2024:BHC-OS:18356

Diksha Rane 24. ARBP 43-23-FINAL.doc

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

ARBITRATION PETITION NO.43 OF 2023

M/S. TRULY PEST SOLUTION PRIVATE

LIMITED (BEING A MSME) ..PETITIONER
VS.
PRINCIPAL CHIEF MECHANICAL ENGINEERING
(P.C.M.E.) CENTRAL RAILWAY. ..RESPONDENT
------------
Adv. Shekhar Jagtap a/w. Adv. Ishan Paradkar i/b. J. Shekhar &
Associates for petitioner.
Adv. Savita Ganoo a/w. Adv. D. P. Singh for respondent-UOI
------------

CORAM : Rajesh S. Patil, J.

RESERVED ON : 11th September 2024.
PRONOUNCED ON : 11th November 2024.

JUDGMENT :

1. The present petition is filed under Section 34 of the Arbitration

and Conciliation Act, 1996 (for short ‘the Arbitration Act’), by the

original claimant seeking to quash and set aside the arbitral award

dated 4th February 2022, passed by the sole arbitrator.

FACTS

2. On 5th May 2016, a tender was published by the Divisional

Railway Manager (Mechanical), Central Railway, Mumbai (for short

‘Railways’) towards the work of Pest and Rodent Control, in railway

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passenger coaches maintained at CSTM, WB, MZN, DRT and LDT,

Coaching Depots and Rodent Control in Coaching Depots yard and

premises. The petitioner participated in the tender process and on 7 th

June 2016, was declared as the successful bidder. Accordingly, the

contract work of the said tender was awarded to the petitioner, for an

amount of Rs.1,96,32,255/-. The contract period was for three years

i.e. from 30th November 2016 to 29th November 2019.

3. Meanwhile, Government issued Notification on 19 th January

2017, by which the rates of minimum wages payable to labourers

were increased. Additionally, the railways issued a Joint Procedure

Order (for short ‘JPO’) dated 20 th December 2017, wherein all the

contractors were permitted to foreclose their contracts on the

condition that the contractors would continue the ongoing work till

the finalisation of a new contract, and the minimum wages would be

paid to the labourer till the foreclosure of the contract and no dues

financial or otherwise shall be staked by the contractor.

4. The petitioner vide their letter dated February 2018 and a

further letter dated January 2019 communicated their intention to

withdraw from the contracted work as per the terms of the JPO. The

railways accordingly on 8th January 2019 issued a new contract for

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the balance work and foreclosed the contract with the petitioner.

5. The petitioner claimed an additional manpower expense of

Rs.20,91,522/- along with interest from the railways. As the said

amount was disputed, the petitioner, on 7 th December 2020, issued a

legal notice to the railways and invoked Arbitration Clause, thereby

calling upon them to pay the differential wages of Rs.20,91,522/-

along with interest.

6. Subsequently on 18th December 2020 the petitioner signed and

stamped the “Waiver off agreement”, under Section 12(5) of

Arbitration Act. The Railways accordingly proceeded further and on

28th April 2021 appointed Shri D. K. Tripathi, Deputy Mechanical

Engineer (D), Central Railway, Mumbai, CSMT, to act as a ‘Sole

Arbitrator”.

7. The petitioner/claimant, on 8th June 2021, filed their

Statement of Claim along with all the relevant annexures with the

sole Arbitrator. The Railways being the respondents filed their reply

to the statement of claim before the sole Arbitrator.

8. On 1st October 2021, the Railways issued Work Completion

Certificate, to the petitioner in respect of the contracted work,

mentioning therein that the work completed on 10 th January 2019,

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amounting to Rs.1,29,74,966/-.

9. The proceedings before the Arbitral Tribunal, consisting of Sole

Arbitrator went ahead and after hearing both the sides the Sole

Arbitrator, on 4th February 2022 passed an Award, thereby dismissing

the claim of the petitioner.

