Calcutta High Court
M/S Krishna Constructon vs The Chief General Manager Metro Railway … on 22 April, 2025
Author: Shampa Sarkar
Bench: Shampa Sarkar
OCD -12
ORDER SHEET
IN THE HIGH COURT AT CALCUTTA
COMMERCIAL DIVISION
ORIGINAL SIDE
AP-COM/253/2025
M/S KRISHNA CONSTRUCTON
VS
THE CHIEF GENERAL MANAGER METRO RAILWAY AND ORS
BEFORE:
The Hon'ble JUSTICE SHAMPA SARKAR
Date: 22nd April, 2025.
Appearance:
Mr. Bhagbat Chaudhuri,Adv.
Mr. Rittick Chowdhury, Adv.
Mr. Bhaskar Chakraborty, Adv.
Mr. Subrata Mukherjee, Adv.
.... for the petitioner
Mr. Asis Mukherjee, Adv.
Mrs. Priti Jain, Adv.
...for the respondents
The Court: This is an application for appointment of an arbitrator on
the strength of clause 3.2.8.1 of the agreement dated March 21, 2018. The
petitioner was awarded a contract for up-keeping and cleaning of sub-stations,
AV section, Pump section and the Conductor Rail section, of the electrical
department under control of Dy. CEE/Maintenance of Metro Railway, Kolkata.
The contract was terminated by the authority sometime in November, 2018.
The petitioner contends that bills of Rs. 54,31,514.22 were due and payable to
the petitioner. The contract was terminated. The security deposit and bank
guarantee were not returned. Thus, disputes cropped up between the parties.
The petitioner submits that the disputes have to be resolved by a learned
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Arbitrator, to be appointed by this Court in view of the fact that the
appointment by the General-Manager of the Metro Railways from a panel of
Engineers maintained by them, was no longer permissible in law.
It is submitted by the learned advocate for the Metro Railway that the
Metro Railway was always willing to pay an amount of Rs. 11 lakhs, which
according to the Railways was due. The petitioner did not comply with the
required formalities for disbursal of the said amount. With regard to the claim
for return of bank guarantee and security deposit, it is submitted that once the
contract was terminated on failure on the part of the petitioner to complete the
work, the question of refund of security deposit and return of bank guarantee
did not arise. It is submitted that the petitioner did not approach the Metro
Railways for appointment of a learned Arbitrator, by following the proper
procedure.
The fact that there is an arbitration clause is not in dispute. The
petitioner approached the Writ Court sometime in 2022, thereby challenging
the actions of the Metro Railway authorities by filing WPA 6886 of 2022. The
writ petition was disposed of by the Court on September 4, 2024, inter alia,
holding that the same was not maintainable in view of the arbitration clause.
The petitioner was granted liberty to take steps in accordance with law in terms
of the said clause. Upon disposal of the writ petition, the petitioner issued a
notice invoking arbitration on November 20, 2024 for appointment of a learned
arbitrator. The notice invoking arbitration clearly indicated the nature of claim
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and the disputes which the petitioner seeks to be adjudicated by the learned
arbitrator. The petitioner also suggested the name of a learned arbitrator.
4. By a letter dated December 16, 2024, the CEE/HQ, Metro Railway,
Kolkata requested the Principal Chief Engineer, Metro Railway, Kolkata to
process the demand for arbitration. Thus, it is available from the records that
the Metro Railway Authority also accepted that there is an arbitration clause
and the dispute should be adjudicated by a learned arbitrator. The claim of the
petitioner is around Rs. 54 lakhs. The clauses provide that a sole arbitrator
shall decide the matter. The respondent, however, wanted to appoint an
Arbitrator from a panel maintained by it. The relevant portion of the letter is
quoted below:-
"M/s. Krishna Construction, Vill & Post-Hansuri, P.S-Magrahat, Dist-24
PGS(S)-743609 demanded for arbitration as advised by High Court Order
dated, 27.09,2024 vide ref (ii)above.
The letter has been received by office of PCEE. In the last paragraph, it is
observed that the firm have appointed/nominated their arbitrator in this
regard vide ref.(i) above. However, as per Cause number 3.2.8.3(a)(i) of
agreement the arbitrator shall be appointed/ nominated by General
Manager, Metro Railway Kolkata.
Arbitration for Metro Railway cases are handled by Engineering
Department.
Therefore, kindly process appointment of arbitrator as demanded by
M/s. Krishna Construction, Vill & Post-Hansuri, P.S-Magrahat, Dist-24
PGS(S)-743609 vide letter under reference (i)."
