TERRITORIAL JURISDICTION OF CONSUMER COMMISSIONS UNDER THE CONSUMER PROTECTION ACT, 2019
– Jos Chiramel
Section 11(1) of the Consumer Protection Act, 1986 provided that “Subject to the other provisions of this Act, the District Forum shall have jurisdiction to entertain complaints where the value of the goods or services and the compensation, if any, claimed does not exceed rupees twenty lakhs”. Similar words were also contained in Sections 17(a)(i) with respect to the State Commission and 21(a)(i) with regard to the National Commission, with higher pecuniary jurisdiction. Indian Parliament in Sections 34(1), 47(1)(a)(i) and 58(1)(a)(i) of the Consumer Protection Act, 2019 Act has made a deliberate departure therefrom by providing therein “the value of the goods or services paid as consideration” in place of the words “the value of the goods or services and the compensation, if any, claimed” as appearing in the 1986 Act, for purposes of determining the pecuniary jurisdiction of the District, State and National Commissions.
The new provisions as aforesaid came up for scrutiny before the National Commission in the case reported as M/s Pyaridevi Chabiraj Steels Pvt Ltd vs National Insurance Company Ltd & Others : MANU/CF/0451/2020, wherein it was held that “…. for determining the pecuniary jurisdiction of the District Commission, State Commission or National Commission the value of the goods or services paid as consideration alone has to be taken and not the value of the goods or services purchased/ taken”. The National Commission further held that in a consumer complaint involving insurance claim, even if the sum assured under the insurance policy is more than Rs.10 crore, that will not be taken into account to ascertain the jurisdiction of the National Commission, as the jurisdiction has to be determined on the basis of the premium paid, which is the consideration paid. The National Commission therefore held that in the insurance claim that was the subject matter of the said consumer complaint, the value of the consideration paid by the Complainant was only Rs.4,43,562.00 which was not above Rs.10 crore, and hence the National Commission did not have the pecuniary jurisdiction to entertain the said complaint, pursuant to which the consumer complaint was dismissed as not maintainable.
The National Commission in coming to the said conclusion, took into consideration the fact that under the 1986 Act, pecuniary jurisdiction was to be determined by taking into consideration “the value of the goods or services and the compensation, if any claimed”, whereas the Parliament while enacting the 2019 Act providing for pecuniary jurisdiction of the District Commission, State Commission and the National Commission based on “value of the goods and services paid as consideration” had made a deliberate departure from the provisions in the 1986 Act, namely deletion of the words “and the compensation, if any claimed” and replacement of the same with the words “paid as consideration”. Based on the said interpretation, the National Commission came to the conclusion that in a consumer complaint based on insurance claim, the premium paid as consideration for obtaining the policy, and not the sum insured therein, or the amount claimed under the policy, would be considered to determine the pecuniary jurisdiction of the District Commission, State Commission or the National Commission. In other words, for all intents and purposes, all insurance claims, irrespective of the amount involved, would fall within the pecuniary jurisdiction of the District Commission which has jurisdiction up to Rs.1 crore, since it is not reasonably expected that in any given case the insurance premium paid for obtaining a policy would exceed the sum of Rs.1 crore, as the premium paid invariably in every case is only a small fraction of the sum insured under the policy.
It is respectfully submitted that the interpretation thus given by the National Commission to Sections 34(1), 47(1)(a)(i) and 58(1)(a)(i) of the 2019 Act is based on a literal consideration of the words “the value of the goods or services paid as consideration” as contained therein in place of the words “the value of the goods or services and the compensation, if any, claimed” as appearing in the 1986 Act, and the National Commission held in para 8 of the judgment in the case of M/s Pyaridevi Chabirj Steels Pvt Ltd (supra) that this was the intention of the Parliament in making a deliberate departure from the words as appearing earlier in the 1986 Act. However on a closer look at the enactments namely the 1986 Act and the 2019 Act, it cannot be said that this was the intention of Parliament while enacting the 2019 Act, and in this regard it is necessary to have a closer look at other provisions of the 2019 Act as well.
Section 2(6) of the 2019 Act defines ‘complaint’ as under :
“ “complaint” means any allegation in writing, made by a complainant for obtaining any relief provided by or under this Act, that –
(i) An unfair contract or unfair trade practice or a restrictive trade practice has been adopted by any trader or service provider;
(ii) The goods bought by him or agreed to be bought by him suffer from one or more defects;
(iii) The services hired or availed of or agreed to be hired or availed of by him suffer from any deficiency;
(iv) A trader or a service provider, as the case may be, has charged for the goods or for the services mentioned in the complaint, a price in excess of the price—
(a) fixed by or under any law for the time being in force; or
(b) displayed on the goods or any package containing such goods; or
(c) displayed on the price list exhibited by him by or under any law for the time being in force; or
(d) agreed between the parties;
(v) The goods, which are hazardous to life and safety when used, are being offered for sale to the public—
(a) in contravention of standards relating to safety of such goods as required to be complied with, by or under any law for the time being in force;
(b) where the trader knows that the goods so offered are unsafe to the public;
(vi) the services which are hazardous or likely to be hazardous to life and safety of the public when used, are being offered by a person who provides any service and who knows it to be injurious to life and safety;
(vii) any claim for product liability action lies against the product manufacturer, product seller or product service provider, as the case may be; ”
It can be seen from the above that the only sub sections of Section 2(6) of the 2019 Act that are relevant for purposes of a consumer complaint in respect of an insurance claim (whether by way of rejection of the claim or reduction of the claim amount) would be –
(a) Section 2(6)(i) – “Unfair trade practice” as defined in Section 2(47) of the Act.
