(1) of the Act, thereby concealing a material fact regarding his ineligibility to preside over the proceedings.

On the other hand, the respondent-State submitted that the petitioners had not raised any objections to the appointment of the sole-arbitrator at any point during the proceedings.

It was submitted that although the arbitrator was a former state-employee, he had nothing to do with the subject matter of the present dispute, which would’ve made him ineligible to perform as an arbitrator.

The respondents argued that unilateral appointment and proscription under Section 12(5) as plead by the petitioners would be inapplicable to arbitrations such as the present one, which had commenced prior to the 2015 Amendment to the Act.

Respondents pointed out that the present application would not be maintainable, since the petitioners had earlier filed a Section 9 application before the Jalpaiguri District Judge, and due to the bar u/s 42 of the Act, they would have to approach the same court for the present issue as well.

Upon hearing the argument of both sides, the Court held that due to the Section 9 application having being field before the District Judge, the petitioners would be barred under Section 42 of the Act, from filing any further applications before any court other than the one where they had filed the Section 9 application.

In holding an elaborate discussion on Section 14 and 15 of the Act, the Court dismissed the application as not maintainable before the High Court, and concluded:

An application under Section 14(1)(a) for termination of an arbitrator’s mandate, being required to be made before a ‘court’ as under Section 2(1)(e) and 42 of the Act, has to presented before the District Judge at Jalpaiguri. I make it clear that the findings with regard to merits of the case in the preceding paragraphs are tentative in nature and the appropriate court shall decide the Section 14 application in accordance with law.

Case: M/S. Gammon Engineers And Contractors Pvt. Ltd. V The State Of West Bengal

Coram: Justice Shekhar B. Saraf

Citation: 2023 LiveLaw (Cal) 223

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