The Calcutta High Court (“Calcutta HC”) has, in its judgement dated August 11, 2023, in the matter of M/s. Gammon Engineers and Contractors Private Limited v. The State of West Bengal [A.P. No. 785 of 2022], held that an application for removal of an arbitrator must be made before the same ‘court’ as envisaged in Sections 2(i)(e) (Definition of Court) and 42 (Jurisdiction) of the Arbitration and Conciliation Act, 1996 (“Act”).

In 2011, the State of West Bengal (“Respondent”) offered bids for an e-tender for the construction of a canal. On March 27, 2012, M/s. Gammon Engineers and Contractors Private Limited (“Petitioner”) tendered its bid to carry out the said construction, and the same was accepted by the Respondent for an amount of INR 1,36,86,88,135.73. Subsequently, a final letter of acceptance was issued by the Respondent on May 23, 2012. The Respondent and the Petitioner had also entered into a general condition of contract (“Contract”) towards the construction of the said canal.

On May 24, 2012, the Respondent issued a work order which enunciated that the construction was to commence on June 1, 2012, and be completed by May 31, 2014. However, the Petitioner expressed its concerns, on failure to complete the construction in stipulated time, to the Respondent in May, 2014, by way of a letter addressed to the Respondent. This letter, however, was met with threats of legal actions pursuant to which the Respondent terminated the Contract vide its letter dated August 1, 2014.

Upon termination of the Contract, the Respondent served a notice invoking 7 bank guarantees aggregating to a sum of INR 6,84,34,407 which had been furnished by the Petitioner. The Petitioner had submitted its final statement of accounts on September 16, 2014, with dues of INR 50,26,89,550 owed to it by the Respondent which the Respondent refused. This prompted the Petitioner to initiate arbitral proceedings by way of a notice dated December 1, 2014, addressed to the Respondent. In the said notice, the Petitioner had suggested the constitution of a 3 member arbitral tribunal and proposed names of retired judges in that regard. However, the Respondent appointed Shri. Ajay Kumar Basak, a former employee of the Inland and Waterways Directorate, Government of West Bengal (“Department”), as the sole arbitrator (“Arbitrator”) to resolve the dispute. In light of the unilateral appointment of the Arbitrator by the Respondent, the Petitioner approached the Calcutta HC by filing an application under Sections 14 (Failure or impossibility to act) and 15 (Termination of mandate and substitution of arbitrator) of the Act read with Section 11(6) (Appointment of arbitrators) of the Act, for termination and substitution of the Arbitrator by virtue of him becoming de jure (incapacitated by law) and/or de facto (incapacitated by fact) unable to perform his functions (“Application”).

Notably, prior to the Application, the Respondent had already filed an application under Section 9 (Interim measures, etc., by Court) of the Act, before the District Judge at Jalpaiguri (“Jalpaiguri Court”) and the Jalpaiguri Court had partially allowed the application filed by the Respondent.

Issue

Whether an application for termination of an arbitrator’s mandate can be made in a court other than the ‘court’ as envisaged in Sections 2(i)(e) and 42 of the Act.

Arguments

Contentions of the Petitioner:

The Petitioner submitted that clause 25 of the Contract specifically authorised the chief engineer of the Department to operate as the sole arbitrator, and there was no sanction under which the chief engineer could appoint someone else as the sole arbitrator. Further, clause 25 of the Contract did not empower the chief engineer to appoint a person who may have a likelihood of bias in favour of the State. However, in the instant case, the Respondent had appointed the Arbitrator, who was a former employee of the Department, having served the Respondent as ex-chief engineer.

The Petitioner argued that since the Respondent had superior bargaining power, the Petitioner was left with no choice but to agree with the appointment of the Arbitrator. Besides, the Arbitrator was ineligible to be appointed as an arbitrator under Section 12(5) (Grounds for challenge) of the Act, and that the Petitioner had not provided its written consent to legitimize such appointment. The Petitioner relied on several cases including the case of Perkins Eastman Architects DPC and Another v. HSCC (India) Limited [(2019) SCC OnLine SC 1517], wherein the Hon’ble Supreme Court (“SC”) had held that the unilateral appointment of a managing director as an arbitrator, or giving such managing director the unilateral right to appoint an arbitrator, would both be considered as disqualifications under Section 12(5) of the Act, given that such managing director being an employee having a past or present business relationship with the party would be interested in the outcome of the proceeding.

The Petitioner further submitted that it had filed its statement of claims within the time limit prescribed by the Arbitrator, and that even though the Respondent filed its defence statement after a delay of 6 months, the Arbitrator had not passed any order against the Respondent for such delay. Overall, the arbitral proceedings continued for a period of 8 years from the date of notice invoking arbitration, and even then, the proceedings were not concluded. The Petitioner contended that such unreasonable extension had prejudiced the Petitioner and that the Arbitrator had denied justice to the Petitioner, which were against the principles envisaged by the United Nations Commission on International Trade Law model. Hence, the Arbitrator was biased towards the Respondent. Furthermore, the Arbitrator had a duty to disclose possibilities of bias in accordance with Section 12(1) (Grounds for challenge) of the Act, but failed to do so. Therefore, in the Petitioner’s view, the Arbitrator had concealed a material fact relating to his ineligibility.

The Petitioner concluded its arguments by submitting that it had rightly filed the Application before the Calcutta HC, given that the Calcutta HC had superintending powers to appoint arbitrators under Section 11 of the Act.