(b) Section 2(6)(iii) – “Deficiency” as defined in Section 2(11) of the Act.
“Unfair trade practice” under Clause (i) of Section 2(6) of the 2019 Act deals with goods as well as services, whereas deficiency under Clause (iii) of Section 2(6) of the 2019 Act deals with services only. On the other hand, Clause (iii) of Section 2(6) deals with goods bought by a consumer that suffer from one or more defects, but the same has no relevance for purposes of an insurance claim.
It is significant to note that in many cases sale of goods involves service as well (such as after sales service, maintenance, facilities attached to a sale of flat, etc.) and similarly service involves dealing in goods (such as indemnity of goods in an insurance policy, safety and security of goods consigned to a transporter for carriage under a Goods Receipt) etc. As a matter of fact the consideration paid as premium in respect of an insurance policy or the freight paid under a Goods Receipt is only a small fraction of the actual value of the goods insured against or transported, as the case may be. Hence ‘goods’ and ‘services’ in such cases cannot be kept in water tight compartments, one isolated entirely from the other, particularly in view of the wording of Section 1(4) of the 2019 Act that “this Act shall apply to all goods and services”, notwithstanding the use of the words “goods or services” in Section 34(1) of the 2019 Act with regard to the pecuniary jurisdiction of the District Commission, Section 47(1)(a)(i) of the 2019 Act with regard to the pecuniary jurisdiction of the State Commission and Section 58(1)(a)(i) of the 2019 Act with regard to the pecuniary jurisdiction of the National Commission.
In regard to the above, it is relevant to examine the definition of “service” in Section 2(42) of the 2019 Act, as reproduced below :
“ “Service” means service of any description which is made available to potential users and includes, but not limited to, the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, telecom, boarding or lodging or both, housing construction, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service;”
The definition of “service” as appearing in Section 2(42) of the 2019 Act is verbatim reproduction of Section 2(o) of the 1986 Act with regard to the said definition, except for the fact that after the word “energy” the word “telecom” has been added, and the word “board” has been replaced with “boarding”. On a careful examination of the definition of the term “service” it can be seen that it is broad enough to include goods involved in such transactions, particularly when there is no use of any other terminology in the 1986 Act or the 2019 Act involving “goods and services”, except in Section 1(4) thereof to the effect that “this Act shall apply to all goods and services”, thus leaving out none.
In a contract of insurance, transportation etc. consideration is paid only for the service, and not for the goods, but the claim would invariably be in respect of reinstatement of the goods or its equivalent in terms of money, which is not a “compensation” as visualized in the 1986 Act or the 2019 Act. In this regard it is worth mentioning that the only place where the term “compensation” is used in the 1986 Act other than in Sections 11, 17(1)(a)(i) and 21(a)(i) with regard to the pecuniary jurisdiction of the District Forum, State Commission and the National Commission is in Section 14(1)(d) of the said Act with regard to “Finding of the District Forum”, which equally applies to the State Commission under Section 18 of the said Act and the National Commission under Section 22 of the said Act, namely –
“ (d) to pay such amount as may be awarded by it as compensation to the consumer for any loss or injury suffered by the consumer due to the negligence of the opposite party; ”
In view of the above, the use of the term “compensation” in Sections 11, 17(1)(a)(i) and 21(a)(i) of the 1986 Act had necessarily to correlate to award of the compensation by the District Forum under Section 14(1)(d) of the said Act or by the State Commission under Section 18 read with Section 14(1)(d) of the said Act or by the National Commission under Section 22 read with Section 14(1)(d) of the said Act, and could not be mixed up with payment of insurance claim by way of indemnity under an insurance policy, amount payable by a transporter for damage to or loss of goods under carriage, etc., though the term ‘compensation’ is often used in common parlance and even in judicial pronouncements for such payments.
It is significant to note that the words “and compensation, if any, claimed” as appearing in Sections 11, 17(1)(a)(i) and 21(a)(i) of the 1986 have been done away with in Sections 34(1), 47(1)(a)(i) and 58(1)(a)(i) of the 2019 Act, but the fact remains that Section 39(1)(d) of the 2019 Act with regard to the findings of the District Forum (which equally applies to the State Commission and the National Commission), and is a verbatim reproduction of Section 14(1)(d) of the 1986 Act, is as under :
“ d) to pay such amount as may be awarded by it as compensation to the consumer for any loss or injury suffered by the consumer due to the negligence of the opposite party: ”
It can thus be seen that what is deleted from Sections 34(1), 47(1)(a)(i) and 58(1)(a)(i) of the 2019 Act namely “and compensation, if any, claimed” is the compensation as visualized under Section 39(1)(d) of the 2019 Act, and nothing else.
National Commission in para 7 of the judgment in the case of M/s Pyaridevi Chabiraj Steels Pvt Ltd (supra) observed that under the 1986 Act, “value of the goods or services as also the compensation is to be added to arrive at a conclusion as to whether the National Commission has the jurisdiction or not”, as per law laid down by a three Member Bench of the Commission in Ambrish Kumar Shukla & 21 Ors. Vs. Ferrous Infrastructure Pvt. Ltd, I (2017) CPJ I (NC). As a matter of fact the Commission in the said case was not at all considering the pecuniary jurisdiction of the District Forum, State Commission and the National Commission under Sections 11(1), 17(1)(a)(i) and 21(1)(a)(i) of the 1986 Act, but rather, pecuniary jurisdiction for filing of a complaint by one or more consumers, where there are numerous consumers having the same interest, under Section 12(1)(c) of the said Act.
