Article

M/S RELIANCE INFRASTRUCTURE LTD. VS HPGCL AND ANR.

Petition under Section 14 of the Arbitration and Conciliation Act, 1996 praying for termination of mandate of sole Arbitrator before Special Commercial Court, Gurugram, Haryana.

BACKGROUND –

The Petitioner, Reliance Infrastructure Limited contracted with the Respondent (HPGCL)for the Engineering, Procurement & Construction Contract for 2x 600 MW Thermal Power Plant. As per the terms of the contract, in case of a dispute, Arbitration was the agreed form of dispute resolution.The Arbitrator had to be appointed by Government of Haryana. On request of Petitioner, Government of Haryana appointed Retd. IAS Officer, Former Chief Secretary of State of Haryana as Sole Arbitrator. The Petitioner did not accept the appointment of Arbitrator on the ground that Arbitrator is ineligible in terms of the qualifications prescribed under Arbitration and Conciliation (Amendment) Act, 2015 (‘Act’ for brevity) in particular Section 12 and Schedules V and VII thereof. The Petitioner approached the High Court u/s 11 of the Act seeking declaration that the appointment of Former Chief Secretary is illegal and for appointment of another Arbitrator. The High Court dismissed the petition of the Petitioner¹. Pursuant to same, petitioner approached the Supreme Court. While the judgment was pending, the petitioners unconditionally withdrew the case and subsequently requested the Supreme Court to grant extension of time for completion of arbitral proceedings. The Supreme Court ordered that the time period of 12 months as prescribed under Section 29A of the Act shall be counted from the date of Order of Supreme Court.

While the pld_insd txa_j were being completed before the Arbitrator, events took another turn. The Petitioner filed a petition under Section 14 of the Act praying for termination of the mandate of the Arbitrator before Special Commercial Court for State of Haryana. The Judgment of the court is discussed as under -

MAIN GROUNDS FOR CHALLENGING THE APPOINTMENT OF ARBITRATOR –

• Appointment is not only contrary to the terms of the arbitration clause, but also the amended act.
• Effectively and indirectly, the appointment has been made by the Respondent itself and the Government of Haryana has merely approved the advice, recommendation and preference of the Respondent, rendering the appointment patently illegal, contrary to the provisions of the contract in question as well as the Arbitration Act.
• Respondent asked for appointment of arbitrator which was subsequently approved by the Chief Minister and such an appointment directly on the approval of respondent cannot be held to be an appointment by the State. The orders passed by the Chief Minister or the Secretary cannot be said to be an order passed on behalf of the Government.
• Article 24 of the Fifth Schedule, read with Section 12(1)(a) bars the appointment of Arbitrator.
• Arbitrator did not made a disclosure in terms of Schedule VIth of the Amended Act and no certificate in the form specified in the VIth schedule was furnished, which is a precedent for a valid appointment, till the appointment of Arbitrator was challenged and this ground was taken by the Petitioner to challenge the appointment.
• Petitioner had obtained some documents under RTI after their application under Section 11 had been dismissed and the same formed basis for an essential ground in petition. The documents revealed that the appointment had been made on the recommendation of HPGCL and not independently by Government of Haryana.
• Arbitrator has become de jure and de facto unable to perform functions.

CONTENTIONS OF THE RESPONDENT-

• The only remedy available to the petitioners was under the Section 12 of the Act to approach the Arbitrator. The former course was not adopted and therefore, the present petition was premature.
• Identical grounds were urged by the Petitioner before the Punjab and Haryana High Court under section 11 of the Act. The High Court had dismissed the Petition.
• Article 24 of the Vth schedule does not render the appointment void and also is not covered under the 7th schedule. The remedy if any available to the petitioner lies elsewhere and not under Section 14.
• Petitioner has clearly demonstrated that there is a case of “Forum Shopping”, inasmuch as having suffered an adverse judgment in Hon’ble High Court, the Petitioner approached Supreme Court by way of SLP. The matter was argued at length, where after the judgment was reserved. Then the Petitioners, probably expecting an adverse judgment, chose to unconditionally and without any reservation withdraw the same on 29th of March 2017.Subsequently, after a period of more than eight months, the Petitioner filed a miscellaneous application seeking recall of the order dated 29.03.2017 and consequently, restoration of the SLP. This application was heard and court expressed extreme displeasure at the conduct of the Petitioner and the Petitioner thought it prudent to unconditionally withdraw the miscellaneousapplication as well. Despite judgment of Hon’ble High Court having achieved finality, Petitioner has filed the instant application.
• There was no recommendation or proposal by Respondent at the time of appointment of the Arbitrator. The file had been dealt with at various levels of the State of Haryana and only there after it was put up before the Chief Minister. The Chief Minister only approved the appointment of the Arbitrator but it was not an appointment per se. The appointment was, in fact, made by the Governor of Haryana.

VERDICT -

• If the arbitrator has acted as arbitrator for one of the parties or an affiliate for one of the parties it may amount to some doubt regarding impartiality. However, in the present case the arbitrator was the Arbitrator for both the parties and the petitioner was always aware about it.Therefore, this ground is not tenable.
• It is evident that appointment was made by the Governor of Haryana and the order has been signed by Ranjan Gupta, Additional Chief Secretary to Govt. Rule 9(i) Rules of Business of Government of Haryana of the year 1977 as amended upto 30thOctober, 2006 thereof provides that every order or instrument of the Governor of the State of Haryana shall be signed either by a Secretary and Additional Secretary, a Joint Secretary, a Deputy Secretary and Under Secretary or an Assistant Secretary or such other officer as may be specially empowered by the Governor in that behalf and such signature shall be deemed to be proper authentication of such order or instrument. This itself goes to show that the order is passed validly. Certain office notes have been relied upon to show that in fact the Managing Director, HPGCL made request for appointment of particular arbitrator but the request was virtually approved by passing the order by Government of Haryana.
• Challenge raised qua Clause in Vth Schedule cannot be gone into at this stage of proceedings under Section 14 of the Arbitration Act seeking termination of the arbitral award. Ineligibility must be contested before the arbitrator at first, and if he decides against it then, until an award is passed by him no action of termination can be taken up.

¹https://indiankanoon.org/doc/37910992/ (Punjab and Haryana High Court, Arbitration Case no. 166 of 2016 dated 27.10.2016)

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Authorship of Advocate Sonia Madan and Simran Syal