APHC010508772021 IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI (Special Original Jurisdiction) [3529] TUESDAY, THE NINTH DAY OF SEPTEMBER TWO THOUSAND AND TWENTY FIVE PRESENT THE HONOURABLE SRI JUSTICE R RAGHUNANDAN RAO THE HONOURABLE SRI JUSTICE T.C.D.SEKHAR CIVIL MISCELLANEOUS APPEAL NO: 302/2021 Between: 1. UNION OF INDIA, , REP. BY ITS SECRETARY, DEPARTMENT OF SPACE, GOVERNMENT OF INDIA, NEW DELHI. 2. THE DIRECTOR, DEPARTMENT OF SPACE, SPACE APPLICATIONS CENTRE, GOVERNMENT OF INDIA, AMBAWADI VISTAR P.0, AHMEDABAD- 380015 3. THE SENIOR HEAD AND STORES,, DEPARTMENT OF SPACE, SPACE APPLICATIONS CENTRE, GOVERNMENT OF INDIA, AMBAWADI VISTAR P.0, AHMEDABAD - 380015. ...APPELLANT(S) AND 1. M/S KAAKATEEYA FABS PRIVATELIMITED, a company registered under Companies Act, 1956, Rep. by its Director, Sri Chandra Bose Mikillneni, C-6 and C-11, A.P.I.E, B-Block, IDA, Auto Nagar, Visakhapatnam- 530012. ...RESPONDENT Appeal Under Section_____against ordersTo allow the appeal by set aside the order dted 08.11.2021 passed in I.A. No. 583/2019 in O.S. No. 21/2019 by the learned XII Additional District Judge, Visakhapatnam and to pass. IA NO: 1 OF 2021 2 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 grant of STAY of all further proceedings in 0.S.No. 21/2019 on the file of XII Additional District Judge, visakhaptanam pending disposal of the above appeal in the interest of justice and pass IA NO: 1 OF 2022 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 Pleased to extend interim order dated 30-12-2021 and refer the parties to the arbitration and pass IA 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 pleased to extend the interim orders which were granted by this Hon'ble High Court vide order CMA.No. 302 of 2021 dated 30.12.2021 and refer the parties to the Arbitration and pass IA NO: 2 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 Pleased to extend the interim orders which were granted by this Hon'ble High Court vide order dated 14-12-2022 in CMA No. 302/2021 and refer the parties to the Arbitration and pass Counsel for the Appellant(S): 1. Y V ANIL KUMAR (Central Government Counsel) Counsel for the Respondent: 1. SRINIVASA RAO BODDULURI 3 The Court made the following Judgment: (Per Hon’ble Sri Justice R. Raghunandan Rao) The respondent herein had filed O.S.No.21 of 2019, before the learned XII Additional District Judge, Visakhapatnam, against the appellants herein, claiming compensation for a breach of contract in a purchase order, dated 30.06.2015 as amended on 01.09.2015 for a sum of Rs.54,17,245/- along with future interest @18% per annum with monthly rests from the date of suit till the date of realization. 2. The appellants moved I.A.No.583 of 2019 in O.S.No.21 of 2019, under Section-8 of the Arbitration & Conciliation Act, 1996 [for short “the Arbitration Act, 1996”], for dismissal of the suit and reference of the parties to arbitration on the ground that the purchase order had provided for arbitration as a method of resolution of dispute that may arise on account of the aforesaid agreement/purchase order. This application was contested by the respondent on the ground that, though the original purchase order dated 30.06.2015 contained an arbitration clause, the same was not available in the amendment of 01.09.2015. It was contended that the amendment of 01.09.2015 amounted to a novation of the contract and consequently, there was no clause for arbitration provided in the contract. The Trial Court passed on Order dated 08.11.2021. the Trial Court, without going into this issue, had relied upon Schedule-VII of the Arbitration Act, 1996 read with Section-12(5) of the Arbitration Act, 1996, to hold that Clause-17, providing for the appointment of the Senior Head, Purchase & Stores or the person appointed by the Senior Head, Purchase & Stores as the Arbitrator would be violative of Section-12(5) of the Arbitration Act, 1996 apart from the Schedule –VII of the Arbitration Act, 1996. 