M/S VA TECH WABAG LTD v M/S TRAVANCORE TITANIUM PRODUCTS LTD

W.P(C).No.17537/2020-N 1 # **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE SMT. JUSTICE P.V.ASHA** **TUESDAY, THE 29TH DAY OF SEPTEMBER 2020 / 7TH ASWINA, 1942** **WP(C).No.17537 OF 2020(N)** ## **PETITIONER:** **M/S VA TECH WABAG LTD THROUGH POWER OF ATTORNEY HOLDER OF MR.S.VARADARAJAN, DIRECTOR AND CHIEF GROWTH OFFICER, WABAG HOUSE, NO.17, 200 FEET ROAD RADIAL ROAD, S.KOLATHUR, CHENNAI-600 117.** **BY ADVS. SHRI.S.GANESH SHRI.S.GANESH SRI.P.S.SIDHAN SRI.K.N.SATHEESAN SRI.P.SREEKUMAR** ## **RESPONDENT:** **M/S.TRAVANCORE TITANIUM PRODUCTS LTD THROUGH ITS MANAGING DIRECTOR, PB.NO.1, KOCHUVELI, THIRUVANANTHAPURAM-695 021.** ## **STANDING COUNSEL SMT.LATHA ANAND** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 29.09.2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** W.P(C).No.17537/2020-N 2 ## **P.V.ASHA, J.** --------------------------W.P.(C) No.17537 of 2020-N ----------------------------- Dated this the 29[th] day of September, 2020 ## **JUDGMENT** The issue arising in this case is whether this Court has jurisdiction to entertain a writ petition to interpret the terms of agreement between the petitioner and respondent in respect of resorting to Arbitration to resolve the dispute between the parties and to interfere with the appointment of sole Arbitrator. Admittedly, there are two provisions in the agreement relating to Arbitration - one in Article 11 of the agreement and another one in Clause 6.24 of the General Conditions of Contract in the general conditions of contract (Ext.P2), which is part of the agreement. According to the petitioner, as per Article 11 of Ext.P1, appointment of Arbitrator is to be done by Indian Council of Arbitration on request by the parties; whereas respondent has appointed sole Arbitrator invoking Clause 6.24. of the general conditions of contract, according to which, MD can appoint sole Arbitrator. It is the contention of the petitioner that there is ambiguity in Clause 6.24 in so far as it is not made clear which MD would appoint when Managing Directors (I) MD of petitioner (2) MD of respondent and (3) MD of M/s MECCON Ltd - the consultancy of the respondent. Secondly both are conflicting provisions. Respondent appointed Sole Arbitrator. According to petitioner, the question raised by petitioner is not one which can be W.P(C).No.17537/2020-N 3 determined by the Arbitrator. It is also pointed out that though the petitioner had raised this claim in the earlier Arbitration proceedings which resulted in Ext.P3 award, the contention was rejected in paragraph 36 of the award on the ground that it was not raised at the initial stage. Therefore, when the respondent again invoked the Arbitration clause and appointed the very same Arbitrator, the petitioner has approached this Court as soon as notice was received from Arbitrator. It is stated that petitioner had raised this issue before the respondent when they received Ext.P5 notice dated 04.07.2020, in Ext.P6 reply dated 10.07.2020. Petitioner has another contention that the dispute raised in the present proceedings is already considered in the earlier proceedings covered by Ext.P3 Award. 2. The contention of the respondent is that a writ petition is not maintainable under Article 226 of the Constitution of India as the petitioner seeks interpretation of the terms of a purely commercial contract entered into between the parties; there is no public element involved in a commercial contract; the fact that the respondent is a Public Sector Undertaking would not make the writ petition maintainable in the absence of a statutory contract between the parties; interpretation of terms of the contract entered between the parties is not permissible; any intervention by this court would defeat the very purpose and the object behind the enactment of Arbitration and Conciliation Act; a writ petition is not liable to be entertained merely for the absence of a remedy for the petitioner. Arbitration and Conciliation Act is a self contained Code where the petitioner can raise his contentions. Question of res-judicata cannot also be W.P(C).No.17537/2020-N 4 adjudicated by this Court. 