Calcutta High Court
M/S. National Project Construction … vs Military Engineer Services (Mes) on 29 July, 2025
Author: Shampa Sarkar
Bench: Shampa Sarkar
OCD -13
ORDER SHEET
AP-COM/559/2025
IN THE HIGH COURT AT CALCUTTA
COMMERCIAL DIVISION
ORIGINAL SIDE
M/S. NATIONAL PROJECT CONSTRUCTION (NPCCL)
VS
MILITARY ENGINEER SERVICES (MES)
BEFORE:
The Hon'ble JUSTICE SHAMPA SARKAR
Date: 29thJuly, 2025.
Appearance:
Mr. DebajyotiBasu,Sr.Adv.
Mr. DiptomoyTalukder, Adv.
Mr. Dibyendu Ghosh, Adv.
.... for the petitioner
Mr. BishwambherJha, Adv.
Mr. H.K. Jha, Adv.
Ms. Munmun Mishra, Adv.
...for the respondent
The Court: This is an application under Section 11 of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as the said Act).
The respondent floated a notice inviting tender for the job of Building
and Structure works, Site Clearance, area development, earth work and also
excavation, internal electrification etc. The petitioner participated in the said
tender process.
The petitioner prays for appointment of an arbitrator under Clause 70
of the General Conditions of Contract(in short GCC). The clause provides that
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all disputes between the parties to the Contract (other than those for which the
decision of the C.W.E. or any other person is by the Contract expressed to be
final and binding), shall, after written notice by either party to the Contract, to
the other of them, be referred to the sole arbitration of a [Serving Officer having
degree in Engineering of equivalent or having passed final/direct final
Examination of sub-Division II of Institution of Surveyor (India) recognized by
the Govt. Of India]. The clause provides that unless both parties agree in
writing to such reference, the reference shall not take place until after
completion or alleged completion of the Works or termination or determination
of the Contract under Condition Nos. 55, 56 and 57. It also provides that in
case of abandonment of the Works or cancellation of the Contract under
Condition Nos. 52, 53 and 54, such reference shall not take place until
alternative arrangements have been finalized by the Government to get the
Works completed by or through any other Contractor or Contractors or Agency
or Agencies.
Mr. Basu, learned senior advocate submits that the contract has
been terminated. Thus this is not a case which will be covered by the exception
to Clause 70. It is further contended that Courts situated at the place from
which the tenderwas accepted or where the work was to be executed, shall
have jurisdiction. Clause 72 of the GCC is referred to. It is submitted that the
tender was accepted at Kolkata and Letter of Award (LOA) was issued from
Kolkata. Reliance has been placed on Clause 9 of the NIT and Appendix A, in
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support of the contention that the office of the tender issuing and accepting
authority was in Gurusaday Road, Kolkata.
It is next contended by the petitioner that disputes and differences
arose between the parties with regard to the execution of the work and lastly
when the contract was terminated. The respondent did not accept foreclosure
as prayed for by the petitioner. Reference was made to the letter dated July 24,
2024 in support of the contention that several letters had been exchanged
between the parties between November 15, 2023 and July 19, 2024 on the
disputes and differences. The petitioner participated in the tender process and
was selected. The LOA was issued on November 16, 2023. A contract was
executed between the parties which contemplated diverse terms and conditions
and also included Clause 70 of the General Conditions of Contract (GCC) which
was the arbitration agreement. Clause 28 of the Special Conditions of Contract
(SCC) provided for resolution of the dispute by the Dispute Resolution Board.
Both the GCC and SCC were made applicable to the concerned agreement
between the parties.
The allegations of the petitioner are that the work could not be
started on time due to the breach committed by the respondent. The work
could not be completed on time because the respondent had failed to issue
contemporaneous documents like drawings, designs and dimensions etc. From
the very beginning the respondent committed several laches, negligence and
breaches of the contract. The respondent also threatened to terminate the
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contract. The petitioner was allegedly compelled to accelerate the date of
completion to December 8, 2024. Finding no other alternative, the petitioner
had approached the authority for foreclosure. Further submission is that a
nominal amount was paid to the petitioner for the preparatory work.The
subject work could not be executed in the manner contemplated under the
contract, in view of non availability of the structural drawings and designs.
Mr. Jha, learned advocate for the respondent denies the allegations of
the petitioner. He submits that the petitioner did not even start the work. The
entire breach was on the part of the petitioner. He prays for dismissal of this
application on the ground that the application is premature.Clause 28 of the
SCC provides that for resolution of any dispute,the aggrieved party was
required to approach the Dispute Resolution Board (DRB). The DRB was to be
constituted by the Chief Engineer, Eastern Command Kolkata at the request of
the party seeking resolution of the dispute by the dispute resolution
mechanism provided under SCC. Mr. Jha submits that it was the incumbent
duty of the petitioner to first approach the authority for constitution of the DRB
and seek resolution of the dispute before the DRB. Only after the DRB was
constituted, and the decision was given by the said Board, the party aggrieved
could invoke arbitration as per Clause 70 of the GCC. The petitioner invoked
arbitration without complying with the provisions of Clause 28 of the SCC.