10. Being dissatisfied with the dismissal of their claim by

impugned Award dated 4th February 2022 the petitioner/claimant

have challenged the same by way of present Arbitration Petition, filed

under Section 34 of the Arbitration Act.

SUBMISSIONS

11. Mr. Shekhar Jagtap appeared on behalf of the

petitioner/claimant and made his submissions.

(i) He submitted that the sole Arbitrator was appointed by the

Railways, therefore, under the provisions of Section 12 (5) read with

Schedule VII of the Arbitration Act, the award passed by the Sole

Arbitrator who was himself de jure ineligible to be an Arbitrator,

hence, the Award is void ab initio.

(ii) The Waiver mentioned in the proviso of Section 12(5) of the

Arbitration Act is required to be exercised in true letter and spirit and

not in a mechanical manner or under implied coercion, whereby the

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party waiving the right of raising objection is left with no choice but

to accept the Waiver, since the other party is at dominating position.

(iii) He relied upon the judgment of the Supreme Court passed in

Bharat Broadband Network Limited Versus United Telecom Limited1.

(iv) He submitted that the Waiver as mentioned under Section

12(5) of the Arbitration Act, was sought by the Railways, as per their

demand. The Railways had by their letter dated 22 nd February 2021

enclosed a standard proforma of the Waiver agreement which was

made mandatory to be signed by both the parties. Therefore, the

petitioner had no other option but to sign the Waiver Agreement

under Section 12(5) of the Arbitration Act and thereafter, to proceed

with the arbitration. On this issue, he relied upon the judgment of the

Supreme Court passed in Ellora Papermills Limited vs. State of

Madhya Pradesh2.

(v) He submitted that as per the agreement, there was an

Arbitration Clause, therefore, the petitioner was prohibited from

approaching the Civil Court for their grievances.

(vi) He submitted that the condition for foreclosure of the contract

laid down in the JPO dated 20th December 2017 by the Railway

1 (2019) 5 SCC 755

2 (2022) 3 SCC 1

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Authorities are illegal and bad in law.

(vii) He submitted that the No Claim Certificate sought by the

respondents/Railways from the petitioner was under implied

coercion. To adhere to the procedure of reimbursement of the claim,

the petitioner had no other option but to sign the No Claim

Certificate. So also, the petitioner was incapable to express its protest

for want of any Forum, for this domination by the Railways.

(viii) The Railways deliberately neglected the representations made

by the petitioner, requesting to invoke the price variation clause in

the Contract Agreement and reimburse the increased amount payable

in the form of wages to the workers.

(ix) The increase of 45% in the minimum wages of the workers in

term of the Notification dated 19 th January 2017, was during the

period of the contract, which resulted into the petitioner paying a

sum of Rs.523/- to each worker per day, instead of Rs.374/- per day.

(x) The Railways deliberately delayed the procedure of foreclosure

of the contract, despite various communications made by the

petitioner.

(xi) He submitted that in a similar kind of a situation this Court has

dealt with the issue in the proceedings of A 2 Z Infra Services Limited

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vs. Union of India3. The said ratio is applicable to the present

proceedings.

(xii) He submitted that the sole Arbitrator has passed impugned

award which is against the public policy, hence, it is liable to be

quashed and set aside. He also relied upon the judgment of the

Supreme Court in the proceedings of Associate Builders Vs. Delhi

Development Authority4.

(xiii) He submitted that the impugned award requires to be quashed

and set aside, and the claim to be allowed.

12. Mrs. Savita Ganoo appeared for the respondent-Railways and

made her submissions.

(i) She submitted that a bare reading of Section 34 of the

Arbitration Act makes it clear that the grounds for raising a challenge

to the Arbitral Award are restricted to those in Section 34(2). The

petitioner in the present case except for making a feeble attempt to

raise an objection to the appointment of the Arbitrator has not made

out any case to set aside the award on any of the grounds under

Section 34(2) of the said Act.