3. The brief facts leading to the case are the following: The petitioner is a Water Treatment Company. The respondent through its consultancy M/s MECCON Ltd-another Public Limited Company, invited tenders for implementing 'effluent treatment plant' in its plant. Being the lowest bidder, the petitioner was awarded the work. Ext.P1 agreement dated 25.04.2006 was entered into between M/S MECON Ltd, on behalf of the respondent and the petitioner for setting up 6 MLD Neutralisation Plants with water recovery module at the plant of the respondent. In the year 2017, disputes arose between the parties in respect of damage caused to the Silo in the nuetralisation plant installed by the petitioner. While the respondent alleged improper installation by the petitioner, petitioner alleged improper operation of the plant by the respondent. Invoking Arbitration clause in Clause 6.24 the respondent appointed sole Arbitrator, who passed Ext.P3 award on 04.12.2019, against which petitioner has filed an appeal which is pending. In the meanwhile, the respondent has again as per Ext.P4 letter dated 29.11.2019 invited the petitioner for a discussion in terms of clause 6.24 of of the agreement, with respect to the fatal accident occurred in the plant on 21.07.2017. It is stated that though the petitioner informed the respondent that it is part of Ext.P3 award, the respondent issued Ext.P5 notice of invocation of Arbitration informing the appointment of Sole Arbitrator in accordance with Clause 6.24 of the Conditions of Contract. The petitioner thereupon sent Ext.P6 reply stating that as per Article 11 of Ext.P1 agreement, a party to the dispute has to approach the Indian Council of W.P(C).No.17537/2020-N 5 Arbitration to get an Arbitrator appointed. It was also stated that the dispute raised was already covered by Ext.P3 award, which cannot be raised again. This writ petition was filed after the sole Arbitrator appointed by the respondent issued Ext.P7 notice informing the first sitting on 22.08.2020, seeking the following reliefs: _“i) declare that the appointment of the Arbitrator invoking Clause 6.24.1 of Exhibit-P2 is untenable in the light of Article-11 of Exhibit-P1 agreement;_ _ii) set aside Exhibit-P4, P5 and P6 communication issued to the_ _petitioner;_ _iii) declare that the disputes raised in Exhibit-P4 and P5 cannot be referred for Arbitration in the light of Exhibit-P3 Award passed on the same set of circumstances;_ _and_ _iv) to mould and grant such other relief that this Hon'ble Court may deem fit and proper in the facts and circumstances of the case.”_ 4. Article 11 of Ext.P1 agreement and clause 6.24 of the General Conditions of Contract Ext.P2 which are alleged to be conflicting read as follows: ## Article 11 reads as follows: _“All disputes and differences whatsoever, arising between the parties out of or in relation to the construction, meaning and operation or effect of this contract or breach thereof shall be settled amicably. in case the same still persist the matter shall be referred to the PURCHASER for amicable settlement. If, however, the parties are not able to resolve them amicably, the same shall be settled by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration as per provisions of Arbitration and Reconciliation Act 1996 and the award made in pursuance thereof shall be binding on the parties._ _Work under the agreement shall be continued by the contractor during the arbitration proceedings unless otherwise directed in writing by the CONSULTANT/PURCHASER or unless the matter is such that the works are not possible to be continued until the decision of the arbitrators or of the Umpire, as the case may be, is obtained and save as those which are otherwise expressly provided in the contract, no payment due or payable by the CONSULTANT/PURCHASER shall be withheld on arbitration proceedings unless it is the subject matter or one of the subject matter thereof.”_ W.P(C).No.17537/2020-N 6 ## Close 6.24.1 reads as follows: _“All disputes differences claims and questions between the parties hereto arising out of or in any way relating to or touching the contract the parties shall first endeavor to settle such disputes differences claims or questions by mutual consultation and failing such settlement the same shall be referred to Sole Arbitrator to be appointed by MD, and the decision/award of the Sole Arbitrator shall be final and binding on the parties hereto.”_ 5. Sri. P. Sreekumar, the learned Counsel for the petitioner, referring to Sections 12 and 13 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') argued that the issue arising in the case is not a ground covered by the provisions in the Arbitration Act. Relying on the provisions in Clause 4 of the Indian Council of Arbitration Rules of Domestic Commercial Arbitration, the judgment of the Division Bench of this Court in W.A.No.2256/2007, (1989) 4 SCC 595 and 2019 (17) SCALE 139, Sri. Sreekumar argued that the Arbitrator is exercising a judicial function while adjudicating the issue; objection is not on appointment of a particular Arbitrator; but the manner in which the appointment is made; as Arbitrator is appointed as part of judicial mechanism to adjudicate the issues arising between the parties and when that process affects the fundamental right of the petitioner under Article 19(1)(g) of the Constitution of India it cannot be said that a writ petition cannot be entertained. 