Mr. Jha pointed out that Clause 70 of the GCC provides that the
arbitrator shall be a serving officer having degree in Engineering or equivalent
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or having passed final/direct final Examination of sub-Division II of Institution
of Surveyor (India) recognized by the Govt. of India and to be appointed by the
authority mentioned in the tender document. Thus under no circumstances
could the petitioner come to Court for reference of a dispute to an independent
arbitrator. The petitioner signed the contract with his eyes and ears open and
was bound by the terms and conditions thereof. Mr. Jha submits that
settlement of disputes duringthe execution of the works or after completion or
after determination/cancellation/termination of the contract must be
attempted through the DRB, to be constituted by the Chief Engineer, Eastern
Command Kolkata. Only in case of disagreement with the decision of the
DRB,any party could invoke arbitration.
Heard the parties.The constitution of the DRB has been provided
under Clause 28.1(a) and (b) of the SCC. Clause 28.1(b) provides the names of
Chairman and members of DRB, shall be notified by the Accepting Officer
within one month from the date of acceptance of the contract. In this case, it is
submitted that no such composition of the DRB had ever been notified. Thus,
the provision of clause 28 will not be a bar for the petitioner to invoke
arbitration and to approach this Court for appointment of an arbitrator.
Reference is further made to the order passed by the learned Commercial Court
at Alipore under Section 9 of the Arbitration and Conciliation Act. The
existence of the arbitration clause was never in dispute.
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The parties had a meeting on August 20, 2024 and after due
deliberation, the Chief Engineer Eastern Command directed as follows :
"4. (a) The misquoting of work by the firm is accepted by them. The
difference of L1 and L2 amount was known to them before acceptance and
submission of Performance Guarantee. The firm is a reputed Govt. PSU, has
participated in the bid after due deliberation. The case of non workable rates
was highlighted after 06 month which is not acceptable.
(b) The redesign of foundation is not agreed as it was designed by a
Consultant, checked at HQ Chief Engineer Kolkata Zone and vetted by IIT
Guwahati. In any case, if it is redesigned to shallow foundation, the financial
effect between pile foundation and shallow / raft foundation shall be recovered.
There is no considerable savings to the firm M/s NPCC.
(c) Foreclosure of contract under condition 57 of the GCC (IAFW-
2249) is applicable where the Govt. (User) no more enquires the project. In this
case, this clause is not operative and not acceptable.
(d) The Performance Guarantee submitted by the firm shall be
forfeited immediately after cancellation of contract under Condition 19 of GCC
(IAFW-2249). There is no consideration for releasing the PG being
Govt. Dept. The firm M/s NPCC can represent the case through concerned
Ministry for its consideration.
(e) During the discussion it came out that NPCC has invited bid for
this work on similar lines and awarded the work to a Contractor. Command CE
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pointed out that this reflects that neither NPCC nor their Contractor carried
out any due diligence by studying the drawings of the project and estimating
the cost. NPCC may forfeit the PSD of their Contractor. There is no way ahead
for continuance of the contract except cancellation.
5. Considering the points above, CEEC, i.e., NHEA directs to cancel the
contract after completing the procedure as per Para 21.8.1 of Manual on
Contract 2020."
It appears that according to the respondent, no other option was left to it but to
cancel the contract. Thus, no useful purpose will be served, by relegating the
matter to the DRB which comprises of officers of the respondent itself. The
decision was communicated on September 4, 2024 on behalf of the Chief
Engineer. On October 5, 2024 the petitioner wrote a letter to the DRB through
proper channel, inter alia, disagreeing with the decision dated August 20,
2024. The Chief Engineer, Kolkata Zone Headquarters informed the petitioner
that the decision was not taken by the DRB but by the accepting officer. By a
letter dated November 6, 2024, petitioner was asked to approach the DRB. The
constitution of the DRB was informed to the petitioner for the first time by the
said letter. An internal communication dated October 23, 2024 has been
shown to the Court which is annexed to the application.Itreflects that the DRB
was constituted, but a direction was made that, all the Court cases should be
fought vigorously so that the stay order would be vacated and the authority
could proceed to cancel the contract. Having considered the above documents
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which are already on record, this Court is of the view that the authority had
already made up its mind to cancel the contract before constitution of the DRB
and before referring the composition of the DRB to the petitioner. Clause 28
provides that the composition of the DRB should be informed within a month
from the execution of the contract, but in this case though the disputes
cropped up in 2023, until November 6, 2024no such DRB was constituted.