The findings of the National Commission in the case of Ambrish Kumar Shukla (supra) were as under :
“ Issue No. (i)
It is the value of the goods or services, as the case may be, and not the value or cost of removing the deficiency in the service which is to be considered for the purpose of determining the pecuniary jurisdiction.
Issue No. (ii)
The interest has to be taken into account for the purpose of determining the pecuniary jurisdiction of a Consumer Forum.
Issue No. (iii)
The consideration paid or agreed to be paid by the consumer at the time of purchasing the goods or hiring or availing of the services, as the case may be, is to be considered, along with the compensation, if any, claimed in the complaint, to determine the pecuniary jurisdiction of a Consumer Forum.
Issue No. (iv)
In a complaint instituted under Section 12(1)(c) of the Consumer Protection Act, the pecuniary jurisdiction is to be determined on the basis of aggregate of the value of the goods purchased or the services hired or availed by all the consumers on whose behalf or for whose benefit the complaint is instituted and the total compensation claimed in respect of such consumers.
Issue No. (v) & (vi)
A complaint under Section 12(1)(c) of the Consumer Protection Act can be instituted only by one or more consumers, as defined in Section 2(1)(d) of the Consumer Protection Act. Therefore, a group of Cooperative societies, Firms, Association or other Society cannot file such a complaint unless such society etc. itself is a consumer as defined in the aforesaid provision.
Issue No. (vii)
More than one complaints under Section 12(1)(c) of the Consumer Protection Act are not maintainable on behalf of or for the benefit of consumers having the same interest i.e. a common grievance and seeking the same/identical against the same person. In case more than one such complaints have been instituted, it is only the complaint instituted first under Section 12(1)(c) of the Consumer Protection Act, with the requisite permission of the Consumer Forum, which can continue and the remaining complaints filed under Section 12(1)(c) of the Consumer Protection Act are liable to be dismissed with liberty to join in the complaint instituted first with the requisite permission of the Consumer Forum. ”
It can thus be seen that the aforesaid judgment had no relevance whatsoever to the question of pecuniary jurisdiction of the District Forum, State Commission and the National Commission with regard to consumer complaint in respect of an insurance claim. However the reference order dated 11.08.2016 in respect of Issue No.1 as reproduced in para 14 of the judgment in the case of Amrish Kumar Shukla was relied upon by various State Commissions to come to the conclusion that it was “the value of the goods or services and the compensation, if any, claimed which determines the pecuniary jurisdiction of the Consumer Forum”, which was also reflected in the finding of the National Commission on Issue No. (iv), though in the context of Section 12(1)(c) of the 1986 Act. One such case was that of Dayal Industries Pvt Ltd vs The New India Assurance Co Ltd, Complaint No. 315 of 2017 before the Consumer Disputes Redressal Commission, UP at Lucknow wherein the complaint was filed for an insurance claim of Rs.50,40,096.00 along with Rs.5,00,000.00 as damages for deficiency of service, wherein the State Commission relying on the judgment of the National Commission in Ambrish Kumar Shukla’s case (supra), vide order dated 13.09.2017 dismissed the complaint, holding that the sum insured under the policy had to be considered for purposes of determining the pecuniary jurisdiction of the District Forum, State Commission and the National Commission, and not the amount claimed in the complaint.
National Commission in First Appeal No. 2169 of 2017 in the above case, titled Dayal Industries Pvt Ltd vs The New India Assurance Co Ltd, vide order dated 19.11.2020 held that the State Commission had misinterpreted the judgment in Ambrish Kumar Shukla’s case, allowed the appeal and remanded the case to the State Commission, relying on the judgment of the National Commission in the case of Vaaan Infra Pvt Ltd vs Liberty Videocon General Insurance & Others : MANU/CF/ 0283/2018, wherein the National Commission relying on the judgment dated 11.01.2018 of the National Commission in RP No. 1794 of 2017, Maharani of India through Yudhishthira Kapur, Partner vs Branch Manager, United India Insurance Co Ltd, distinguished the judgment in the case of Ambrish Kumar Shukla. It was held in the case of Maharani of India, as under :
“ The question which arises for consideration in this petition is as to what would be the value of the service hired or availed by the petitioner/complainant. In CC No. 97 of 2016 Ambrish Kumar Shukla & Ors. Vs. Ferrous Infrastructure Pvt. Ltd. dated 7.10.2016, a three-Members Bench of this Commission observed that if for instance a person purchases a machine for more than 1 crore a manufacturing defect is found in the machine and the cost of removing the said defect is Rs. 10 lakhs, it is the aggregate of the sale consideration paid by the consumer for the machine and compensation if any claimed in the complaint which would determine the pecuniary jurisdiction of the consumer forum. It was further observed that if, for instance, a house is sold for more than Rs. 1 crore, certain defects are found in the house and the cost of removing those defects is Rs. 5 lakhs, the complaint would have to be filed before this Commission, the value of the service itself being more than Rs. 1 crore. Thus this Commission took the view that the consideration agreed to be paid by the consumers should be taken as the value of the goods or the services as the case may be and for the purpose of determining the pecuniary jurisdiction the amount of compensation as claimed in the complaint needs to be added to the agreed consideration. When an insurance policy is taken by a person he pays a premium to the insurer for hiring or availing its services. It is the premium paid by the insured to the insurer and not the extent of the sum insured which constitutes the agreed consideration and therefore in my opinion, it is the premium paid to the insurer which when added to the compensation claimed in the complaint would determine the pecuniary jurisdiction of this Commission. The extent of the sum assured would have no bearing on determination of the pecuniary jurisdiction of a consumer forum. ”