6. On the other hand, Sri. Vishnu S (Arikkattil), the learned Counsel appearing for the respondent, relying on the judgment in _**State of U.P v. Bridge & Roof Co. Ltd**_ **: (1996)6 SCC 22,** _**Kerala State Electricity Board and Others v. Kurien E. Kalathil and Others**_ **: (2000) 6 SCC 293,** _**National Highway Authority of India v. Ganga Enterprises and others**_ **: (2003)7SCC 410** and _**Kesari Tea Company v. State Bank of**_ W.P(C).No.17537/2020-N 7 _**India**_ **: 1999(1)KLJ 615** argued that no writ petition will lie in respect of purely commercial contracts entered between parties even if it is with a Public Sector undertaking. Relying on the judgment in _**Deep Industries Ltd v. Oil and Natural Gas Corporation Ltd and Ors**_ **: (2019)17 SCALE 85** it was argued that the very purpose of the enactment would be defeated by entertaining writ petitions against appointment of Arbitrator. The judgments in _**Kvaerner Cementaion India Ltd v. Bajranglal Agarwal and others**_ **: (2012)5SCC 214,** _**A. Ayyasamy v. A.Paramasivam & others**_ **: (2016) 10 SCC 386,** _**National Aluminium Company v. Subhash Infra Engineers Ltd**_ **: 2019(11)SCALE 440,** etc. were relied on, in support of his contention that the Act 96 is a self contained code and any dispute relating to Arbitration has to be raised before the Arbitrator and Arbitrator is to decide the matter. 7. As the contention of the petitioner is that the grounds of his challenge against appointment of Arbitrator are not grounds available in Sections 12 or 13 of the Act, 1996, it is necessary to examine those provisions, which read as follows: > _**“** 12. Grounds for challenge— (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,—_ > _(a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subjectmatter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and_ > _(b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months._ > _Explanation 1.— The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator._ > _Explanation 2.— The disclosure shall be made by such person in the form specified in the Sixth Schedule._ > _(2) An arbitrator, from the time of his appointment and throughout the_ W.P(C).No.17537/2020-N 8 _arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him._ _(3) An arbitrator may be challenged only if—_ _(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality; or_ _(b) he does not possess the qualifications agreed to by the parties._ _(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made._ _(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:_ _Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing._ _**13. Challenge procedure:—** (1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator._ _(2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of Section 12, send a written statement of the reasons for the challenge to the arbitral tribunal._ _(3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge._ _(4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award._ _(5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with Section 34._ _(6) Where an arbitral award is set aside on an application made under subsection (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees.”_ It is true that the ground on which the petitioner assails appointment of Arbitrator is not covered by Section 12 of the Act and there is no procedure fixed by the parties to challenge the Arbitrator. But it is also necessary to have a look at Section 16 of the Act 1996, which read as follows: > _**“16. Competence of arbitral tribunal to rule on its jurisdiction** .—(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,—_ > _(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and_ - _(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause._ _(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator._ W.P(C).No.17537/2020-N 9 _(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings._ _(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified._ _(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award._ _(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with Section 34.”