(ii) The grounds raised by the petitioner are not grounds which can

3 Writ Petition No.1996 of 2017.

4 (2015) 3 SCC 49

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be urged under Section 34(2) of the Arbitration Act, in view of the

settled position in law that the Arbitrator is the final arbiter of facts.

It is submitted that the Arbitrator has passed a well-reasoned Award

and the objections to the impugned award are beyond the grounds

which can be urged under Section 34 of the said Act and hence

cannot be considered as valid objections.

(iii) Arbitration and Conciliation (Amendment) Act, 2015, Section 8

thereof introduced a new regime i.e. sub-section (5) to Section 12 of

the said Act.

(iv) She submitted that ordinarily under Section 12(5) of the

Arbitration Act, an Arbitrator who has a relationship with a party as

contemplated under VII Schedule of the said Act, is ineligible to act

as arbitrator. However, this ineligibility is not permanent and admits

of one crucial exception - as provided under the proviso to Section

12(5) of the said Act. Under the said proviso, a party can waive the

applicability of the sub-section by an express agreement in writing,

subsequent to disputes having arisen. In other words, in cases where

waiver would operate, objection/grounds on the basis of VII Schedule

and Section 12(5), cannot be sustained.

(v) The letter dated 18th December 2020 addressed to Senior

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Divisional Mechanical Engineer (Coaching), Divisional Railway

Manager (Mechanical) forwarded an Agreement signed by the

petitioner and the respondent expressly waiving the applicability of

Section 12(5) of the said Act.

(vi) The documents of waiver are in writing and the same are

executed post the dispute having arisen.

(vii) As regards the case of (a) Bharat Broadband Network Ltd. vs.

United Telecoms Ltd.5 and (b) JMC Projects (India) Ltd. vs. Indure

Private Limited6 relied by petitioner in support of its contention that

the learned Arbitrator's appointment does not suffer from any de jure

inability. The said judgments categorically state that if as per the

proviso subsequent to the disputes having arisen between the parties

there is an express agreement in writing whereby the parties have

agreed to waive the applicability of Section 12(5) of the said Act the

ineligibility would cease to exist.

(viii) The Petitioner by invoking Arbitration Clause sought for

an Arbitrator to be appointed in accordance with Clause No. 64 (3)

(a) (i) of the General Conditions of Contract, hence, the Petitioner

always knew that the Arbitral Tribunal shall consist of a Sole

5 (2019) 5 SCC 755

6 2020 Scc OnLine Del 1950

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Arbitrator who shall be a Gazetted Officer of Railway not below JA

Grade, nominated by the General Manager. Therefore, the Petitioner

was fully conscious of what appointment was being sought by them.

(ix) The waiver by the Petitioner being in response to the

letter dated 14th December 2020 addressed by the Respondent

therefore reflects (i) awareness on the part of the Petitioner to the

applicability of the said provision as well as the resultant invalidation

of the learned Arbitrator to arbitrate on the disputes between them

and (ii) the conscious intention to waive the applicability of the said

provision in the cases of disputes between them. Being conscious of

the proviso to Section 12(5), the Petitioner has executed the

aforesaid documents. In view thereof, it is respectfully submitted that

the contention of the Petitioner is without merit and deserves to be

rejected.

(x) The proviso of Section 12(5) squarely applies to the present

case. The judgment referred by petitioner in the case of Ellora Paper

Mills Limited vs. State of Madhya Pradesh 7 does not apply to the facts

of the present case. In the case of Ellora Paper Mills Limited vs. State

of Madhya Pradesh there was no waiver between the parties at all,

and therefore the said decision is distinguishable on facts. Hence, the

7 (2022) 3 SCC 1

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principle enunciated therein would not be applicable to the facts of

the present case.

(xi) If the petitioner was ever aggrieved by the Arbitration clause

and not agreeable to waiving its objections under Section 12(5),

Petitioner could have taken recourse to filing an application under

Section 11 of the said Act for appointment of an arbitrator.

Respondent submits that this has not been done by the Petitioner,

which only shows that the Petitioner had never doubted the

independence and impartiality of the Learned Arbitrator.