It is significant to note that the finding of the National Commission in the case of Maharani of India that when an insurance policy is taken by a person he pays a premium to the insurer for hiring or availing its services, that it is the premium paid by the insured to the insurer and not the extent of the sum insured which constitutes the agreed consideration and that in the opinion of the National Commission it was the premium paid to the insurer which when added to the compensation claimed in the complaint would determine the pecuniary jurisdiction of this Commission, is reflected in the finding on Issue No. (iii) in the case of Ambrish Kumar Shukla, as under :
“ Issue No. (iii)
The consideration paid or agreed to be paid by the consumer at the time of purchasing the goods or hiring or availing of the services, as the case may be, is to be considered, along with the compensation, if any, claimed in the complaint, to determine the pecuniary jurisdiction of a Consumer Forum. ”
As compared to the same, the finding on Issue No. (iv) to the contrary, though in the context of Section 12(1)(c) of the 1986 Act, was as under :
“ Issue No. (iv)
In a complaint instituted under Section 12(1)(c) of the Consumer Protection Act, the pecuniary jurisdiction is to be determined on the basis of aggregate of the value of the goods purchased or the services hired or availed by all the consumers on whose behalf or for whose benefit the complaint is instituted and the total compensation claimed in respect of such consumers. ”
The concept of “consideration paid or agreed to be paid by the consumer at the time of purchasing the goods or hiring or availing of the services” as appearing in the finding on Issue No. (iii) in Ambrish Kumar Shukla’s case and as reiterated by the National Commission in the case of Maharani of India was quite alien to the wording in Sections 11(1), 17(1)(a)(i) and 21(1)(a)(i) of the 1986 Act, namely “value of the goods or services and the compensation, if any, claimed”, and it would seem that the same had its influence in the rewording of the same in Sections 34(1), 47(1)(a)(i) and 58(1)(a)(i) of the 2019 Act to read as “value of the goods or services paid as consideration”, quite oblivious of the fact that in all cases the value of goods or services and the consideration paid may not be the same, and further that the sale transaction may not involve only goods or services but a combination of both, whereas the consideration paid may be only for the goods or the services, as the case may be.
The National Commission in para 3 of the judgment reported as Harsolia Motors vs National Insurance Company Ltd : MANU/CF/0083/2004 : 2005(1)CPC 53, after reproducing the definition of ‘consumer’ under Section 2(1)(d) of the 1986 Act (which is verbatim reproduced in Section 2(7) of the 2019 Act) and the definition of ‘service’ under Section 2(o) of the 1986 Act, which is almost verbatim reproduced in Section 2(42) of the 2019 Act (except for the addition of ‘telecom’ and replacement of ‘board’ with ‘boarding’), observed as under:
“ From the aforesaid definitions it can be held that: (a) a person is a consumer who buys any goods for consideration and also include user of such goods; (b) who hires any services for consideration and includes beneficiary of such services. ”
The beneficiary under a policy of insurance (which is by way of a ‘service’) and entitled to the indemnity, has to receive reinstatement of the goods or equivalent amount in money. Similarly, the beneficiary under a contract of carriage (whether the consignor or the consignee, as the case may be) which is in the nature of a service, has to be compensated in terms of money for loss or damage to the goods under carriage.
The National Commission in paras 13 to 15 of the above judgment, went on to hold as under :
“ 13. Further, hiring of services of the Insurance Company by taking insurance policy by Complainants who are carrying on commercial activities cannot be held to be a commercial purpose. The policy is taken for reimbursement or for indemnity for the loss which may be suffered due to various perils. There is no question of trading or carrying on commerce in insurance policies by the insured. May be that insurance coverage is taken for commercial activity carried out by the insured.
14. In Halsbury’s Laws of England, vol. 25, 4th Edition,the origin and common principles of insurance is discussed and in paragraph 3 it has been mentioned that it is based on principle of indemnity. Thereafter, relevant discussion is to the effect that most of contract of insurance belong to general category of contracts of indemnity. In the sense that insurers’ liability is limited to the actual loss which is, in fact, proved. The contract is one of indemnity and, therefore, insured can recover the actual amount of loss and no more.
15. In this view of the matter, taking of the insurance policy is for protection of the interest of the assured in the articles or goods and not for making any profit or trading for carrying on commercial purpose. ”
An insurance policy being one of indemnity, necessarily involves an element of ‘service’ as well as dealing in ‘goods’, and the two are so entwined that the dealing in ‘goods’ cannot be ignored at all to assume that the contract is one of ‘service’ alone. Hence the wording in Sections 34(1), 47(1)(a)(i) and 58(1)(a)(i) of the 2019 Act as “the value of the goods or services” has necessarily to be read as “the value of the goods and/ or services”, in view of the mandate of Section 1(4) of the 2019 Act.
The wording in Sections 11(1), 17(1)(a)(i) and 21(1)(a)(i) of the 1986 to the effect “value of the goods or services and the compensation, if any, claimed” have been replaced in Sections 34(1), 47(1)(a)(i) and 58(1)(a)(i) of the 2019 Act with the words “value of the goods or services paid as consideration”, and it is on this basis that the National Commission has given its findings in the case of M/s Pyaridevi Chabiraj Steels Pvt Ltd (supra). As a matter of fact the words “value of the goods or services paid as consideration” as aforesaid come in direct conflict with S.2(7) of the 2019 Act (which was at par with S.2(1)(d) of the 1986 Act), as reproduced below :
“ “consumer” means any person who—
(i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment, when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or
(ii) hires or avails of any service for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such service other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person, but does not include a person who avails of such service for any commercial purpose.
