LOMBARDI ENGINEERING LIMITED     [PETITIONER(S)]  Vs. UTTARAKHAND JAL VIDYUT NIGAM LIMITED  [RESPONDENT(S)]

(ARBITRATION PETITION NO. 43 OF 2022)

(3JB, DY Chandrachud, CJI, J.B. Pardiwala and Manoj Misra JJ., delivered by J. B. PARDIWALA, J.)

Facts: The present petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 filed at the instance of a company based in Switzerland and engaged in the business of design consultancy seeking appointment of an arbitrator for the adjudication of disputes and claims emanating from the Contract dated 25.10.2019 entered into between the petitioner and respondent i.e., Uttarakhand Vidyut Nigam Limited (a wholly owned corporation of the Government of Uttarakhand).

Issue:

1. Whether the dictum as laid down in ICOMM Tele Limited can be made applicable to the case in hand more particularly when Clause 55 of the General Conditions of Contract provides for a pre-deposit of 7% of the total claim for the purpose of invoking the arbitration clause?
2. Whether there is any direct conflict between the decisions of this Court in S.K. Jain and ICOMM Tele Limited?
3. Whether this Court while deciding a petition filed under Section 11(6) of the Act 1996 for appointment of a sole arbitrator can hold that the condition of pre-deposit stipulated in the arbitration clause as provided in the Contract is violative of the Article 14 of the Constitution of India being manifestly arbitrary?
4. Whether the arbitration Clause No. 55 of the Contract empowering the Principal Secretary/Secretary (Irrigation), State of Uttarakhand to appoint an arbitrator of his choice is in conflict with the decision of this Court in the case of Perkins Eastman?

Arguments on behalf of counsel for petitioner: Mr. Sidhant Goel

The learned counsel appearing for the petitioner submitted that the case on hand, is one of “international commercial arbitration” within the meaning of Section 2(f) of the Act 1996 as his client is incorporated outside India. He submitted that under Section 11(12)(a) of the Act 1996, this Court has the requisite jurisdiction to take necessary measures for the constitution of an arbitral tribunal under Section 11(6) of the Act 1996 as the case is one of international commercial arbitration. The learned counsel submitted that Clause 55.1(b)(I) of the Contract which provides for appointment of a sole arbitrator by the Principal Secretary/Secretary (Irrigation), Government of Uttarakhand is in teeth of the decision of this Court in Perkins Eastman Architects DPC and Another v. HSCC (India) Limited reported in (2020). He submitted that the unilateral right of appointment of the arbitrator given to the respondent under the Contract is unenforceable as on date. The learned counsel further submitted that the condition for pre-deposit of 7% of the claimed amount to initiate arbitration in accordance with Clause 55.1(b)(I) of the Contract is contrary to the decision of this Court in the case of ICOMM Tele Limited v. Punjab State Water Supply and Sewerage Board and Another reported in (2019). It was argued that such a clause could be termed as arbitrary being violative of Article 14 of the Constitution in the sense of being unfair and unjust. It was also argued that such clauses in the Contract do not have any nexus in preventing any frivolous or vexatious claims in determination to such claims.

Arguments on behalf of counsel for respondent: Mr. Amit Anand Tiwari

The learned counsel appearing for the respondent vehemently submitted that the present petition deserves to be outright rejected as the petitioner has failed to comply with the two pre-conditions: (i) the pre deposit of 7% of the claimed amount and (ii) failure on the part of the petitioner to approach the Principal Secretary/Secretary (Irrigation), Government of Uttarakhand for appointment of an arbitrator as provided under Clause 55 of the Contract. In the aforesaid context, he strongly relied upon the decisions of this Court in the cases of Iron & Steel Co. Ltd. v. Tiwari Road Lines reported in (2007. He submitted that the respondent cannot be said to have failed to act as required under the prescribed procedure. It was argued that in any case, Clause 4 of the GCC stipulates that the security deposit is to be refunded to the contractor on demand, after 14 days of expiry of Defects Liability Period. It does not exclude the security deposit made under Clause 55 from its purview. He submitted that as such there is no challenge to the pre-deposit clause in the petition and the present petition under Section 11(6) of the Act 1996 is only for appointment of an arbitrator. It was also argued that the petitioner having consented to the pre-deposit clause cannot be permitted to turn around and question its validity at the stage when a petition under Section 11(6) of the Act, 1996 is being considered, thereby circumventing the principle of “party autonomy”. In the last, it was argued that any order passed by this Court under Section 11(6) of the Act 1996 cannot be treated as a binding precedent in view of the decision of this Court in State of West Bengal and Others v. Associated Contractors. In such circumstances referred to above, the learned counsel appearing for the respondent prayed that there being no merit in the petition, the same be rejected.

Held: The court allowed the present appeal and held that, “in view of the aforesaid discussion, we have reached to the conclusion that we should ignore the two conditions contained in Clause 55 of the GCC, one 88 relating to 7% deposit of the total amount claimed and the second one relating to the stipulation empowering the Principal Secretary (Irrigation) Government of Uttarakhand to appoint a sole arbitrator and proceed to appoint an independent arbitrator. In the result, this application stands allowed. We appoint Mr. V.K. Bist, the Former Chief Justice of the High Court of Sikkim to act as the sole arbitrator. The fees of the arbitrator including other modalities shall be fixed in consultation with the parties.”

With respect to the first and second issue, it is held that, “We are of the view that as such there is no conflict between S.K. Jain (supra) and ICOMM Tele Limited (supra), as the relevant arbitration clauses that fell for the consideration of this Court in both the cases stood completely on a different footing.”

With respect to the third issue, it is held that, “The vociferous submission on the part of the learned counsel appearing for the respondent, that this Court while considering an application under Section 11(6) of the Act 1996 for the appointment of arbitrator should not test the validity or reasonableness of the conditions stipulated in the arbitration clause on the touchstone or anvil of Article 14 of the Constitution, is without any merit or substance.”

With respect to the fourth issue, it is held that “If circumstances exist giving rise to justifiable doubts as to the independence and impartiality of the person nominated or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore the designated arbitrator and appoint someone else.”