(xii) The Petitioner during the arbitration proceedings also never

filed any form of application raising any objections with regard to the

independence and impartiality of the learned Arbitrator. Such

applications of bias would have to be filed with the Arbitrator, as per

provisions of the said Act.

(xiii) Infact the Petitioner in paragraph 9 of the Statement of

Claim expressly states that the learned Arbitrator had jurisdiction to

adjudicate the disputes between the parties.

(xiv) The impugned Award is a reasoned Award passed after

considering the oral and documentary evidence and arguments

advanced by both sides. The Ld. Arbitrator has considered each of the

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claims raised the Petitioner and given detailed reasons for rejecting

the same.

(xv) Prior to the Petitioner being awarded the Contract, on 1 st

September 2016, a draft proposal was published through Gazette

Notification SO 2836 (E) by Ministry of Labour and Employment

wherein notice of two months was given for proposed revision in

minimum wages for various scheduled employment. The said

proposal would also apply to labourers under the subject contract.

Subsequently, vide Gazette notification dated 19 th January 2017, the

minimum wage was increased to Rs.523/- which was applicable for

the period from 19th January 2017.

(xvi) Since the draft proposal for minimum wage revision by

the Ministry of Labour and Employment was notified even before

award of contract to the Petitioner, the Petitioner was fully aware of

the expected rise in the minimum wages. Thus the Petitioner cannot

be heard to say that the increase in the minimum wages rendered the

contract financially unfeasible.

(xvii) In the case of A2Z Infraservices Limited vs. Union of

India (Writ Petition No.1996 of 2017), the contract was in existence

between the parties. In the present proceedings, the petitioner had

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asked for foreclosure of the agreement in January 2018 itself.

Therefore, the principle held in the judgment would be inapplicable

to the facts of the present case.

(xviii) The Railways issued a JPO dated 20th December 2017 to

deal with foreclosure of contracts wherein request for foreclosure of

contract were received from the contractor owing to inability

expressed by the contractor to pay the increased minimum wages to

labour. As per the said JPO, the contractor was required to issue an

unambiguous undertaking.

(xix) The undertaking was a pre-requisite for processing

foreclosure of the contract awarded to the petitioner. The petitioner

vide its letter dated 24th January 2018 had expressed its intent to

foreclose the contract claiming inability to continue the work on

account of increased wages. Despite, a clear communication to

submit an undertaking as per the JPO, petitioner failed to give an

undertaking by its letter dated 24 th January 2018 as well as its letter

dated 5th February 2018.

(xx) Respondent vide their letters dated 9.02.2018 and

21.02.2018 had clearly stated that payment of wages, PF, ESIC, etc.

to the labour were not clearly substantiated with documentary

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evidence by the Petitioner. Further, the authorized personnel of the

Petitioner had also refused to sign the measurement of work done in

order to further process the bills. Being the Principal Employer,

payment of wages and remittance of PF, ESIC, etc. needs to be

ensured. Further, the Petitioner was not providing an undertaking as

stipulated in the JPO.

(xxi) The Petitioner had issued an unambiguous undertaking

duly accepting all of the conditions only on 16.05.2018. The subject

contract was processed for foreclosure thereafter. The Petitioner

themselves had prolonged their communication of acceptance of the

conditions of the JPO as is evident from the fact that the submission

of the unambiguous undertaking was submitted only on 16.05.2018

whereas the JPO for foreclosure was offered in December, 2017.

(xxii) By accepting the terms of the JPO, the Petitioner had

themselves exercised the option of continuing with the contract till

finalization of new contract. Before passing of the monthly bills,

Petitioner was required to submit due compliances and the bills of the

Petitioner got delayed due to non-submission of compliances. The

Petitioner in the said letter dated 16 May, 2018 admits that it would

have no claims against the Respondent financial or otherwise on the

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foreclosure of the Contract. Despite having issued a no claim

certificate, the Petitioner has invoked the Arbitration Clause and filed

the present petition.