Explanation – For the purposes of this clause, “commercial purpose” does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self-employment; ”
It can thus be seen that the consideration for purchase of goods or services need not necessarily be paid, but also promised to be paid or partly paid and partly promised to be paid under a system of deferred payment.
In the above circumstances the consideration paid has necessarily to be read as consideration paid or payable. That apart, considering the fact that in contracts of insurance, transportation etc. there is an element of ‘service’ as well as dealing in ‘goods’, the words “value of the goods or services paid as consideration” has necessarily to read as “value of the goods and/ or services claimed, for which consideration has been paid”, as otherwise the very purpose of the 2019 Act as set out in the preamble “To provide protection of the interests of consumers, and for the said purpose to establish authorities for timely and effective administration and settlement of consumer’s disputes and for matters connected therewith or incidental thereto”, as also Section 1(4) of the 2019 Act to the effect that “this Act shall apply to all goods and services”, would be defeated. It would thus be an anomalous situation where the District Commission has the jurisdiction to entertain an insurance claim for Rs.10 crore, based solely on the premium paid which is only Rs.55,000.00, and invariably every insurance claim will have necessarily to be filed before the District Commission, which by no stretch of imagination can be stated to have been the intention of the Parliament while enacting the 2019 Act. Hence it would be appropriate that Sections 34(1), 47(1)(a)(i) and 58(1)(a)(i) of the 2019 Act are suitably modified by way of amendment by the Parliament or authoritative interpretation by the hon’ble Supreme Court, namely that the words “the value of the goods or services paid as consideration” as appearing therein ought to read as “the value of the goods and/ or services claimed, for which consideration has been paid”, as it will have important ramifications with regard to filing of consumer complaints involving claims relating to insurance, transportation etc. before various Commissions at the District, State and National level, throughout the country.
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Change in Law – effect on Workers’ Cess implemented by States later on
– Jos Chiramel
One of the provisions generally incorporated in a construction contract is that if as a result of change in law, subsequent to submission of the bid by the Contractor which is accepted by the Employer and the work is awarded to the Contractor, the Contractor suffers an increase in costs or reduction in net after tax return or other financial burden the aggregate financial effect of which exceeds certain amount as stipulated in the contract in any accounting year, the Contractor may notify the Employer and propose amendments to the contract agreement, so as to put the Contractor in the same financial position as it would have occupied had there been no such change in law resulting in such cost increase, reduction in return, or other financial burden as aforesaid. If in spite of notice, no amicable resolution of the issue is arrived at within the specified time period, the Contractor can make a monetary claim on the employer, and if the amount is not paid, invoke arbitration for resolution of the dispute.
The
Building and Other Construction Workers (Regulation of Employment and
Conditions of Service) Act, 1996 (‘the BOCW Act’), The Building and Other
Construction Workers (Regulation of Employment and Conditions of Service)
Central Rules, 1998 (‘the BOCW Rules’),
The Building and Other Construction Workers Welfare Cess Act, 1996 (‘the Cess
Act’), and The Building and Other Construction Workers Welfare Cess Rules, 1998
(‘the Cess Rules’) were enacted by Indian Parliament/ framed by the Central
Government, under Entry 97 of List I of the 7th Schedule of the
Indian Constitution. The BoCW Act and
the Cess Act came into operation vide notifications dated 20.08.1996 and
26.09.1996, and the Rules framed thereunder, namely the BOCW Rules and the Cess
Rules also came into force vide notifications dated 19.11.1998 and 26.03.1998
respectively. The States had no role in
enactment of the Central Act and the Rules framed thereunder, except to frame
State Building & Other Construction Workers (Regulation of Employment &
Conditions of Service) Rules, and to issue notifications for setting up the
Construction Workers’ Welfare Board, and appointment of Registering Officers,
Inspectors, Assessing Authority and Cess Collectors.
Though the Act and the Rules were passed by the Parliament/ notified by the Central Government between 1995 and 1998, the States were slow to implement the same, and hence the Supreme Court came down heavily on them in Contempt Petition filed by National Campaign Committee for Central Legislation on Construction Labour, and the Apex Court passed strictures therein from time to time, as can be seen from the judgment reported as National Campaign Committee for Central Legislation on Construction Labour vs UoI & Ors : (2011) 4 SCC 64, and as a result the State Governments notified the State Building & Other Construction Workers (Regulation of Employment & Conditions of Service) Rules, and issued notifications for setting up the Construction Workers’ Welfare Board, and appointment of Registering Officers, Inspectors, Assessing Authority and Cess Collectors, thereafter. In the above circumstances an issue arose as to whether the law would be stated to have come into force when the Central Government notified the Act and the Rules, or when the States set up the Workers’ Welfare Boards and commenced collection of Workers’ Cess.