Under such circumstances, in my, prima facie view, Clause 28 was
definitely not treated to be a mandatory clause by the authority itself.
Secondly, from the internal communication, it appears that the Eastern
Command had clearly instructed the Chief Engineer that the Court cases filed
by the petitioner should be vigorously opposed and the stay order should be
lifted so that the contract can be cancelled. Under such circumstances,
sending the matter back to the DRB constituted by the said authority, will be
an empty formality. By a letter dated 13th June, 2025, the contract ultimately
stood cancelled and terminated. Even before the petitioner had the opportunity
to approach the DRB upon receiving the letter dated November 6, 2024, the
contract was cancelled.In view of the decisions inDemerara Distilleries
Private Limited and Anr. vs. Demerara Distillers Limited : (2015) 13 SCC
610 and Visa International Limited vs. Continental Resources (USA)
Limited : (2009) 2 SCC 5, this Court holds that in the factual background of
this case and the latest decision adopted in the meeting held on August 20,
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2024, this is not a case which can be resolved by the DRB.The DRB is not in a
position to take an independent decision.
This is a, prima facie, observation and the contentions of Mr. Jha that
the disputesdo not become arbitrable until the DRB decides the matter, can be
raised before the learned arbitrator.The learned arbitratorcan rule on his own
jurisdiction, which includes rendering a decision with regard to arbitribility.
With regard to the claim of the petitioner, which Mr. Jha says to be
superfluous and without any fundamental basis,an objection can be raised
before the learned arbitrator. With regard to the contention of Mr. Jha that the
respondentmust appoint the arbitrator, this court holds that the same is not
permissible in law.
An authority of the respondent cannot appoint the sole arbitrator under
Clause 70 of the GCC. This Court holds that this mechanism is no longer good
law as the same will be barred under Section 12(5) of the arbitration and
conciliation Act, 1996. Reference is made in this regard toPerkins Eastman
Architects DPC and Another vs. HSCC (India) Ltd. ; 2019 SCC OnLine SC
1517; and Central Organisation for Railway Electrification vs. ECI SPIC
SMO MCML (JV) A joint Venture Company reported in 2024 SCC OnLine SC
3219. Unilateral appointment of an arbitrator by one of the parties from its
own panel of arbitrators or from its own employees is contrary to law.
The Hon'ble Apex Court in Central Organization for Railway
Electrification (supra), held thus:-
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"73. The 2015 amendment has introduced concrete standards of
impartiality and independence of arbitrators. One of the facets of
impartiality is procedural impartiality. Procedural impartiality
implies that the rules constitutive of the decision-making process
must favour neither party to the dispute or favour or inhibit both
parties equally.137 Further, a procedurally impartial adjudication
entails equal participation of parties in all aspects of adjudication
for the process to approach legitimacy.138 Participation in the
adjudicatory process is meaningless for a party against whom the
arbitrator is already prejudiced.139 Equal participation of parties in
the process of appointment of arbitrators ensures that both sides
have an equal say in the establishment of a genuinely independent
and impartial arbitral process.
74. Under Sections 12(1) and 12(5), the Arbitration Act recognises
certain mandatory standards of independent and impartial
tribunals. The parties have to challenge the independence or
impartiality of the arbitrator or arbitrators in terms of Section 12(3)
before the same arbitral tribunal under Section 13.140 If the
tribunal rejects the challenge, it has to continue with the arbitral
proceedings and make an award. Such an award can always be
challenged under Section 34. However, considerable time and
expenses are incurred by the parties by the time the award is set
aside by the courts. Equal participation of parties at the stage of the
appointment of arbitrators can thus obviate later challenges to
arbitrators.
75. Independence and impartiality of arbitral proceedings and
equality of parties are concomitant principles. The independence
and impartiality of arbitral proceedings can be effectively enforced
only if the parties can participate equally at all stages of an arbitral
process. Therefore, the principle of equal treatment of parties
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applies at all stages of arbitral proceedings, including the stage of
the appointment of arbitrators.
***
124. The doctrine of bias as evolved in English and Indian law
emphasizes independence and impartiality in the process of
adjudication to inspire the confidence of the public in the
adjudicatory processes. Although Section 12 deals with the quality
of independence and impartiality inherent in the arbitrators, the
provision’s emphasis is to ensure an independent and impartial
arbitral process.”
In Perkins Eastman (supra), the Hon’ble Apex Court held thus :-
…”20. We thus have two categories of cases. The first, similar to the
one dealt with in TRF Ltd. [TRF Ltd. v. EnergoEngg. Projects Ltd.,
(2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] where the Managing
Director himself is named as an arbitrator with an 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
or 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. [TRF Ltd. v. EnergoEngg. Projects
Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] , 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.