(xxiii) The contentions of the Respondent as stated hereinabove

have been accepted by the learned Arbitrator with cogent reasons

and therefore, the same cannot be interfered with, since the same

would amount to deal with findings on facts.

(xxiv) She submitted that the present Petition be dismissed with

costs.

ANALYSIS AND FINDINGS

13. The contract period in the present proceedings was from 30 th

November 2016 to 29th November 2019. Out of the contract value,

admittedly a sum of Rs.1,12,00,000/- has been paid by the

respondent (railways) to the petitioner/the claimant. Therefore, the

claim is only with regard to the additional manpower expense of

Rs.20,91,553/-. The claim of the petitioner/applicant was rejected by

Award, passed by the Arbitral Tribunal.

14. The challenge of the petitioner to the Award is on various

grounds. It is the case of the petitioner that they had no choice but to

agree to the name suggested of the Sole Arbitrator by the

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Railways/respondent as per the Clauses of the Agreement which

specifically mentioned that the sole Arbitrator would be an employee

of the respondent (Railways). Hence, the claimant could not even go

to the Civil Court to file their dispute as there was an arbitration

clause.

15. The petitioner further submitted that Schedule VII specifically

stated that it was in fact the duty of the Sole Arbitrator to disclose his

linkage with the respondent (railways). The petitioner further

submitted that since the contract between the parties post the

amendment to the Arbitration and Conciliation (Amendment) Act,

2015, the learned Arbitrator should have disclosed his link with the

respondent (railways). He submitted that due to such clause in the

contract, the claimant could not have raised the issue before the

Arbitrator himself and the issue being that of law, the same can be

raised even under Section 34 of the Arbitration Act before this Court.

16. It is the case of the petitioner/claimant that the Arbitral

Tribunal consisting of Sole Arbitrator who was an employee of the

respondent (railways), hence, he could not have being adjudicating

the issue between the claimant and the respondent. It is the case of

the claimant that after the amendment to the Arbitration Act, in the

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year 2015, there were major changes made in Section 12 of the said

Act. Section 12 of the Arbitration Act mentions about the grounds for

challenge. One of such ground of challenge is sub-clause (5) which

mentions that any person whose relationship with the parties or the

subject matter of the dispute which falls under the VII Schedule shall

not be eligible to be appointed as an Arbitrator. The VII Schedule

refers to about 19 sub-clauses under which, if the Arbitrator has

relationship with the parties or the counsel, he would be ineligible to

be appointed as an Arbitrator. The first of such clause mentions about

an Arbitrator being an employee, consultant or advisor in past or

present with one of the parties, then he would be ineligible to be

appointed as an Arbitrator.

17. In the present proceedings, the petitioner/claimant invoked the

arbitration clause by its letter dated 7th December 2020. Paragraph 16

of the said letter reads as under:-

“16. I, under my client instructions, do hereby call upon you to pay

the minimum differential wages of Rs. 20,91,522/- (Rupees Twenty
Lakhs Ninety One Thousand Five Hundred & Twenty Two Only) along
with an with accrued interest, within a period of 7 days from the
receipt of this notice, failing which, this Notice be treated as Notice
under clause No.64 of the General Condition of Contract Invoking the
Arbitration clause and requests your office to appoint Arbitrator as
per clause No.64 (3) (a) (i) to put at rest the controversy/disputes
amongst the parties and agree both the parties in the General
Conditions of the Contract.”
(Emphasis supplied)

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Hence, at the time of invocation itself the claimant themselves

have referred to Clause 64 of the contract. It will be necessary to look

into Clause 64 (3) (a)(i) which reads as under:-

“64.(3)(a)(i) In cases where the total value of all claims in question

added together does not exceed Rs.25,00,000/- (Rupees twenty five
lakh 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.”
[Emphasis supplied]

Therefore, the claimants have themselves invoked Arbitration

Clause, wherein it is specifically mentioned that the Sole Arbitrator,

would be employee of Railways. Being aware of this fact they have

chose to go ahead with the Arbitration. The claimant had invoked the

Arbitration clause by their letter dated 7 th December 2020. The said

letter was addressed by the claimant through their advocates hence,

the claimant cannot now take a defence that they were not aware

about the legal implications while they issued the letter of invocation

of arbitration.

