RAVI REALCONS PVT. LTD Vs. CHIEF ENGINEER

JUDGEMENT

(1.) In the judgment passed by me on March 25, 2022, I had inadvertently not referred to two recent judgments passed by the Hon'ble Supreme Court in TRF Limited Vs. Energo Engineering Projects Limited reported in 2017 8 SCC 377 and Perkins Eastman Architects DPC vs. HSCC (India) Ltd. reported in 2019 SCC Online SC 1517. In the case of Perkins Eastman (supra), the Hon'ble Supreme Court drew parallels between two categories of cases. First category, where the Managing Director of the company involved in the arbitration dispute is named as an arbitrator with an additional power to appoint any other person as an arbitrator. The other category, the Managing Director is not allowed to be an arbitrator himself but has the power to authorize any other person of choice to act as an arbitrator. It was held by the Hon'ble Court that in the first category, the Managing Director who is acting as an arbitrator would be incompetent because of the interest that he would be said to be having in the result of the dispute, similarly, such invalidity of the arbitrator would also arise in the second category of cases as well. The court also held that the element of invalidity is direct in the first category and the element of invalidity may be indirect but will arise in the second category of cases as well. Relevant paragraph of the judgment is extracted below:

(2.) In the case of TRF Limited (supra) it was held by the Hon'ble Supreme Court that once the Managing Director becomes ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Sec. 12(5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. The court decided the issue by only dealing with the authority aspect of the appointment. Relevant paragraphs of the judgment are delineated below:

(3.) In light of the judgments in TRF Limited (supra) and Perkins Eastman (supra) and Sec. 12(5) of Arbitration and Conciliation Act, it is clear that a person who may have an interest in the outcome of the dispute should not be made an arbitrator. The judgments in Parmar Construction (supra) and Central Organization for Railway Electrification (supra) are distinguishable on facts as the same relate to appointment of arbitrator as per the Arbitration Clause that is not de hors the ratio in Perkins (supra). The present Arbitration Clause 25 is directly in conflict with Supreme Court judgment in TRF Limited (supra) and Perkins Eastman (supra) and, therefore, the appointment of the arbitrator has to be made by the Court and cannot be left to the parties. Furthermore, the case made out by the respondents that the petitioner approached the respondent for arbitration and, therefore, waived its right also does not stand as such waiver would have to be expressly in writing and agreed upon by both the parties. Having not acted upon the letter for appointment of an arbitrator, the respondent cannot now turn around and say that the petitioner has waived his right. Recently, the Hon'ble Gujarat High Court in Trapasiya v Divisional Railway Manager in R/Petition under Arbitration Act No. 109 of 2020 has held that unless the embargo placed under Sec. 12 (5) of the Arbitration and Conciliation Act, 1996 is waived by the parties through a written agreement to that effect, the provisions of Sec. 12 (5) would continue to apply. Further, the Court also held that there cannot be a deemed waiver by merely issuing a letter or communication to opposite party. In the present case, such waiver of embargo under Sec. 12 (5) has not taken place.