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The contract with the exclusive right to appoint the arbitrator is not enforceable and is violative of Section 12(5) of the 1996 Act: High Court of Delhi

No single party can be permitted to unilaterally appoint the Arbitrator, as it would defeat the purpose of unbiased adjudication of dispute between the parties. The Arbitrator either has to be appointed with the consensus of the parties or by Court. The task of appointing the arbitrator devolves on the Court. These were stated by High Court of Delhi, consisting Justice Suresh Kumar Kait in the case of Envirad Projects Pvt. Ltd. vs. NTPC Ltd. [ARB.P. 27/2022] on 18.01.2022.

The facts of case are that the petitioner and respondent are two different companies registered under the Companies Act, 1956. The respondent-company invited the bid/tender for a project and after final bid, the aforesaid work was awarded to the petitioner for work value of about Rs.27.50 crores having overall completion of work done within period of 20 months wherein the works of Dyke ‘A’ was to be executed within 11 months starting from 10.01.2015 to 09.12.2015, and thereafter, the works of Dyke ‘B’ within 9 months from 10.12.2015 to 09.09.2016. Subsequently, parties entered into a Contract Agreement dated 15.01.2015. It was averred that the petitioner mobilised the machineries and manpower to execute the awarded works from day one, yet due to many reasons of delay, work of Dyke ‘A’ and divide bund was handed over to respondent on 09.03.2016. Though the respondent was well aware of the reasons of delay which were not in control of petitioner, respondent deducted huge amount of about Rs.67.51 lacs towards the Liquidated Damages, and the same was in complete violation and de hors to terms and conditions of the said Contract Agreement. The present petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 seeks appointment of sole Arbitrator to adjudicate the disputes inter-se the parties.

The learned Counsel for petitioner submitted that for commencement of Dyke ‘B’ works, the respondent failed to handover the required working fronts for a period of 57 days and the same were partially made available on 05.05.2016. Thus, a justified revised time schedule to give effect to envisaged original 9 months for completing Dyke ‘B’ works was ought to be fairly extended up to 04.02.2017 by the respondent, yet the respondent issued unfair and unjust time extension. It was further contended that for the reasons/delays for completion of said awarded works of the Contract were issued by the respondent coupled with unfair deduction of 7.5 % amount in name of “LD Hold amount” for the progressive executed works for Dyke ‘B’ and the defect liability period of 12 months for such executed works also ended on 31.10.2019. However, the respondent did not pay the outstanding due payments of Rs.1,65,44,796 till date to the petitioner and rather it imposed LD amount of Rs.82,44,435 in May, 2021. Thereafter, disputes arose and petitioner served a notice upon respondent, seeking appointment of Arbitrator as per terms and provisions of Clause No.56 of GCC and the CMD.

The learned Counsel for the respondent contended that that as per Clause 56 and 57 of the General Conditions of Contract of the underlying contract Agreement it is postulated that the disputes would be referred to the sole arbitration of the General Manager of NTPC limited, and if General Manager is unable or unwilling to act, to the sole arbitration of some other person appointed by the Chairman and Managing Director, NTPC Limited, willing to act as such Arbitrator.

The High Court of Delhi held that no single party can be permitted to unilaterally appoint the Arbitrator, as it would defeat the purpose of unbiased adjudication of dispute between the parties. Thus, the Arbitrator either has to be appointed with the consensus of the parties or by this Court. The task of appointing the arbitrator devolves on the Court. It was stated by the Court that the contract with the exclusive right to appoint the arbitrator is not enforceable in law and is also violative of Section 12(5) of the 1996 Act. The present petition was allowed. Accordingly, Justice S.K. Katriar was appointed as sole Arbitrator to adjudicate the dispute between the parties.

Judgment reviewed by Shristi Suman. Read Judgment

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