IN THE HIGH COURT OF ANDHRA PRADESH :: AMARAVATI FRIDAY ,THE TWENTY FOURTH DAY OF JANUARY TWO THOUSAND AND TWENTY FIVE PRESENT HON’BLE SRI DHIRAJ SINGH THAKUR, THE CHIEF JUSTICE ARBITRATION APPLICATION NO: 38 OF 2023 Between: M/s. Passage Cargo Pvt.Ltd., (CIN. U63012KA2000PTC027569) Having its registered office at 2, Swaroop Chambers, 0pp. AAI Imports Warehouse, Sahar pipeline Road, Andheri (E), Mumbai - 400099. Rep. by its Director Mr. R. S. Sandhu. ...Applicant AND M/S. Hindustan Shipyard Ltd., With its C & MD office at Gandhigram, Gandhigram Post Office, Vishakhapatnam, Andhra Pradesh - 530 005 ...Respondent Arbitration Application filed under Section 11 (6) of the Arbitration and Conciliation Act, 1996 praying that the High Court may be pleased to. a. Annul the effect of the letter dated 31.05.2022 issued by the Respondent unilaterally appointing Shri Kusumanchi Nageswara Rao as the Sole Arbitrator for adjudication of disputes between the Applicant and the Respondent arising out of Letter of Intent (LOI) No. MP/BTM/C&F Works for Propulsion System for 11140/418/2011 dt. 14.02.2011 followed by Work Order No. POE/000779/11-12 dt. 23.02.2011 and declare his appointment as non-est under the Arbitration and Conciliation Act, 1996. b. Appoint a Sole Arbitrator for the adjudication of the matter between the parties with a neutral venue Hyderabad for the conduct of the arbitral proceedings. lA NO: 1 OF 2023 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to stay the on-going arbitral proceedings between the parties arising out of "Letter of Intent (LOI) No. MP/BTM/C & F Works for Propulsion System for 11140/418/2011 dt. 14.02.2011 followed by Work Order No. POE/000779/11-12 dt. 23.02.2011" before Shri Kusumanchi Nageswara Rao pending disposal of the present Petition. Counsel for the Petitioner: SRI P RAVI PRASAD Counsel for the Respondents: SRI P RAJA SEKHAR The Court made the following: APHC010304812023 IN THE HIGH COURT OF ANDHRA PRADESH Sr.No:-83 AT AMARAVATI [3441] m Arbitration Application No:38 of 2023 M/s. Passage Cargo Pvt.ltd ...Applicant Vs. M/s Hindustan Shipyard Ltd ...Respondent ********** Advocate for Applicant: Advocate for Respondent: P. Ravi Prasad P. Rajasekhar CORAM :THE CHIEF JUSTICE DHIRAJ SINGH THAKUR DATE : 24th January 2025 PC: The applicant claims that it had obtained a work order, dated 23.02.2011, for clearing and forwarding of propulsion system and related equipment for Hull No.11140 - 44.763 metric tonnes (17 pieces) from Visakhapatnam port to respondent’s yard at Visakhapatnam. 2. It is stated that disputes having arisen between the parties in regard to the work order supra, the same was envisaged to be resolved through the mechanism of arbitration in terms of clause 12 of the Tender document, which reads as under: 2 HCJ y- Arb_AppL38_2023 “12) Arbitration: All disputes between the parties shall be referred to the sole arbitration of the Chairman & Managing Director of the purchasers or to a person to be appointed by the Chairman & Managing Director and if the arbitrator so appointed resigns his post or vacates his office or is unable to unwilling to act to any reason whatsoever, the authority appointing him may appoint a new arbitrator to act in his place. The arbitrator so appointed may from time to time with the consent of the parties enlarge the period of time for making and publishing the award. The arbitrator shall on all matters referred to him indicate his findings along with the sums awarded separately on each individual items of dispute and the venue of arbitration shall in ail cases, subject to the convenience of the arbitrator, be Visakhapatnam only. The award of the arbitrator shall be final and binding subject to the provisions of the Indian Arbitration and Reconciliation Act, 1996. 3. The applicant claims that respondent Hindustan Shipyard Ltd unilaterally appointed one Sri A. Narasinga Rao, retired General Manager of the respondent Company as a sole Arbitrator for adjudication of the claims and counter claims of the parties in the contract. The applicant claims that application under Section 16 of the Arbitration and Conciliation Act, 1996 filed challenging the jurisdiction of the Arbitrator. It appears that during the pendency of the said proceedings, Sri A. Narasinga Rao, passed away 24.05.2021, following which the respondent appointed Sri K. Nageswara Rao, retired District Judge, as the Arbitrator vide communication, dated 31.05.2022. The applicant claims that it sent a communication, dated 