5. The law is well-settled that, an arbitrator cannot be appointed by a party
or an officer of a party, as the same would be contrary to the doctrine of
competence competence. Clause 3.2.8.3(a)(i) is quoted below :-
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"3.2.8.3 Appointment of Arbitrator :-
(a) Appointment of Arbitrator where applicability of section 12(5) of
arbitration and co0nciliation Act has been waived off :
(a)(i)- In cases where the total value of all claims in question added
together does not exceed Rs. 1,00,00,000/- (Rupees One Crore Only), the
Arbitral tribunal shall consist of a sole arbitrator who shall be a gazetted
officer of Railway not below JA grade, nominated by the General Manager.
The sole arbitrator shall be appointed within 60 days from the day when a
written and valid demand for arbitration is received by GM."
6. A person who cannot act as an Arbitrator, also cannot appoint an
Arbitrator. Thus, the General Manager can neither act as an arbitrator nor
appoint an arbitrator, who is an officer of the respondent. Moreover, the clause
provides that such procedure can be followed only if the applicability of section
12(5) of the said Act is waived.
7. Reference is made to the following decisionsPerkins Eastman Architects
DPC and Another vs. HSCC (India) Ltd. reported in 2019 SCC OnLine SC
1517, and Central Organisation for Railway Electrification vs. ECI SPIC
SMO MCML (JV) A joint Venture Company reported in 2024 SCC OnLine SC
3219.
8. The General Manager cannot appoint an Arbitrator as he has interest in
the outcome of the proceeding. Moreover, a Gazetted Officer of the Railways
also, cannot act as a learned Arbitrator, as he is de jure unable to perform.
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9. The Hon'ble Apex Court in Central Organization for Railway
Electrification (supra), held thus:-
"169. In view of the above discussion, we conclude that:
a. The principle of equal treatment of parties applies at all stages of
arbitration proceedings, including the stage of appointment of arbitrators ;
b. The Arbitration Act does not prohibit PSUs from empanelling
potential arbitrators. However, an arbitration clause cannot mandate the
other party to select its arbitrator from the panel curated by PSUs;
c. A clause that allows one party to unilaterally appoint a sole
arbitrator gives rise to justifiable doubts as to the independence and
impartiality of the arbitrator. Further, such a unilateral clause is exclusive
and hinders equal participation of the other party in the appointment
process of arbitrators;
d. In the appointment of a three-member panel, mandating the other
party to select its arbitrator from a curated panel of potential arbitrators is
against the principle of equal treatment of parties. In this situation, there
is no effective counterbalance because parties do not participate equally in
the process of appointing arbitrators. The process of appointing
arbitrators in CORE (supra) is unequal and prejudiced in favour of the
Railways;
e. Unilateral appointment clauses in public-private contracts are
violative of Article 14 of the Constitution ;
f. The principle of express waiver contained under the proviso to
Section 12(5) also applies to situations where the parties seek to waive the
allegation of bias against an arbitrator appointed unilaterally by one of the
parties. After the disputes have arisen, the parties can determine whether
there is a necessity to waive the nemo judex rule; and
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In Perkins Eastman (supra), the Hon'ble Apex Court held thus :-
..."20. We thus have two categories of cases. The first, similar to the
one dealt with in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd.,
(2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] 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 Ltd. [TRF Ltd. v. Energo Engg. Projects
Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] , 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.
21. But, in our view that has to be the logical deduction from TRF
Ltd. [TRF Ltd. v. EnergoEngg. Projects Ltd., (2017) 8 SCC 377 :
(2017) 4 SCC (Civ) 72] Para 50 of the decision shows that this Court
was concerned with the issue, "whether the Managing Director, after
becoming ineligible by operation of law, is he still eligible to nominate
an arbitrator" The ineligibility referred to therein, was as a result of
operation of law, in that a person having an interest in the dispute or
in the outcome or decision thereof, must not only be ineligible to act
as an arbitrator but must also not be eligible to appoint anyone else
as an arbitrator and that such person cannot and should not have
any role in charting out any course to the dispute resolution by
having the power to appoint an arbitrator. The next sentences in the
paragraph, further show that cases where both the parties could
nominate respective arbitrators of their choice were found to be
completely a different situation. The reason is clear that whatever
advantage a party may derive by nominating an arbitrator of its
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choice would get counter-balanced by equal power with the other
party.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 (3 of 2016) and
recognised by the decision of this Court in TRF Ltd. [TRF
Ltd. v. EnergoEngg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC
(Civ) 72]
...
