Appointment Of Arbitrator By GM Of Metro Rail In Dispute Between Railways & Contractor Is Barred U/S 12(5) Of Arbitration Act: Calcutta HC

Brief Facts:

M/S Krishna Constructon (Petitioner) was awarded a contract for cleaning and maintenance of sub-stations, the AV section, Pump section, and the Conductor Rail section under the control of the Dy. CEE/Maintenance, Metro Railway, Kolkata. The contract was terminated by the authority in November 2018.

The petitioner claims that a sum of Rs. 54,31,514.22 is still due and payable. Furthermore, the security deposit and bank guarantee have not been returned. As a result, disputes have arisen between the parties.

The petitioner submitted that the disputes are required to be resolved through arbitration and seeks the appointment of an Arbitrator by this Court, as the appointment by the General Manager from an internal panel of Engineers is no longer permissible under the law.

Per contra, the Respondent 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.The petitioner did not approach the Metro Railways for appointment of a learned Arbitrator, by following the proper procedure.

Observations:

The court at the outset noted that by a letter dated December 16, 2024, the CEE/HQ, Metro Railway, Kolkata requested the Principal Chief Engineer to process the petitioner's demand for arbitration.

It further noted that this indicates that the Metro Railway Authority acknowledged the existence of an arbitration clause and agreed that the dispute should be resolved by an Arbitrator. The petitioner's claim amounts to approximately Rs. 54 lakhs. The contract provides for resolution by a sole Arbitrator. However, the respondent sought to appoint an Arbitrator from a panel maintained by it.

Based on the above, the court held 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.

It further held that 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 Arbitration Act is waived.

The Supreme Court in Central Organisation for Railway Electrification vs. ECI SPIC SMO MCML (JV) A joint Venture Company (2024) held that unilateral appointment clauses in public-private contracts violate the principle of equal treatment under Article 14 of the Constitution, compromising the independence and impartiality of the arbitrator.

The Apex Court further added that such clauses, allowing one party to appoint an arbitrator without the other's participation, create an unfair imbalance. The principle of express waiver under Section 12(5) of the Arbitration Act allows parties to waive allegations of bias after disputes arise, but cannot justify an inherently unequal appointment process.

Similarly, the Supreme Court in Perkins Eastman Architects DPC and Another vs. HSCC (India) Ltd. (2019) held that when both parties have the power to nominate an arbitrator, any advantage one party gains is counterbalanced by the equal power of the other. However, when only one party has the right to appoint a sole arbitrator, it introduces an element of exclusivity, influencing the course of dispute resolution.

The Apex Court also held that it is essential that the party with an interest in the dispute's outcome should not have the power to appoint the sole arbitrator. This principle is central to the amendments made by the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) and was recognised by the Supreme Court in TRF Ltd. v. EnergoEngg. Projects Ltd. (2017).

Based on the above, the court held that regarding the objections related to the arbitrability of the issues, admissibility of the claim, the claim being barred by limitation, justification of termination, non-refund of the security deposit and bank guarantee, etc., this Court is of the view that these matters should be adjudicated by the learned arbitrator, to be appointed by the Court, independently.

It concluded that the question of whether the period spent in litigation before the Writ Court should be exempted in computing limitation, and whether the exemption granted by the Supreme Court during the Covid period applies, is also left for the learned arbitrator to decide.

Accordingly, the present petition was allowed and the Arbitrator was appointed.

Case Title: M/S Krishna Construction Vs The Chief General Manager Metro Railway And Ors

Case Number:AP-COM/253/2025

Judgment Date: 22/04/2025

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

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