_ 8. Though it is not specifically stated in Rule 16 that the Arbitrator can take a decision on the validity of his appointment when there are different procedure provided in the agreement between the parties and though the provision for treating arbitration clause independent of the agreement would not apply in the present case as there is no dispute regarding the validity of the contract entered into by the parties, as long as it empowers the Arbitrator to decide its own jurisdiction and there is no exclusion of such matters, it cannot be said that Rule 16 would not apply when the matter is with respect to the two provisions available under Ext.P1 agreement and Ext.P2 general Conditions which is also part of the agreement. The contention of the petitioner is that the same objection raised in the previous arbitration was rejected on the ground that it was not raised in the initial stage. In order to determine whether this Court should entertain the Writ Petition because the very same objection when raised in the previous arbitration proceedings was rejected can be determined after examining the judgments relied on by both sides. In _**Amarjith**_ 's case the Division Bench of this Court was held in respect of an order passed by the Arbitrator on an impleading petition, that a decision can be taken only after taking evidence. The party who was sought to be impleaded opposed the W.P(C).No.17537/2020-N 10 petition alleging that he is an unnecessary party and his complaint before this Court was that no order was passed either rejecting or allowing the petition. Though it was found that extraordinary jurisdiction under Articles 226 can be exercised in some exceptional circumstances and petitions under Article 226 and 227 are not totally excluded, this Court found that no petition can be entertained against an interim order passed by the Arbitrator, following the dictum laid down by the Apex Court in _**SBP & Co v. Patel Engineering Ltd**_ : (2000) 8 SCC 618. ## 9. The judgment in _**Perkins Eastman Architechs DPC and Others v. HSCC (India) Ltd**_ **: AIR 2020 SC 59: 2020: 2019 KHC 7173** , relied on by Sri. Sreekumar, was rendered on a petition under Section 11(6) read with Section 11(12) of the Act 1996. In that case clause 24.1(ii) of the agreement which dealt with dispute resolution provided for referring the dispute between the parties for adjudication through arbitration by a sole arbitrator appointed by the CMD within the stipulated 30 days. However, the Chief General Manager appointed an Arbitrator. The applicant approached the Apex Court for appointment of Arbitrator in terms of Clause 24 of the contract in application under Section 11(6) of the Act 1996, with the contention that the element of impartiality would be absent in such an appointment by the CMD. Following the judgments in _**TRF Ltd v. Energo Eng. Products Ltd**_ : (2017)8 SCC 377, the Apex Court in _**Perkins Eastman**_ 's case ( _supra_ ) held as follows: > _“15. 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 said case had nominated the Managing Director himself to be_ W.P(C).No.17537/2020-N 11 _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 an appointing authority. In the present case we are concerned with only one capacity of the Chairman and Managing Director and that is as an appointing authority._ _We thus have two categories of cases. The first, similar to the one dealt with in TRF Limited ((2017) 8 SCC 377), where the Managing Director himself is named as an arbitrator with an additional power to appoint any other person as an arbitrator. In the second category, the Managing Director is not to act as an arbitrator himself but is empowered or authorised to appoint any other person of his choice or discretion as an arbitrator. If, in the first category of cases, the Managing Director was found incompetent, it was because of the interest that he would be said to be having in the outcome or result of the dispute. The element of invalidity would thus be directly relatable to and arise from the interest that he would be having in such outcome or decision. If that be the test, similar invalidity would always arise and spring even in the second category of cases. If the interest that he has in the outcome of the dispute, is taken to be the basis for the possibility of bias, it will always be present irrespective of whether the matter stands under the first or second category of cases. We are conscious that if such deduction is drawn from the decision of this Court in TRF Limited ((2017) 8 SCC 377), all cases having clauses similar to that with which we are presently concerned, a party to the agreement would be disentitled to make any appointment of an Arbitrator on its own and it would always be available to argue that a party or an official or an authority having interest in the dispute would be disentitled to make appointment of an Arbitrator._ _16. But, in our view that has to be the logical deduction from TRF Limited ((2017) 8 SCC 377)xx But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) and recognised by the decision of this Court in TRF Limited ((2017) 8 SCC 377).”