The law in this regard was settled by a Division Bench of Delhi High Court vide judgment dated 26.08.2011 in the case reported as Delhi Metro Rail Corporation Ltd vs Simplex Infrastructure Ltd : MANU/ DE/ 3263/ 2011 to the effect that the two Acts and the Rules having come into force between 1995 and 1998, the Arbitral Tribunal erred in holding that the same came into effect in Delhi only on 10.01.2002 when Govt of National Capital Territory of Delhi started collecting the Workers Cess. Thereafter the hon’ble Supreme Court of India had the occasion to examine the constitutional validity of the two Acts passed by Parliament and the two Rules framed by the Central Government vide judgment dated 18.11.2011 in the case reported as Dewan Chand Builders and Contractors vs Union of India & Ors : (2012) 1 SCC 101, wherein the Apex Court upheld the constitutional validity of the said Acts of Parliament and the Central Rules framed thereunder.
The Apex Court in paragraph 9 of the aforesaid judgment, observed as under :
“ Although both the statutes were enacted in 1996, the Central Government in exercise of its powers under Section 62 of the BOCW Act notified the Delhi Building and Other Construction Workers (RE&CS), Rules, 2002 (for short ‘the Delhi Rules’) vide Notification No. DLC/CLA/BCW/01/19 dated 10th January, 2002. Accordingly, Government of NCT of Delhi constituted the Delhi Building and Other Construction Workers Welfare Board vide Notification No. DLC/CLA/BCW/02/596 dated 2nd September, 2002. Thus, the Cess Act and the Cess Rules are operative in the whole of NCT of Delhi w.e.f. January, 2002. ”
On a cursory reading of the above observations of the hon’ble Supreme Court in the aforesaid case, it would seem that the Apex Court gave an authoritative finding that the Cess Act and the Cess Rules having become operative in NCT of Delhi only w.e.f. January, 2002 it was in the nature of a change in legislation, if the bids were submitted by the Contractor prior thereto. However the Court was not at all considering the said issue, but rather the constitutional validity of the two Central Acts and the Rules framed thereunder by the Central Government, and finally held in paragraph 25 of the judgment, as under :
“ 25. In view of the foregoing discussion, we do not find any infirmity in the conclusions arrived at by the High Court while upholding the validity of the impugned Acts. All the appeals, being bereft of any merit are dismissed with costs, quantified at Rs.25,000/- in each set of appeals. ”
Thereafter the issue whether the collection of workers’ cess amounted to a change in law came up before another Division Bench of the High Court in the case reported as National Highways authority of India vs Gammon-Atlanta (JV) : MANU/DE/3421/2013, wherein the Division Bench in paragraphs 5 and 6 of the judgment, held as under :
“ 5. The next question sought to be urged on behalf of the NHAI was the claim No. 2, i.e. recovery of Rs.3,30,225/- plus interest from NHAI on account of building and payment made to the Construction Workers’ Welfare Cess. Learned counsel has endeavoured to rely upon the decision of a Division Bench of this Court in Delhi Metro Rail Corporation Ltd. vs. Simplex Infrastructures Ltd. MANU/DE/3263/2011 : 2011(6) Raj 208 (Del), to suggest that the Act had in fact come into force on 1st March, 1996 and the Rules had come into effect sometime in the year 1998. It is, therefore, submitted that this burden had to be borne by the contractor by virtue of Delhi Metro Rail Corporation Ltd. vs. Simplex Infrastructures Ltd. (supra). It was, therefore, urged that this amount could not have been awarded to the respondent. Mr. Amit George, counsel for the claimant/respondent, who is present on caveat, argues that the Arbitral Tribunal’s decisions as well as that of the learned Single Judge in the impugned order, cannot be interfered with and cites a subsequent judgment of the Supreme Court reported as Dewan Chand Builders & Contractors vs. Union of India and Ors., MANU/SC/1351/2011 : (2012) 1 SCC 101 wherein inter alia it was held as follows:
‘ 18. Although both the statutes were enacted in 1996, the Central Government in exercise of its powers under Section 62 of the BOCW Act notified the Delhi Building and Other Construction Workers’ (Regulation of Employment and Conditions of Service) Rules, 2002 (for short “the Delhi Rules”) vide Notification No. DLC/CLA/BCW/01/19 dated 10.1.2002. Accordingly, the Government of NCT of Delhi constituted the Delhi Building and Other Construction Workers’ Welfare Board vide Notification No. DLC/CLA/BCW/02/596 dated (sic).9.2002. Thus, the Cess Act and the Cess Rules are operative in the whole of NCT of Delhi w.e.f. January, 2002. ’
6. It is evident from a reading of Simplex Infrastructures Limited (supra) that the Division Bench was of the opinion that the burden had to be borne by the contractors to make payment in the funds since the enactments and rules had come into force in 1998. However, in respect of identical facts and work contract, the Supreme Court, by a decision in Dewan Chand Builders & Contractors (supra) held that the enactments came into force when rules in question were notified in Delhi i.e. in January, 2002. In the present case, the bids were made in 2000 and the notification in question was issued in 2008. Consequently, the interpretation based upon Clause 10.8 in the instant case by the Arbitral Tribunal cannot be faulted. The appellant’s arguments on this scope are rejected. ”
With due respect, it may be pointed out that the observations of the Division Bench as aforesaid, that “ ……. in respect of identical facts and work contract, the Supreme Court, by a decision in Dewan Chand Builders & Contractors (supra) held that the enactments came into force when rules in question were notified in Delhi i.e. in January, 2002…..” were factually not correct, as would be apparent from a bare reading of the judgment dated 18.11.2011 of the hon’be Supreme Court in Dewan Chand’s case (supra) wherein the Court had only examined the constitutional validity of the two Central Acts and Rules. As a matter of fact the earlier Division Bench judgment dated 26.08.2011 in DMRC case was upheld by the hon’ble Supreme Court in Special Leave Petition vide order dated 02.01.2012, reported as M/s Simplex Infrastructure Ltd vs DMRC Ltd : MANU/SCOR/22679/2012, holding as under :
“ Section 1(3) of the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 provides that the Act shall be deemed to have come into force on 1st day of March, 1996.