In my opinion, even at that stage, if the claimant desired to

appoint Sole Arbitrator by mutual consent, the claimant could have

filed an application u/s. 11 of the Arbitration Act, whereby they could

have sought for appointment of the Sole Arbitrator to decide the

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dispute between the parties. Admittedly, the claimants have not taken

any such steps.

18. Further, the respondent (railways) by their letter dated 14 th

December 2020 replied to the letter of the claimant of invocation of

Arbitration clause. The said letter of the respondent (railways) dated

18th December 2020 mentioned that if there is an invocation of the

Arbitration clause, the claimant should first waive the condition of

applicability of sub-section (5) of Section 12. Adhering to this letter

of the respondent (railways), the claimant by their letter dated 18 th

December 2020 agreed to waive away the provisions as mentioned in

sub-section (5) of Section 12. So also, they attached a waiver letter

duly signed by them. It will be necessary to note the provisions of

Section 12(5) of the Arbitration Act which reads as under:-

12. Grounds for challenge:

1[(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
subject matter 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

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specified in the Sixth Schedule.]

(2) An arbitrator, from the time of his appointment and throughout the
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.]

(Emphasis supplied)

Sub-section (5) was inserted to Section 12 of Arbitration Act with

effect from 23rd October 2015. To canvas this point the learned

counsel appearing for railways also relied upon the judgment passed

in JMC Projects (supra) delivered by Single Judge of Delhi High

Court. In the said judgment, in paragraph Nos. 37 and 38, it is held

that parties must expressly agree in writing to waiver of Section

12(5) of the Arbitration Act.

18.1 In Bharat Broad Band (supra), the Supreme Court held that if

as per the Section 12(5) proviso, parties in writing agree to waive the

provisions of Section 12(5) would not be applicable.

18.2 Similarly, in the judgment of Ellora Papermills Limited (supra),

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there was no waiver between the parties, and hence the ratio laid

down in said judgment would not be applicable.

18.3 Though Section 12 (5) specifically mentions that the Arbitrator

should disclose his relationship with the parties, however, proviso to

Section 12(5) mentions about waiver in writing. In the present

proceedings, the claimant by express agreement in writing had

waived the applicability of sub-section 5 of Section 12. Therefore,

according to me, the claimant at the stage of section 34 is bared from

taking up a ground under Section 12(5) for challenging the award.

19. After invocation of the arbitration clause on 7th December

2020, it was not binding on the claimant to grant a waiver as

contemplated under the proviso to Section 12(5) of the Arbitration

Act. The claimant has specifically by letter dated 18 th December 2020,

signed waiver form and on their signature they had sent it across to

the respondent (railways). The waiver letter also had a covering

letter of the claimant wherein the claimant repeated its desire to

waive as per the provisions of the proviso to Section 12(5) of the

Arbitration Act.

19.1. Supreme Court in the case of M/s.Voestalpine Schienen GMBH

Vs. Delhi Metro Rail Corporation Ltd. - reported in (2017) 4 SCC 665

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has considered Section 12(5) and the VII Schedule to the Arbitration

Act, and has held that under Section 12(5) of the Act,

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.

It is held that in such an eventuality, when the arbitration clause finds

foul with the amended provisions i.e. Section 12(5), the appointment

of an arbitrator would be beyond pale of arbitration agreement,

empowering the Court to appoint such arbitrator(s), as may be

permissible. Other party cannot insist for appointment of an

arbitrator in terms of the arbitration agreement. In such situation,

that would be the effect of non-obstante clause contained in Section

12(5) of the Arbitration Act.