_ In this case the Arbitrator is appointed by the MD of respondent. Going by the judgment of the Apex Court in TRF case, Perkin Eastman case etc., such an appointment is not permissible after the amendment Act 3 of 2016 and insertion of 7[th] schedule. I have also in the judgment in _**Aculife Healthcare v. Kerala Medical Services corporation**_ : 2019 KHC 28:ILR 2019(2) Ker 208 held that such an appointment is not permissible after the amendment. (In that case as per the agreement the Government Secretary was to be appointed as Arbitrator.) 10. However, all these judgments are seen rendered on Applications under the Arbitration and Conciliation Act, 1996. In the present case, the petitioner has approached this Court under Article 226 of the Constitution of W.P(C).No.17537/2020-N 12 ## India. 11. Sri. Sreekumar, argued that it is time for positive signals in the era of Arbitration, referring to the Law Commission Report and the observations in the judgment in _**Perkin's Eastman**_ 's case, reiterating the following observations in _**Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn. Ltd**_ **: (2017) 4 SCC 665:** _“30. Time has come to send positive signals to the international business community, in order to create healthy arbitration environment and conducive arbitration culture in this country. Further, as highlighted by the Law Commission also in its report, duty becomes more onerous in government contracts, where one of the parties to the dispute is the Government or public sector undertaking itself and the authority to appoint the arbitrator rests with it.”_ 12. The judgments relied on by Sri. Sreekumar are all in applications under Arbitration and Conciliation Act, 1996. As rightly contented by Sri. Vishnu, it cannot be said that there is any element of public duty involved in the commercial contract entered into between the parties. In the light of the judgments of the Apex court in _**Bridge & Roof Co. Ltd**_ **'** s case _**Kurien E. Kalathil**_ **'** s case, _**Ganga Enterprises**_ 's case and this court's judgment in _**Kesari Tea Company**_ **'** s case ( _supra_ ), the fact that the respondent is a Public Sector Undertaking would not have any relevance when it cannot be disputed that the arbitration clause is part of the commercial contract entered into between the parties. Though I am of the view that the MD of the respondent ought not have appointed sole Arbitrator after the amendment of the Act acting upon the terms in Clause 6.24 of Ext P2, in view of the dictum laid down in the aforesaid cases, this Court is not W.P(C).No.17537/2020-N 13 supposed to interfere with the said appointment which is made purely on the basis of a commercial contract entered into by the parties, which does not involve any element of public duty. I am unable to accept the contention of the petitioner that interference is warranted as the fundamental right of the petitioner under Article 19(1)(g) would be curtailed by the adjudication by the Arbitrator, as the adjudication is also the consequence of the agreement between the parties. 13. The question whether the parties have acted in accordance with the provisions of the Arbitration and Conciliation Act as amended, or the very clause under which the Arbitrator is appointed, can be invoked after the amendment brought about to the 1996 Act, or the dictum laid down by the Apex court in _**Perkin Eastman**_ 's case, _**TRF**_ case ( _supra_ ), etc. can be considered by the Arbitrator and not by this Court in a Writ Petition under Article 226 of the Constitution of India. In view of the above reasons, the Writ Petition is dismissed. Sd/- **P.V.ASHA JUDGE** _rtr/_ W.P(C).No.17537/2020-N 14 ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **EXHIBIT P1** **TRUE COPY OF THE AGREEMENT EXECUTED ON 25/4/2006.** **EXHIBIT P2 TRUE COPY OF THE SCHEDULE-6 APPLICABLE IN THE PRESENT DISPUTE.** **EXHIBIT P3 TRUE COPY OF THE AWARD DATED 4/12/2019 IN THE ARBITRATION BETWEEN THE RESPONDENT AND THE PETITIONER.** **EXHIBIT P4 TRUE COPY OF THE LETTER DATED 29/11/2019 OF THE RESPONDENT.** **EXHIBIT P5 TRUE COPY OF THE NOTICE DATED 4/7/2020 ISSUED BY THE RESPONDENT INVOKING ARBITRATION.** **EXHIBIT P6 TRUE COPY OF THE REPLY SENT ON 10/7/2020 BY THE PETITIONER TO THE RESPONDENT.** **EXHIBIT P7 TRUE COPY OF THE NOTICE DATED 4/8/2020 ISSUED BY THE SOLE ARBITRATOR.**