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21. But, in our view that has to be the logical deduction from TRF
Ltd. [TRF Ltd. v. EnergoEngg. Projects Ltd., (2017) 8 SCC 377 :
(2017) 4 SCC (Civ) 72] 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 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. [TRF Ltd. v. EnergoEngg. Projects Ltd., (2017) 8 SCC 377 :
(2017) 4 SCC (Civ) 72]
…
24. In Voestalpine [VoestalpineSchienen GmbH v. DMRC, (2017) 4
SCC 665 : (2017) 2 SCC (Civ) 607] , this Court dealt with
independence and impartiality of the arbitrator as under : (SCC pp.
687-88 & 690-91, paras 20 to 22 & 30)
“20. Independence and impartiality of the arbitrator are the
hallmarks of any arbitration proceedings. Rule against bias is one of
the fundamental principles of natural justice which applied to all
judicial and quasi-judicial proceedings. It is for this reason that
notwithstanding the fact that relationship between the parties to the
arbitration and the arbitrators themselves are contractual in nature
and the source of an arbitrator’s appointment is deduced from the
agreement entered into between the parties, notwithstanding the
same non-independence and non-impartiality of such arbitrator
(though contractually agreed upon) would render him ineligible to
conduct the arbitration. The genesis behind this rational is that
even when an arbitrator is appointed in terms of contract and by the
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parties to the contract, he is independent of the parties. Functions
and duties require him to rise above the partisan interest of the
parties and not to act in, or so as to further, the particular interest
of either parties. After all, the arbitrator has adjudicatory role to
perform and, therefore, he must be independent of parties as well as
impartial. The United Kingdom Supreme Court has beautifully
highlighted this aspect in Hashwani v. Jivraj [Hashwani v. Jivraj,
(2011) 1 WLR 1872 : 2011 UKSC 40] in the following words : (WLR
p. 1889, para 45)
’45. … the dominant purpose of appointing an arbitrator or
arbitrators is the impartial resolution of the dispute between the
parties in accordance with the terms of the agreement and, although
the contract between the parties and the arbitrators would be a
contract for the provision of personal services, they were not
personal services under the direction of the parties.’
21. Similarly, Cour de Cassation, France, in a judgment delivered in
1972 in Consorts Ury [Fouchard, Gaillard, Goldman on
International Commercial Arbitration, 562 [Emmanuel Gaillard &
John Savage (Eds.) 1999] {quoting Cour de cassation [Cass.]
[Supreme Court for judicial matters] Consorts Ury v. S.A. des
Galeries Lafayette, Cass.2e civ., 13-4-1972, JCP, Pt. II, No. 17189
(1972) (France)}.] , underlined that:
‘an independent mind is indispensable in the exercise of judicial
power, whatever the source of that power may be, and it is one of
the essential qualities of an arbitrator’.
22. Independence and impartiality are two different concepts. An
arbitrator may be independent and yet, lack impartiality, or vice
versa. Impartiality, as is well accepted, is a more subjective concept
as compared to independence. Independence, which is more an
objective concept, may, thus, be more straightforwardly ascertained
by the parties at the outset of the arbitration proceedings in light of
the circumstances disclosed by the arbitrator, while partiality will
more likely surface during the arbitration proceedings.
***
30. Time has come to send positive signals to the international
business community, in order to create healthy arbitration
environment and conducive arbitration culture in this country.
Further, as highlighted by the Law Commission also in its report,
duty becomes more onerous in government contracts, where one of
the parties to the dispute is the Government or public sector
undertaking itself and the authority to appoint the arbitrator rests
with it. In the instant case also, though choice is given by DMRC to
the opposite party but it is limited to choose an arbitrator from the
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panel prepared by DMRC. It, therefore, becomes imperative to have
a much broadbased panel, so that there is no misapprehension that
principle of impartiality and independence would be discarded at
any stage of the proceedings, specially at the stage of constitution of
the Arbitral Tribunal. We, therefore, direct that DMRC shall prepare
a broadbased panel on the aforesaid lines, within a period of two
months from today…”
Accordingly, the application is disposed of by appointing Hon’ble
Justice Debasish Kar Gupta, former Chief Justice of the High Court at Calcutta
as the sole arbitrator, to arbitrate upon the dispute between the parties. All
questions are left open to be decided by the learned arbitrator.
The learned Arbitrator shall comply with the provisions of Section 12
of the Arbitration and Conciliation Act, 1996. The learned Arbitrator shall be at
liberty to fix his remuneration as per the schedule of Arbitration and
Conciliation Act, 1996.
(SHAMPA SARKAR, J.)
TR/