19.2. In my view, the ratio laid down by Supreme Court in

M/s.Voestalpine Schienen GMBH (supra) will not be applicable to the

present proceedings. According to me, under Section 12, when a

person is approached in connection with his possible appointment as

an arbitrator, he is bound to disclose in writing any circumstances,

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

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subject-matter 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 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.

Various grounds are set out in the Fifth Schedule as a guide in

determining whether circumstances exist which give rise to justifiable

doubts as to the independence or impartiality of an arbitrator. The

disclosure shall be made by such person in the form specified in the

Sixth Schedule. An appointment of arbitrator may be challenged by

the parties only if any circumstances referred to Section 12 (3)

subject to Sub-section (4) of Section 13 which provides for an

agreement between the parties for such procedure for challenge. If

such challenge is unsuccessful, the party have an option to take this

ground while preferring an application for setting aside an arbitral

award in accordance with Section 34 of Arbitration Act.

20. Subsequently, when the arbitration proceedings commenced,

the claimant had an option to file an application before the Arbitral

Tribunal u/s. 16 read with Section 13 (2) of the Arbitration Act.

However, the claimant has not taken up any such steps as

contemplated u/s. 16 of the said Act. Section 16 of the Arbitration

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Act, envisages the jurisdiction of the Arbitral Tribunal wherein if a

party has to take an objection about the jurisdiction of the Arbitral

Tribunal, the same can be made before the Arbitral Tribunal, and the

Arbitral Tribunal can decide the same. If the said application is

allowed, the Arbitral Tribunal proceedings come to an end. However,

if such an application is not allowed, the same can be taken as a

ground along with the other grounds while challenging to the

Arbitral award, if it is against the said party. In the present

proceeding, no such steps were taken up by the claimant, as

contemplated under Section 13(2).

20.1. Supreme Court in case of HRD Corporation (Marcus Oil and

Chemical Division) Vs. Gail (India) Limited (Formerly Gas Authority

of India Ltd.), 2017 SCC OnLine SC 1024 has held that if the

arbitrator fails to file disclosure in terms of section 12(1) read with

Fifth Schedule of the Arbitration and Conciliation Act, 1996, the

remedy of the party in that event would be to apply under section

14(2) of the Arbitration and Conciliation Act, 1996 to the court to

decide about the termination of the mandate of the arbitral tribunal

on that ground.

20.2. Under section 16, the arbitral tribunal is empowered to rule on

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its own jurisdiction including ruling on any objection with respect to

the existence or validity of arbitration agreement. Such plea shall be

raised not later than the submission of the statement of defence. If

such plea is rejected by the arbitral tribunal, it has to proceed with

the arbitral proceedings and declare an award. If plea of jurisdiction

is accepted by the arbitral tribunal, the respondent may file an appeal

under section 37. If plea of jurisdiction is not accepted, the

respondent may challenge such ruling along with award under

section 34.

21. For the first time in the present proceedings which is filed u/s.

34, the claimants have raised an issue about sub-section (5) of

Section 12. According to me, as discussed in earlier paragraphs, the

claimants at least had three occasions before challenging the Award

u/s. 34, to raise the issue of Arbitrator not been qualified/eligible to

conduct the proceedings. The petitioner/claimant chose not to take

any such steps. Again, I would like to mention here that the claimants

themselves had invoked Arbitration Clause, knowing fully well that as

per Clause 64 (3)(a)(i) the Sole Arbitrator would be a railway

employee. Only after the award is passed, in the present proceedings

such an issue has been raised by the claimant. According to me, the

same is a complete afterthought, hence is rejected.