In the backdrop of this provision, the view of the Division Bench of the High Court cannot be said to be bad in law. ”
On the other hand, apparently the judgment dated 14.08.2013 of the Division Bench in the case of Gammon Atlanta (JV) as aforesaid, was not challenged in the Supreme Court of India. The same issue thereafter came up before a Single Judge of Delhi High Court, and the Learned Judge vide judgment dated 07.07.2015 in the case reported as BBEL-MIPL Joint Ventre vs NHAI : MANU/ DE/1956/2015, relied upon the judgment dated 26.08.2011 in the DMRC case decided by the earlier Division Bench, and held in paragraph 3 of the judgment as under :
“ 3. The issue to be decided is no longer res integra and the same has been pronounced upon by a Division Bench judgment of this Court in the case reported as Delhi Metro Rail Corporation Limited Vs. Simplex Infrastructures Limited MANU/DE/3263/2011 : 2011 (3) ArbLR 307 (Delhi). This judgment categorically holds that merely because a State Government seeks to implement the BOCW Act subsequently by making rules and constitution of the Board to be constituted under the BOCW Act, the same will not mean that the BOCW Act had not already come into force in the year 1996. ”
The Learned Single Judge in the aforesaid case also distinguished the judgment of the hon’ble Supreme Court in Dewan Chand Builders’ case, and observed correctly in para 5 of the judgment, as under :
“ 5. Reliance placed by the counsel for the petitioner upon the judgment in the case of Dewan Chand Builders and Contractors Vs. Union of India & Others MANU/SC/1351/2011 : (2012) 1 SCC 101, and its para 18, does not help the petitioner because this paragraph does not deal with and pronounce on the issue as to when the BOCW Act came into operation. ”
Apparently the judgment dated 07.07.2015 of the Learned Single Judge in the above case was not challenged before the Division Bench of Delhi High Court.
Thereafter the same issue came up before another Single Judge of Delhi High Court in OMP (Comm) 357/2016 titled NHAI vs BSCPL Infrastructure Limited, wherein the Learned Single Judge vide judgment dated 20.10.2016, relying on the judgment in NHAI vs Gammon-Atlanta (JV), dismissed the said petition. In this regard it is noteworthy that the earlier judgment dated 07.07.2015 of another Coordinate Bench in the case of BBEL-MIPL was not pointed out to the court, and nor it was pointed out to the court that subsequent to the judgment dated 18.11.2011 in Dewan Chand Builders’ case, the hon’ble Supreme Court had upheld the judgment dated 26.08.2011 of earlier Division Bench in DMRC case in Special Leave Petition vide order dated 02.01.2012, which in all fairness ought to have been pointed out to the subsequent Division Bench while passing judgment dated 14.08.2013 in the case of Gammon Atlanta (JV), particularly when the law laid down by the Supreme Court in Special Leave Petition in the DMRC case vide order dated 02.01.2012 is binding on all Courts and Tribunals in India under Article 141 of the Constitution of India. Instead, it was stated by the counsel for the Petitioner before the Learned Single Judge that “….. the decision of the Supreme Court in the case of Dewan Chand Builders and Contractors (supra) is under consideration before the Supreme Court of India…”, which was factually not correct, and in fact the Supreme Court had already upheld the earlier Division Bench judgment in DMRC case.
Thereafter the same issue came up before another Coordinate Bench of Delhi High Court in OMP No. 111/2014 titled NHAI vs M/s Gayatri Projects Ltd, wherein the counsel for NHAI pointed out to the court that the issue was covered by the judgment of the Division Bench in the case of NHAI vs Gammon-Atlanta (JV), and on the request of the counsel to dispose of the petition based on the said judgment, the petition was disposed of vide order dated 18.01.2016. However, interestingly enough, the order dated 18.01.2016 was challenged by NHAI in FAO (OS) No. 165/2016 titled NHAI vs M/s Gayatri Project Ltd wherein the same counsel appeared for NHAI, and the appeal was dismissed by the Division Bench, in view of the earlier judgment of the Division Bench in the case of Gammon-Atlanta, which was also referred to by the same counsel before the Learned Single Judge. The issue came up yet again before a Coordinate Bench of Delhi High Court which had passed the judgment dated 20.10.2016 in the case of BSCPL Infrastructure Ltd, namely in OMP (Comm) 391/2017 titled NHAI vs Progressive-MVR Joint Venture, which petition was dismissed by the Learned Single Judge vide judgment dated 28.02.2018, wherein, after relying on the judgment of the Division Bench in the case of Gammon-Atlanta once again, while dismissing the petition, observed in para 13 of the judgment, as under :
“ 13. The contentions advanced on behalf of NHAI appear to be persuasive; however, this Court is not inclined to examine this aspect as concededly, this issue is squarely covered by the earlier decisions of this Court, which were rendered in the light of the decision of the Supreme Court in Dewan Chand Builders & Contractors v. Union of India & Ors. : MANU/SC/1351/ 2011 : (2012) 1 SCC 101. ”
The Court went on to reproduce para 18 of the judgment of the Supreme Court in the case of Dewan Chand, followed by the Division Bench of Delhi High Court in Gammon-Atlanta, as also subsequent judgments in the cases of BSCPL Infrastructure Ltd and Gayatri Projects Limited of Singe Benches of the High Court as also the judgment of the Division Bench of the High Court in Gayatri Projects Limited, as stated above.
