M/S M.S. Contractor vs. Union Of INDIA & Ors.

Facts

The Petitioner, M/s M.S. Contractor, filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an independent sole Arbitrator. The Petitioner was awarded a contract for parking and access control rights at New Delhi Railway Station for a period of three years from March 11, 2020, to March 10, 2023. The contract involved a license fee of Rs. 17,33,33,337/- per annum plus 18% GST. Operations commenced but were halted due to the COVID-19 pandemic from March 19, 2020. Despite Ministry of Railways' notifications offering concessions and extensions, disputes arose regarding the resolution of issues and contract period extension. The Petitioner invoked arbitration on March 18, 2023, after the Respondents failed to appoint an Arbitrator. The contract contained arbitration clauses for claims exceeding Rs. One Crore, stipulating a three-member tribunal with specific appointment mechanisms.

Held

The Court held that the arbitration clause, which requires the Petitioner to select two arbitrators from a panel of four nominated by the Respondents, provides a "restricted" choice and does not achieve the "counter balancing" necessary for impartiality and independence. The Court found that this mechanism compromises party autonomy and creates a room for suspicion that the Respondents might have picked their own favourites. Relying on the Supreme Court's decisions in Voestalpine Schienen Gmbh, Perkins, and TRF Limited, the Court concluded that the procedure tilts the scale in favour of the Respondents and is hit by these judgments. Therefore, the Court found it incumbent to appoint an independent Arbitral Tribunal. The Court appointed Mr. Justice G.S. Sistani as the Petitioner's nominee Arbitrator and Mr. Vaibhav Agnihotri as the Respondents' nominee Arbitrator. These two Arbitrators are to appoint the third Arbitrator/Presiding Arbitrator within 30 days. The Court also held that the fee of the Arbitral Tribunal shall be regulated as per the Fourth Schedule of the Act, rejecting the Respondents' plea to follow the Railway Board Circular.

Key Issues

1. Whether the arbitration clause in the contract, which mandates the Petitioner to choose two arbitrators from a panel of four Gazetted Railway Officers nominated by the Respondents, provides a "counter balancing" mechanism and ensures impartiality and independence as required by the Arbitration and Conciliation Act, 1996, particularly in light of Supreme Court judgments like Voestalpine Schienen Gmbh and Perkins? Petitioner's Arguments: The Petitioner argued that the choice offered is "restricted" and does not constitute "counter balancing." They contended that the Respondents' right to nominate the entire panel from which the Petitioner must choose, and the Respondents' ability to appoint 2/3rd of the tribunal, tilts the scale in favour of the Respondents, compromising the impartiality and independence of the Arbitral Tribunal. They relied on judgments like Voestalpine Schienen Gmbh, Perkins, and TRF Limited. Respondents' Arguments: The Respondents contended that the mechanism provided for appointment of arbitrators, including the Petitioner's right to choose from a panel, meets the test of "counter balancing" as laid down in various judgments. They also argued that the Railway Board Circular should govern the fee of the Arbitral Tribunal.