Party Who Disagreed With A Mode Of Arbitration Appointment Cannot Be Forced To Accept It: Calcutta HC

The Calcutta High Court observed that a party who has disagreed with the mode of appointment of arbitrator cannot be forced to accept it.

The dispute arose during the construction of a foot-over bridge, due to disagreements over the price variation clause in the Notice Inviting Tender (NIT).

After sending notices and attempting conciliation, the petitioner invoked the arbitration clause. The Court allowed the application seeking the appointment of a sole arbitrator under Section 11 of the Arbitration Act and appointed Former Justice Ranjit Kumar Bag as sole arbitrator. 

The Bench of Justice Moushumi Bhattacharya observed, “the Act certainly does not envisage a situation where one of the parties, who has made it clear in no uncertain terms to disagree with the mode of appointment, being bodily-bundled, kicking and screaming, to arbitration in utter disregard to the lack of consent”.

Advocate Parth Tandon appeared for the Petitioner and Advocate Siddhartha Lahiri appeared for the Respondent.

The Petitioner sought the appointment of a sole arbitrator through an application under Section 11 of The Arbitration Act. The dispute arose from the construction of a foot-over bridge in Jharsuguda, Odisha, where issues regarding the price variation clause in the Notice Inviting Tender (NIT) led to disputes. The Petitioner, after sending multiple notices and attempting conciliation, invoked the arbitration clause. In response, the Respondent provided four names of proposed arbitrators under Clause 64(3)(b)(ii) of the Standard General Conditions of Contract (GCC).

The Court framed the issue: “Whether the parties are bound by Clause 64(3)(b)(ii) of the GCC with regard to the arbitration mechanism provided under the said clause?”

The Court noted that per Clause 64(3)(b)(ii) in cases exceeding Rs. 50 lakhs in value, the arbitral tribunal should comprise a panel of 3 retired Railway Officers, each not below the rank of senior administrative grade officers. The clause specifies that the Railway must furnish a panel of at least 4 names of retired Railway Officers to the contractor (petitioner) within 60 days of receiving a valid demand for arbitration from the General Manager.

The Bench observed that the Arbitration Act places a fundamental emphasis on the parties' consent at every stage of the arbitration process, ensuring unanimous agreement on various aspects, including the arbitration mechanism, conduct, and award content. The Act is designed for consensual dispute resolution through arbitration. The clause under scrutiny, which mandates the petitioner to select from a predetermined list, limiting their freedom of choice, is unilateral. The petitioner's lack of genuine consent and unrestricted choice is evident in the clause, particularly in Clause 64(3)(b)(ii) of the GCC.

The Bench reiterated the Supreme Court’s dictum in the case of Union of India v Tantia Constructions Limited [2021 SCC OnLine SC 271]. The Bench noted that an authority incapable of making a valid arbitration referral is automatically precluded from a valid appointment. Both the Supreme Court and High Courts consistently disapprove of unilateral appointments, deeming them incompatible with Section 12(5) of the Act in conjunction with the Fifth and Seventh Schedules.

The Court reaffirmed the likelihood of suspicion for the party in having to choose a single arbitrator from a list of five names provided by the other side. The Court emphasized the possibility that the opposing party might show favouritism toward specific individuals. As a result, the Court reiterated the formation of a broader and more diverse panel to address concerns related to partiality or the independence of the arbitrators.

The Court rejected the argument that the mechanism saved by Entry 31 of the Fifth Schedule, as other restrictions in the schedule regarding arbitrator relationships with the parties exist.

Accordingly, the Court allowed the application and appointed Former Justice Ranjit Kumar Bag as the sole arbitrator.

Cause Title: M/s. Mehrotra Buildcon Pvt. Ltd. v South Eastern Railway

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