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22. The learned counsel appearing for the respondent (railways)

has also raised an issue that if the claimant could have desired, they

could have opt for “foreclosure” immediately. Such an option was

given by railways on 20th December 2017, for all the pending

contracts. As per clause B-3 an option of foreclosure was available to

the claimant. However, the claimant desired to go ahead with the

contract and not opt for foreclosure. Subsequently, after a period of

almost one year on petitioner’s request after the balance work was

awarded to another contractor, the petitioner’s contract was

foreclosed. The claimant did not raise any issue about foreclosure

before the Arbitrator. The claimant referred to the judgment of A2Z

Infraservices Limited (supra) on the issue of foreclosure. In my view,

the facts in A2Z Infraservices Limited (supra) were quite different, as

in the said judgment the contract was in existence between the

parties. However, in the present proceedings the petitioner/claimants

had asked for foreclosure of the Agreement. Therefore, the ratio of

A2Z Infraservices Limited (supra) will not be applicable to the

present proceedings. Hence, according to me, even the issue as

regards foreclosure is to be answered against the claimant.

23.1 In MMTC Limited v/s. Vedanta Limited, reported in (2019) 4

SCC 163, Supreme Court held that the Court does not sit in appeal

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over the arbitral award and may interfere on merits on limited

grounds as provided under Section 34(2)(b)(ii) i.e. “if the award is

against the public policy of India”. It is only if one of these conditions

set out in Section 34(2)(b)(ii) is met that the Court may interfere

with an arbitral award under the said provision but such interference

does not entail a review on the merits of the dispute and is limited to

situations where the findings of the arbitrator are perverse or

arbitrary or when the conscience of the Court is shocked or when the

illegality is not trivial but goes to the root of the matter. An arbitral

award may not be interfered with if the view taken by the arbitrator

is a possible view based on facts. The Court cannot travel beyond the

restrictions laid down under Section 34. The Court cannot undertake

an independent assessment of the merits of the award and must only

ascertain that the exercise of power by the Court under Section 34

has not exceeded the scope.

23.2 Supreme Court in case of Ssangyong Engineering &

Construction Co. Ltd. v/s. National Highways Authority of India,

reported in 2019 SCC OnLine SC 677 has held that under Section 34

(2A) of the Arbitration Act, a decision which is perverse while no

longer being a ground for challenge under “public policy of India”,

would certainly amount to a patent illegality appearing on the face of

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the award. A finding based on the documents taken behind the back

of the parties by the arbitrator would also qualify as a decision based

on no evidence inasmuch as such decision is not based on evidence

led by the parties and therefore would also have to be characterised

as perverse. It is held that a finding based on no evidence at all or an

award which ignores vital evidence in arriving at its decision would

be perverse and liable to be set aside on the ground of patent

illegality.

23.3 Similarly, Supreme Court in case of Associate Builders vs. Delhi

Development Authority – (2015) 3 SCC 49, has held that the

interference with an arbitral award is permissible only when the

findings of the arbitrator are arbitrary, capricious or perverse or when

conscience of the Court is shocked or when illegality is not trivial but

goes to the root of the matter. It is held that once it is found that the

arbitrator's approach is neither arbitrary nor capricious, no

interference is called for on facts. The arbitrator is ultimately a

master of the quantity and quality of evidence while drawing the

arbitral award. Patent illegality must go to the root of the matter and

cannot be of trivial nature. Apart from the grounds which are dealt

with in the preceding paragraphs, the petitioner/claimants have not

raised any other grounds on merits to show any kind of perversity in

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the impugned Award. In the present proceedings, I find no patent

illegality or perversity in the Award passed by Sole Arbitrator.

23.4 Single Judge of Bombay High Court in the case of Star Track

Fasteners Private Limited Vs. Union of India, 2019 SCC OnLine Bom

1453 has held that the Court has no power to allow any claim which

is rejected by the arbitral tribunal as the Court cannot correct errors

made by the learned arbitrator. Court can either set aside the award

or can upheld the award or in appropriate case, modify the award if

such part is severable.

24. Taking into consideration the facts of the present proceedings

as discussed above and the dicta as laid down in the judgments

referred above, there is no merits in the present Arbitration Petition,

hence the same is rejected. No costs.

(Rajesh S. Patil, J.)

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Signed by: Diksha Rane
Designation: PS To Honourable Judge
Date: 12/11/2024 14:01:10