3. Aggrieved by said Order of the Trial Court dated 08.11.2021, the appellants have moved the present Civil Miscellaneous Appeal. 4. The issues that arise before this Court are twofold. Firstly, whether the amendment of 01.09.2015 to the purchase order dated 4 30.06.2015 would amount to a novation of the contract. Secondly, whether the stipulation that the Senior Head, Purchase & Stores, or the person appointed by him would be the Arbitrator, is hit by Section 12(5) r/w Schedule-VII of the Arbitration Act, 1996. 5. The purchase order dated 30.06.2015 contained various stipulations as to the terms & conditions of the purchase order. The purchase order, apart from setting out various stipulations had also incorporated the terms and conditions set out in the instructions to tenders and terms & conditions which had been issued earlier. Clause-17 of the said terms & conditions is set out below:- Clause-17:- Arbitration: In the event of any question, dispute or difference arising under these conditions contained in the purchase order or in connection with this Contract, (except as to any matters, the decision of which is specifically provided for in these conditions) the same shall be referred to the sole arbitration of the Sr. Head, Purchase & Stores or of some other person appointed by him. It will not be a point of objection that the arbitrator is a Government, servant, that he had to deal with matter to which the contract relates or that in the course of his duties as a Government servant he has expressed views on all or any of the matters in dispute or difference. The award of the arbitrator shall be final and binding on the parties of this contract it is a term of this contract:- a) If the arbitrator be the Head of the Purchaser's Office. I. In the event of his being transferred of vacating his office by resignation or otherwise, it shall be lawful for his successor-in-office either to proceed with the reference himself, or to appoint another person as arbitrator, or II. In the event of his being unwilling or unable to act for any reason, it shall be lawful for the Head of Purchaser's Office to appoint another person as arbitrator, or b) If the arbitrator be a person appointed by the Head of the Purchaser's Office: In the event of his dying, neglecting to act, or resigning or being unable to act, for any reason, it shall be lawful the Head of the Purchaser's Office either proceed with reference himself or to appoint another person as arbitrator in place of the outgoing arbitrator. Subject to as aforesaid, the arbitration Act, 1940 and the rules thereunder and any statutory modification thereof for the time being in force shall be deemed to apply to the arbitration proceeding under this clause. The Arbitrator shall have the power to extend with the consent of the Purchaser and the Contractor the time for making and Publishing the award. The venue of arbitration shall be the place as the Purchaser in his absolute discretion may determine. Work under 5 the contract shall, if reasonably, possible, continue during Arbitration Proceedings. 6. Subsequently, the purchase order dated 30.06.2015 was amended by way of a fresh purchase order dated 01.09.2015. 7. The covering letter of the amended purchase order stipulated that all entries in the order dated 30.06.2015 remain unaltered and that any acceptance of the amended purchase order would be without prejudice to the terms & conditions of the Order. In such circumstances, it is clear that the amending purchase order dated 01.09.2015 is not a new contract but only a modification of the earlier order. This view is fortified by the fact that the covering letter of 01.09.2015 specifically stipulated that the amendment is being issued without prejudice to the terms & conditions of the original order. 8. Section-12(5) of the Arbitration Act, 1996, which was introduced with effect from 23.10.2015 by way of Act No.3 of 2016 reads as follows:- Section-12(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.] [Inserted by Act No. 3 of 2016 dated 31.12.2015.] 