27.07.2022, to the sole Arbitrator that it was not agreeable to its unilateral appointment by the respondent as an Arbitrator as such and did not submit to those proceedings. an , was on 4. In the present application, the applicant claims that the appointment of Sri K. Nageswara Rao as the sole Arbitrator by the Chairman and Managing Director of the respondent Company is in violation of the ratio laid down in the V 3 HCJ Arb_Appl_38_2023 judgment of the Apex Court in Perkins Eastman Architects DPC (India) Ltd\ V. HSCC 5. Learned counsel for the respondent does as regards clause 12(5) of the Act r/w Schedule VII of the Act of the judgment in the case of Perkins Eastman (supra). In Perkins Eastman case, the Apex Court heid: not dispute the legal position as also the ratio 6. ono categories of cases. The first similar to the see 3771 where thpM^^^ Energo Engg. Projects Ltd., (2017) 8 an add^hir.! n ^'rector himself is named as an arbitrator with an additional power to appoint any other person as an arbitrator In the r/RF Ud“' the dSsroMhS or Para 50^1f fha •'’® '“9’“' ^'^''tiction from TRF Ltd mmwm :sr.si::T““SiS3BSf=i to as an (2020) 20 see 760 4 HCJ Arb_AppL38_2023 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 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.” This principle was subsequently affirmed by a judgment of the Constitution Bench of the Apex Court in Central Organisation for Railway Electrification v. ECl SPIC SMO MCML (JV) A Joint Venture Co^ wherein it was held: “129. Equal treatment of parties at the stage of appointment of an arbitrator ensures impartiality during the arbitral proceedings. A clause that allows one party to unilaterally appoint a sole arbitrator is exclusive and hinders equal participation of the other party in the appointment process of arbitrators. Further, arbitration is a quasi-judicial and adjudicative process where both parties ought to be treated equally and given an equal opportunity to persuade the decision-maker of the merits of the case. An arbitral process where one party or its proxy has the power to unilaterally decide who will adjudicate on a dispute is fundamentally contrary to the adjudicatory function of arbitral tribunals. 169. 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.” ^ 2024 see Online Se 3219 5 HCJ Arb_AppL38_2023 In the light of the ratio of the aforesaid judgments, it can be seen that the unilateral appointment of the sole Arbitrator by the respondent in the year 2022 was contrary to the express mandate of the Perkins Eastman and therefore, is unsustainable in law. 7. Be that as it may, the present application is allowed. Justice U. Durga Prasad Rao, former Judge of the High Court of Andhra Pradesh, is appointed as an Arbitrator, who shall enter upon the reference and adjudicate upon the disputes arising out of and in connection with the Work Order, dated 23.02.2011, and render the Award within the statutory period. The parties shall be free to file detailed claims and counter claims, before the learned Arbitrator. The learned Arbitrator shall also be entitled to claim the fee in consultation with the parties or as per the provisions of the Fourth Schedule of the Arbitration and Conciliation Act, 1996. Pending miscellaneous applications, if any, shall stand closed. No costs. A copy of this order be communicated to the learned Arbitrator the address mentioned herein below: on Justice U. Durga Prasad Rao, Flat No.505, 5th Floor, Bhuvanavijayam Apartment, near HDFC Bank, Tadepalli Municipality^ 6 HCJ Arb_AppL38_2023 Tadepalli, Guntur 522501. Sd/- E KAMESWARA RAO JOINT REGISTRAR / //TRUE COPY// SECTION OFFICER To, 1 Sri Justice U.Durga Prasad Rao, former Judge of the High Court of Andhra Pradesh R/o Flat No.505, 5^' Floor Bhuvana^jayam Apartment, near HDFC Bank, Tadepalli Municipality Tadepa h Guntur- 522501 (along with a copy of Arbitration Application Affidavit and all material papers filed along with Arbitration Application) 2. The Registrar(Judicial), High Court of Andhra Pradesh at Amaravathi 3. M/S. Hindustan Shipyard Ltd., With its C & MD office at Gandhigram, Gandhigram Post Office, Vishakhapatnam, Andhra Pradesh - 530 005 4. One CC to Sri. P Ravi Prasad Advocate [OPUC] 5. One CC to Sri. P Raja Sekhar Advocate [OPUC] 6. The Section Officer, OS Section, High Court of Andhra Pradesh at Amaravathi 7. Three CD Copies Stu vna ■ HIGH COURT DATED:24/01/2025 ORDER ARBAPPL.No.38 of 2023 g 01 MAR 2025 0», 3- . Current Section . ALLOWING THE ARBITRATION APPLICATION