Contentions of the Respondent:

The Respondent submitted that the Petitioner had at no point of time during the proceedings raised any objections with respect to the appointment of the Arbitrator or the validity of the arbitration clause in the Contract. Further, although the Arbitrator was a former employee of the Respondent, he had nothing to do with the subject matter of the dispute and was therefore eligible to be appointed as an arbitrator. The Respondent submitted that the Petitioner’s participation in the proceedings by filing its statement of claim, rejoinder, evidence, and making full arguments tantamount to a waiver of the applicability of Section 12(5) of the Act.

With respect to the Petitioner’s argument pertaining to the unilateral appointment of the Arbitrator and his disqualification to act as an arbitrator under Section 12(5) of the Act, the Respondent relied on the case of West Bengal Housing Board v. Abhishek Construction [(2023) SCC OnLine Calcutta 827] (“West Bengal Housing Board Case”) wherein the SC held that the grounds for holding an arbitrator to be de jure or de facto ineligible to act as an arbitrator vis-à-vis unilateral appointment, cannot be taken in instances where the arbitral proceedings have commenced prior to the 2015 amendments to the Act (“Amendment Act”).

The Respondent contended that the Application was not maintainable before the Calcutta HC, since the Respondent had already filed an application under Section 9 of the Act before the Jalpaiguri Court. Moreover, applications filed under Sections 14 and 15 of the Act fall under the ambit of Part I of the Act, and therefore, the bar under Section 42 of the Act would become applicable. Furthermore, the Petitioner’s application for appointment of a new arbitrator under Section 11(6) of the Act was not maintainable considering that the earlier appointment of the Arbitrator was continuing. Besides, even if the appointment of the Arbitrator was invalid, the time period for making an application under Section 11(6) of the Act had lapsed.

Observations of the Calcutta HC

In order to opine on the maintainability of the Application, the Calcutta HC examined the provisions of Section 42 of the Act. The Calcutta HC placed reliance on the case of State of West Bengal v. Associated Contractors [(2015) 1 SCC 32], wherein the SC had laid down the law vis-à-vis Sections 9 and 42 of the Act and held that Section 2(1)(e) of the Act contained an exhaustive definition marking out only the Principal Civil Court of original jurisdiction in a district or a High Court having original civil jurisdiction in the State as ‘court’ for the purpose of Part I of the Act. Further, applications under Section 9 of the Act fall within the purview of Section 42 of the Act. The Calcutta HC observed that the understanding of a ‘court’ under Section 42 of the Act was indisputably to be considered in terms of Section 2(1)(e) of the Act. Therefore, once an application under Section 9 of the Act had been made to a ‘court’ as understood under Section 2(1)(e) of the Act, all further applications under Part I of the Act should be made before the same ‘court’ wherein the prior application was made.

The Calcutta HC also relied on the case of Swadesh Kumar Agarwal v. Dinesh Kumar Agarwal and Others [(2022) 10 SCC 235], wherein the SC held that in a case where a dispute arises on the mandate of the arbitrator being terminated on the grounds of such an arbitrator becoming de jure or de facto unable to perform his functions or for failure to act without undue delay, such a dispute has to be raised before the ‘court’, defined under Section 2(1)(e) of the Act, and as such the said dispute cannot be decided on an application filed under Section 11(6) of the Act. Therefore, in the Calcutta HC’s view, the Petitioner’s argument that the Application could be filed under Sections 14 and 15 of the Act read with Section 11(6) of the Act, was superfluous.

The Calcutta HC further observed that although the arbitration proceedings had continued for a period of 8 years, not once had the Petitioner raised any objection towards the appointment of the Arbitrator and fully participated in the said proceedings. The Calcutta HC relied on the West Bengal Housing Board Case and concurred with the Respondent’s stance that the issue of unilateral appointment and the proscription under Section 12(5) of the Act were inapplicable to arbitrations which commenced prior to the Amendment Act coming into force.

Decision of the Calcutta HC

The Calcutta HC held that the ‘court’ to be approached under Section 14(1)(a) of the Act, for termination of an arbitrator’s mandate, for de jure or de facto reasons, is the ‘court’ as set out under Section 2(1)(e) of the Act, and that since an application under Section 9 of the Act was already made before the Jalpaiguri Court, it was the ‘court’ under Section 2(1)(e) of the Act. Correspondingly, the bar under Section 42 of the Act was squarely applicable to the instant case.

Therefore, an application under Section 14(1)(a) for termination of an arbitrator’s mandate, being required to be made before a ‘court’ as per Section 2(1)(e) and Section 42 of the Act, was to be presented before the Jalpaiguri Court alone. Accordingly, the Calcutta HC dismissed the Application as not maintainable.

VA View:

Section 42 of the Act serves as a jurisdictional bar aimed at avoiding conflicting jurisdiction by different courts, and places the supervisory jurisdiction over all arbitral proceedings (in connection with the arbitration) in one court exclusively. Through this judgement, the Calcutta HC has reiterated the mandate of Section 42 of the Act which is that once an application to a ‘court’ as understood under Section 2(1)(e) of the Act is made, all further applications (to a ‘court’) under Part I of the Act must be made to the same ‘court’ where the prior application has been made.

The Calcutta HC has rightly held that the relevant ‘court’ under Section 42 of the Act would be the Jalpaiguri Court, being the court where the Respondent had already filed an application under Section 9 of the Act. Therefore, any further application to a ‘court’ ought to have been made before the Jalpaiguri Court alone.

For any query, please write to Mr. Bomi Daruwala at [email protected]

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