24. In Voestalpine [VoestalpineSchienen GmbH v. DMRC, (2017) 4
SCC 665 : (2017) 2 SCC (Civ) 607] , this Court dealt with
independence and impartiality of the arbitrator as under : (SCC pp.
687-88 & 690-91, paras 20 to 22 & 30)
“20. Independence and impartiality of the arbitrator are the
hallmarks of any arbitration proceedings. Rule against bias is one of
the fundamental principles of natural justice which applied to all
judicial and quasi-judicial proceedings. It is for this reason that
notwithstanding the fact that relationship between the parties to the
arbitration and the arbitrators themselves are contractual in nature
and the source of an arbitrator’s appointment is deduced from the
agreement entered into between the parties, notwithstanding the
same non-independence and non-impartiality of such arbitrator
(though contractually agreed upon) would render him ineligible to
conduct the arbitration. The genesis behind this rational is that even
when an arbitrator is appointed in terms of contract and by the
parties to the contract, he is independent of the parties. Functions
and duties require him to rise above the partisan interest of the
parties and not to act in, or so as to further, the particular interest of
either parties. After all, the arbitrator has adjudicatory role to
perform and, therefore, he must be independent of parties as well as
impartial. The United Kingdom Supreme Court has beautifully
highlighted this aspect in Hashwani v. Jivraj [Hashwani v. Jivraj,
(2011) 1 WLR 1872 : 2011 UKSC 40] in the following words : (WLR p.
1889, para 45)
’45. … the dominant purpose of appointing an arbitrator or
arbitrators is the impartial resolution of the dispute between the
parties in accordance with the terms of the agreement and, although
the contract between the parties and the arbitrators would be a
contract for the provision of personal services, they were not personal
services under the direction of the parties.’
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21. Similarly, Cour de Cassation, France, in a judgment delivered in
1972 in Consorts Ury [Fouchard, Gaillard, Goldman on International
Commercial Arbitration, 562 [Emmanuel Gaillard & John Savage
(Eds.) 1999] {quoting Cour de cassation [Cass.] [Supreme Court for
judicial matters] Consorts Ury v. S.A. des Galeries Lafayette, Cass.2e
civ., 13-4-1972, JCP, Pt. II, No. 17189 (1972) (France)}.] , underlined
that:
‘an independent mind is indispensable in the exercise of judicial
power, whatever the source of that power may be, and it is one of the
essential qualities of an arbitrator’.
22. Independence and impartiality are two different concepts. An
arbitrator may be independent and yet, lack impartiality, or vice
versa. Impartiality, as is well accepted, is a more subjective concept
as compared to independence. Independence, which is more an
objective concept, may, thus, be more straightforwardly ascertained
by the parties at the outset of the arbitration proceedings in light of
the circumstances disclosed by the arbitrator, while partiality will
more likely surface during the arbitration proceedings.
***
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. In the instant case also, though choice is given by DMRC to
the opposite party but it is limited to choose an arbitrator from the
panel prepared by DMRC. It, therefore, becomes imperative to have a
much broadbased panel, so that there is no misapprehension that
principle of impartiality and independence would be discarded at any
stage of the proceedings, specially at the stage of constitution of the
Arbitral Tribunal. We, therefore, direct that DMRC shall prepare a
broadbased panel on the aforesaid lines, within a period of two
months from today…”
10. With regard to the objections as to the arbitribility of the issues,
admissibility of the claim, the claim being barred by limitation, justification of
the termination, non-refund of the security deposit and bank guarantee etc.,
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this Court is of the view that the matter should be adjudicated by the learned
arbitrator, to be appointed by Court, independently. Whether the period spent
in the litigation before the Writ Court should be exempted in computing
limitation, whether the exemption granted by the Hon’ble Apex Court during
the Covid period while computing limitation, are also left to the learned
Arbitrator to decide.
11. Under such circumstances, the application is disposed of by appointing
Mr. Nayan Chand Bihani, learnedSenior Advocate, Bar Library Club as the sole
arbitrator, to arbitrate upon the disputes between the parties. The learned
Arbitrator shall comply with the provisions of Section 12 of the Arbitration and
Conciliation Act, 1996. The learned Arbitrator shall be at liberty to fix his
remuneration as per the schedule of Arbitration and Conciliation Act, 1996.
(SHAMPA SARKAR, J.)
TR/
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