9. Entry-1 of Schedule- VII of the Arbitration Act, 1996 reads as follows:- “The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.” 10. This stipulation clearly prohibits the Senior Head, Purchase & Stores, who is arrayed as the 3rd appellant, from acting as an Arbitrator. However, the issue of whether the said clause would still survive for the appointment of any other person as an Arbitrator remains. 6 11. This issue came before the Hon’ble Supreme Court of India, in the case of Ellora Paper Mills Limited Vs. State of Madhya Pradesh1. The Hon’ble Supreme Court of India, while dealing with the issue of whether the arbitration clause would survive, had held that the clause would survive subject to the appointment of any person who does not fall foul of the stipulations of Section-12(5) and the Schedule-VII of the Arbitration Act, 1996, as the Arbitrator. Learned Additional Solicitor General appearing for the appellants had also cited the following Judgments:- 1. Ellora Paper Mills Limited Vs. State of Madhya Pradesh. 2. Bharat Broadband Network Limited Vs. United Telecoms Limited2 3. TRF Limited Vs. Energo Engineering Projects Limited3. 4. M/s. Bansal Constructions office Vs. Yamuna Expressway Industrial Development Authority & two Ors, in Arbitration and Concili.APPL.u/s11(4)No.142 of 2019, Allahabad High Court. 5. Ram Kripal Singh Constructions Pvt. Ltd Vs. NTPC, in ARB.P.No.582 of 2020, High Court of Delhi at New Delhi.4 6. T.K. Engineering Consortium Pvt. Ltd Vs. Director (Projects) Rites Ltd & Anr5, in the High Court of Delhi at New Delhi. 7. ARSS Infrastructure Pvt Ltd Vs. Ircon International Ltd & Anr6, in the High Court of Delhi at New Delhi. 8. NIIT Technologies Ltd Vs. Border Security Force7, in the High Court of Delhi at New Delhi. 12. We do not propose to go into these Judgments as the view taken by the Hon’ble Supreme Court of India, in the case of Ellora Paper Mills Limited Vs. The State of Madhya Pradesh is sufficient to bind us. 1 (2022) 3 SCC 1 2 (2019) 5 SCC 755 3 (2017) 8 SCC 377 4 2022/DHC/004784 5 2021 SCC Online Del 1188 6 2021 SCC Online Del 5100 7 2017 SCC Online Del 12538 7 13. At this stage, both the Learned Additional Solicitor General appearing for the appellants, as well as Sri Srinivasa Rao Bodduluri, learned counsel for the respondent had consulted their clients and have submitted that there is an agreement for appointment of Sri Kusumanchi Nageswara Rao, Former District Judge, as the Arbitrator for adjudication of the claims of the respondent. 14. Accordingly, Sri Kusumanchi Nageswara Rao, Former District Judge, is appointed as the Arbitrator, to adjudicate on the claims of the respondent raised against the appellants. For the purposes of resolution of the disputes, it would be open to the respondent to file a claim petition before the Learned Arbitrator, within a period of eight weeks and upon such a claim being filed, the Learned Arbitrator would grant adequate time to the appellants to file their response. Thereafter, the Learned Arbitrator would be free to conduct the Arbitration in accordance with the provisions of the Arbitration Act, 1996 and pass an appropriate award. The Learned Arbitrator would be free to fix his fee, in accordance with the provisions of the Schedule-IV of the Arbitration Act, 1996. Consequently, O.S.No.21 of 2019 before the learned XII Additional District Judge, Visakhapatnam, shall stand dismissed. 15. Accordingly, the Civil Miscellaneous Appeal is disposed of. There shall be no order as to costs. As a sequel, pending miscellaneous applications, if any, shall stand closed. _______________________ R RAGHUNANDAN RAO, J ________________ T.C.D. SEKHAR, J Date: 09.09.2025 BSM 8 HON’BLE SRI JUSTICE R RAGHUNANDAN RAO AND HON’BLE SRI JUSTICE T.C.D. SEKHAR C.M.A.No.302 of 2021 (per Hon’ble Sri Justice R Raghunandan Rao) 09-09-2025 BSM