Allahabad High Court: Under Seventh Schedule of Arbitration Act, Person, or Authority cannot be appointed as Arbitrator nor can nominate Arbitrator

Allahabad High Court: Under Seventh Schedule of Arbitration Act, Person, or Authority cannot be appointed as Arbitrator nor can nominate Arbitrator

The Allahabad High Court, while disposing an application, observed that Clause 25(ii) of the General Conditions of Contract providing for appointment of an Arbitrator Chief Engineer, Central Public Works Department, Government of India (in short CPWD), in charge of the work or if there is no Chief Engineer, the Additional Director General of the concerned region of CPWD or if there is no Additional Director General, the Director General of Works is in the teeth of Section 12(5) of the Arbitration and Conciliation Act, 1996 (hereinafter referred as 'Act') fall under category-1 of the Seventh Schedule of the Act and thereby is ineligible to be appointed as Arbitrator and are also ineligible to nominate an Arbitrator for resolution of dispute between the parties.

Chief Justice Rajesh Bindal passed the order while hearing an Arbitration and Conciliation Application filed under Section 11(4) filed by the applicants- M.J.S. Construction and others.

The applicants prayed for appointment of an arbitrator for resolution of dispute between the parties. It was contended by the applicants that upon participating in the tender, the applicant's firm issued a Work Order dated 18 August, 2015 to construct a thirty bedded hospital in Cantt General Hospital, Kanpur.

According to the applicant, the final bill after competition of work was amounted to Rs. 3,17,98,239 which was produced as payment and an amount of Rs. 53,60,466 remained unpaid. The applicant kept on requesting the respondents to release the balance payment, however, when for quite long time, the payment was not made despite repeated requests made by the applicant-firm, the applicant invoked arbitration clause as contained in Clause 25 of General Conditions of Contract for Central P.W.D Works, 2014 seeking appointment of an Arbitrator for resolution of dispute between the parties, for the purpose notice dated July 9, 2021 was issued.

It was further submitted that the respondent- Union of India and others vide letter dated 8 October, 2021 refused to appoint Arbitrator stating that there is no need for appointment of Arbitrator as per clause 17 of the contract agreement dated 26 December, 2014 which excludes the dispute from the purview of arbitration and it shall be decided by the Board which shall be binding and conclusive.

On the other hand, the respondent further submitted that there was no sanction granted for the additional work allegedly executed by the applicant, hence, no payment could be made. Regarding application of Clause-16 of the agreement dated December 26, 2014, it was submitted that 25 of General Conditions of Contract provides that the same shall be applicable except where otherwise provided in the contract. In the case in hand, Clause-16 of the agreement dated 26 December, 2014 clearly provided that the decision on the issue by the Board/CEO will be final and thus no arbitrator can be appointed.

After examining of facts, the court noted that the aforesaid clause was applicable to the contract in question was not a matter of dispute as the same was neither denied by the respondent in reply to the notice issued by the applicant seeking appointment of Arbitrator referring to that clause nor even in the counter affidavit filed to the application. The only ground raised for rejection of the prayer of the applicant for appointment of arbitrator was Clause 16 of the agreement dated 26 December, 2014 in terms whereof for specification and the quality of materials, the decision of the Board/CEO shall be final.

The Court was of the view that clause 16 of the agreement in issue provides for decision of the Board/CEO on certain issues to be final and violated Section 28 of the Indian Contract Act, 1872. The Court highlighted that if that clause is taken out of the agreement, clause 25 of General Conditions of Contract would come into picture.

As per clause 25 of General Conditions of Contract, a detailed procedure has been provided for resolution of dispute. Firstly, a request must be made to the Superintending Engineer. In case he fails to give a decision, an appeal is maintainable to the Chief Engineer after which the matter can be resolved by the Dispute Redressal Committee. Any of the parties dissatisfied with the order of the Dispute Redressal Committee can give notice to the Chief Engineer for appointment of Arbitrator. The matter is required to be referred to the sole Arbitrator to be appointed by Chief Engineer.

"Therefore, in my considered view, Sub-clause (ii) of Clause 25 of General Conditions of Contract, to the extent it provides for appointment of an Arbitrator by the Chief Engineer, or Additional Director General or Director General is liable to be skipped. If the aforesaid provision, to the above extent, is taken out of the general conditions of contract, in my view, the Arbitrator for resolution of dispute between the parties needs to be appointed by the Court," the Court observed while disposing the application.