IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI FRIDAY, THE TWENTYFOURTHDAY OF JANUARY TWO THOUSAND AND TWENTY FIVE PRESENT HONOURABLE SRI DHIRAJ SINGH THAKUR, THE CHIEF JUSTICE ARBITRATION APPLICATION NO: 37 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 Sections 11 (5) & (6) of Arbitration and Conciliation Act, 1996 read with Scheme for Appointment of Arbitrators as framed by the High Court, at Amaravati 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 (L01) No.MP/BTM/LOl for C&F Works for Deck Cranes for 11138/168/2011 clt.21.01.2011 followed by Work Order dt.03.02.2011 and declare his Arbitration and Conciliation Act, 1996. No.POE/001087/11-12 appointment as non-est under the (b) Appoint a Sole Arbitrator for the adjudication of the the parties with arbitral proceedings. matter between a neutral venue Hyderabad for the conduct of the lA NO: 1 OF 207.? Petition filed under Section circumstances stated in the affidavit fiied in support of the petition, the High Court may be pieased to stay the on-going arbitrai proceedings between the parties arising out of "Letter of Intent (L01) No.MP/BTM/LOl for Deck Cranes for 11138/168/2011 151 CPC praying that in the for C&F Works dt.21.01.2011" followed by "Work Order No.POE/001087/11-12 Nageswara Rao pending disposal of the present Petition. dt.03.02.2011 before Shri Kusumanchi Counsel for the Petitioner :Sri P Raviprasad Counsel for the Respondent :Sri P Rajasekhar The Court made the following: APHC010304812023 IN THE HIGH COURT OF ANDHRA PRADESH Sr.No;-83 [3441] AT AMARAVATI Arbitration Application No: 37 of 2023 M/s. Passage Cargo Pvt. ltd ...Applicant Vs. M/s Hindustan Shipyard Ltd ...Respondent ******iii,-iiic Advocate for Applicant: Advocate for Respondent: P. Ravi Prasad P. Rajasekhar CORAM :THE CHIEF JUSTICE DHIRAJ SINGH THAKUR : 24th January 2025 DATE PC: The applicant claims that it had obtained 03.02.2011, for clearing and forwarding of hydraulic deck 262.530 metric tonnes (44 packages) from Visakhapatnam respondent’s yard at Visakhapatnam. a work order, dated rane for hull 11138- port to 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: 12) Arbitration: 2 HCJ Arb_Appl_37_2023 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 all 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, was 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 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 3 HCJ Arb_AppL37_2023 judgment of the Apex Court in Perkins Eastman Architects DPC v. HSCC (India) Ltd\ Learned counsel for the respondent does not dispute the legal position regards clause 12(5) of the Act r/w Schedule VII of the Act as also the ratio of the judgment in the case of Perkins Eastman (supra). 5. as In Perkins Eastman case, the Apex Court held; 6. “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 see 377] where the Managing Director himself is named as an arbitrator with 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 pr 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. , 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. an 21. an 21. But, in our view that has to be the logical deduction from TRF Ltd. 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 ^ (2020) 20 see 760 4 HCJ Arb_Appl_37_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_AppL37_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 therefore, is unsustainable in law. Eastman and 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 03.02.2011, and render the Award within the period. The parties shall be free to file detailed claims and claims, before the learned Arbitrator. The learned Arbitrator shall 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, statutory counter- also be 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; Justice U. Durga Prasad Rao, Flat No.505, 5th Floor. Bhuvanavijayam Apartment, near HDFC Bank, Tadepalli Municipality, on 6 HCJ Arb_AppL37_2023 Tadepalli, Guntur 522501. Sd/- E KAMESWARA RAO JOINT REGISTRAR \ //TRUE COPY// SECTION OFFICER 1. Sri Justice U. Durga Prasad Rao, former Judge of the High Court of Andhra Pradesh, R/o. Flat No.505. 5**^ Floor, Bhuvanavijayam Apartment, Near HDFC Bank, Tadepalli Municipality, Tadepalli, Guntur- 522 501. (along with a copy of Arbitration Application Affidavit and ail material papers filed along with Arbitration Application) 2. The Registrar (Judicial), High Court of Andhra Pradesh, Amaravati. 3. One CC to Sri P Raviprasad Advocate [OPUC] 4. One CC to Sri P Rajasekhar Advocate [OPUC] 5. M/s.Hindustan Shipyard Ltd., With its C & MD Office at Gandhigram, Gandhigram Post Office, Vishakhapatnam, Andhra Pradesh - 530 005. 6. The Section Officer, O.S. Section, High Court of Andhra Pradesh at Amaravati. 7. Three CD Copies To BSV sree \ HIGH COURT DATED:24/01/2025 ORDER ARBAPPL.No.37 of 2023 5 2J FEB 2025 ^ . Current diecuon , a ALLOWING THE ARBITRATION APPLICATION