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The person who has an interest in the outcome or decision of the dispute must not have the power to

PERKINS EASTMAN’S ARCHITECTS DPC & ANR. V HSCC(INDIA) LTD. CIVIL ORIGINAL JURISDICTION ARBITRATION APPLICATION NO.32 OF 2019

The judgment was delivered by Honourable Justice Uday Umesh Lalit in the Supreme Court of India where the necessary arbitration proceedings were carried out.

This application under Section 11(6) read with Section 11(12) (a) of The Arbitrators and Conciliation Act, 1966 and under The Appointment of Arbitrators by the Chief Justice Of India Scheme,1996 prayed for the following principal relief:

“Appoint a sole Arbitrator, in accordance with clause 24 of the Contract dated 22nd May 2017 executed between the parties and the sole Arbitrator so appointed may adjudicate the disputes and differences between the parties arising from the said contract.”

The application has been filed with the following assertions: –

(A) As an executing agency of the Ministry of Health and Family Welfare, the respondent was desirous of comprehensive architectural planning and designing for the works provided under Pradhan Mantri Swasthya Suraksha Yojna (PMSSY). Therefore a request for Proposals was issued for appointment of Design Consultants for the “comprehensive planning and designing, including preparation and development of concepts, master plan for the campus, preparation of all preliminary and working drawings for various buildings/structures, including preparation of specifications and schedule of quantities’ for the proposed All India Institute of Medical Sciences at Guntur, Andhra Pradesh”.

(B) In response to the RFP, the consortium of the Applicants, namely, (i) Perkins Eastman Architects DPC, an Architectural firm having its registered office in New York and (ii) Edifice Consultants Private Limited, having its office in Mumbai submitted their bid. The Letter of Intent was issued, awarding the project to the Applicants, the consideration being Rs.15.63 crores. A letter of award was issued in favour of the Applicants and a contract was entered into between the Applicants and the respondent, which provided inter alia for dispute resolution in Clause 24 which was regarding dispute resolution.

(C) Within six days of the signing of the said contract, the respondent alleged failure on part of the Applicants which was followed by stop work notice. It is the case of the Applicants that officials of the respondents were deliberately trying to stall the project and were non-co-operative right from the initial stages.

(D) Later, a termination notice was issued by the respondent on alleging non-compliance of contractual obligations on part of the Applicants, which assertions were denied. However, a termination letter was issued. A notice was issued by the Advocate for the applicants invoking the dispute resolution Clause namely Clause 24 as aforesaid raising a claim of Rs.20.95 crores. According to the Applicants, a decision in respect of the notice was required to be taken within one month in terms of Clause 24 of the contract but communication was sent by the respondent intimating that a reply to the notice would be sent within 30 days.

(E) An appeal was filed by the Applicants before the Director (Engineering) in terms of said Clause 24 but there was a complete failure on part of the Director (Engineering) to discharge the obligations in terms of said Clause 24. Therefore, the Chief Managing Director of the respondent was called upon to appoint a sole arbitrator in terms of said Clause 24. However, no appointment of an arbitrator was made within thirty days but a letter was addressed by Chief General Manager of the respondent purportedly appointing one Major General K.T. Gajria as the sole arbitrator.

Whether the arbitration in the present case would be an International Commercial Arbitration or not?

It was stated,

“In case, the arbitration in the present case is not an International Commercial Arbitration, then this Court cannot deal with the application under Section 11(6) read with Section 11(12)(a) of the Act.”

During the course of hearing, reliance was placed by the Applicants on the Consortium Agreement entered into between the Applicant No.1 and the Applicant No.2 which described the Applicant No.1 as the lead member of the Consortium. The reliance was however placed by the respondent on Clause 9 of the Consortium Agreement by virtue of which both the Applicants would be jointly and severally responsible for the execution of the project.

It was clear that the declaration shows that the Applicant No.1 was accepted to be the lead member of the Consortium. Even if the liability of both the Applicants was stated in Clause 9 to be joint and several, that by itself would not change the status of the Applicant No.1 to be the lead member. The court, therefore, decided to proceed on the premise that Applicant No.1 was the lead member of the Consortium.

The Honourable Court, after inferring facts and circumstances of the case, held that,

“‘Association’ and ‘Body of individuals’ referred to in Section 2(1) (f) of the Act would be separate categories. However, the lead member of the Association, in that case, being an Indian entity, the “Central Management, and Control” of the Association was held to be in a country other than India. Relying on said decision we conclude that the lead member of the Consortium company i.e. Applicant No.1 being an Architectural Firm having its registered office in New York, requirements of Section 2(1)(f) of the Act are satisfied and the arbitration in the present case would be an ‘International Commercial Arbitration’.”

Whether a case has been made out for exercise of power by the Court for an appointment of an arbitrator?

The communication invoking arbitration in terms of Clause 24 was sent by the Applicants on 28.06.2019 and the period within which the respondent was to make the necessary appointment expired on 28.07.2019. The next day was a working day but the appointment was made on Tuesday, the 30th of July, 2019. Technically, the appointment was not within the time stipulated but such delay on part of the respondent could not be said to be an infraction of such magnitude that exercise of power by the Court under Section 11 of the Act merely on that ground is called for. It was thus held that as the Managing Director became ineligible by operation of law to act as an arbitrator, he could not nominate another person to act as an arbitrator and that once the identity of the Managing Director as the sole arbitrator was lost, the power to nominate someone else as an arbitrator was also obliterated. The relevant Clause in the said case had nominated the Managing Director himself to be the sole arbitrator and also empowered said Managing Director to nominate another person to act as an arbitrator. The Managing Director thus had two capacities under said Clause, the first as an arbitrator and the second as appointing authority. In the present case, the court was concerned with only one capable of the Chairman and Managing Director and that is as appointing authority.

The Honourable Supreme Court of India, after taking into account the contentions of both the parties and observing the facts and circumstances of the case at hand, delivered its judgment as under,

“Before we part, we must say that the appointment of an arbitrator by this Court shall not be taken as any reflection on the competence and standing of the arbitrator appointed by the respondent. We must place on record that not even a suggestion in that respect was made by the learned counsel for the Applicants. The matter was argued and has been considered purely from the legal perspective as discussed hereinabove. This application is allowed in aforesaid terms.”

Tanvi Srivatsan

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