It may be stated here that the counsel appearing before a Court owe a duty and obligation to apprise themselves of the correct position of law based on interpretation thereof by the High Courts and the hon’ble Supreme Court and also to place the same before the court to enable the court to come to a proper appreciation of the law, and for correct interpretation thereof, particularly since the hon’ble Supreme Court while upholding the earlier judgment dated 26.08.2011 of the Division Bench in Special Leave Petition, vide order dated 02.01.2012, had explained the entire gamut of the law, clearly and succinctly, though stated in barely two sentences, and it is hoped that all doubt and confusion on this aspect of the law, will be laid to rest.
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LEGALITY OF RESTRICTION ON PERIOD OF LIMITATION
– Jos Chiramel
Section 28 of the Indian Contract Act, 1872 provided as under :
“ Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent. ”
One of the earliest cases in regard to the above related to interpretation of terms and conditions of a policy of insurance restricting the time period for challenging rejection of the claim, reported as The Vulcan Insurance Co Ltd v Maharaj Singh & another : (1976) 1 SCC 943. The restrictive clause in the said case ran as follows :
“ 13. If the claim…… be made and rejected and an action or suit be not commenced within three months after such rejection, …… within three months after the Arbitrator or Arbitrators or Umpire shall have made their award, all benefit under this Policy shall be forfeited. ”
The Supreme Court upheld the said provision, without giving any reasons for the decision, presumably on the ground that the provision dealt with the extinguishing of a right rather than restricting the remedy, since the term ‘benefit’ related to the right rather than the remedy. As a matter of fact, in the said case, Clause 18 of the policy stipulated as under :
“ 18. If any difference arises as to the amount of any loss or damage such difference shall independently of all other questions be referred to the decision of an Arbitrator……….. ”
As per the clause, arbitration was to be resorted to only if there was a dispute regarding the quantum of loss, the liability being otherwise accepted. In spite of rejection of the claim, the insured resorted to arbitration, which was struck down by the Supreme Court holding that the proper remedy was by way of filing of a suit within three months, and not resorting to arbitration.
The next important case that came up before the hon’ble Supreme Court was that of Food Corporation of India v The New India Assurance Company Limited : (1994) 3 SCC 324. In that case, the restrictive clause in the Fidelity Insurance Guarantee, specified as under :
“ …… the Corporation shall have no rights under this bond after the expiry of (period) six months from the date of termination of the contract. ”
The Supreme Court held that the above clause did not amount to saying that the suit ought to have been filed against the insurance company within six months. It was therefore held that the suit filed after a period of six months, but within the period of limitation prescribed under the Limitation Act, 1963 was legal, valid and proper.
The Supreme Court next dealt with the issue in the case reported as Muni Lal v The Oriental Fire & General Insurance Company Limited : (1996) 1 SCC 90. In that case, clause 8 of the policy stipulated that in case of rejection of the claim, a suit ought to be instituted within one year. The actual wording of the said restrictive clause is not quite clear, as the same is not reproduced in the judgment. However, the fact remains that in the said case, rather than filing a suit for recovery of money, one for a declaration was sought that the insured under the policy was entitled to the insurance claim, and not the consequential remedy of recovery of the amount, which was barred under Section 34 of the Specific Reliefs Act. The insured belatedly, after the expiry of limitation of three years, sought amendment of the plaint, which was rejected by the Supreme Court.
In the above circumstances, the judgment in Muni Lal’s case (supra) did not have a direct bearing on the issue being discussed, since the question decided ultimately, was quite different. However, from the following observations in para 4 of the judgment, it can be inferred that in the said case, the court in fact held that the restrictive clause in the said policy, was barred under Section 28 of the Contract Act :
“ ….. It is true, as rightly pointed out by Shri Rakesh Khanna, that Section 28 of the Contract Act prohibits prescription of shorter limitation than the one prescribed in the Limitation Act. An agreement which provides that a suit should be brought for the breach of any of the terms of the agreement within a time shorter than the period of limitation prescribed law is void to that extent. The reason being that such an agreement is absolutely to restrict the parties from enforcing their rights after the expiration of the stipulated period, although it may be within the period of general limitation. But acceptance of that contention does not per force solve the controversy in this appeal….”
In the circumstances, what is relevant to note is that the court in the said case as well drew a fine distinction between the extinguishing of a right and the restriction of a remedy.
The Supreme Court in the case reported as National Insurance Company Limited v Sujir Ganesh Nayak & Co & another : (1997) 4 SCC 366, had the occasion to examine the law on the subject with regard to the bar of Section 28 of the Contract Act qua the restrictive clause in the policy with regard to institution of the suit within a specified time. In that case, the relevant clause 19 of the policy, provided as under :
“ In no case whatever shall the company be liable for any loss or damage after the expiration of 12 months from the happening of loss or the damage unless the claim is the subject of pending action or arbitration. ”
The court held in para 10 of the judgment, as under :
“ The clause meant nothing more than this, namely, if the suit is not filed within three months of rejection of the claim, the rights under the policy shall be forfeited. ”
It is pertinent to mention here that the judgment in the case of Sujir Nayak (supra) was decided by the Supreme Court on 21.03.1997. As a matter of fact, the line of demarcation between extinguishing of a right and restriction on the period of limitation is so thin, that the same is often non existent. Realizing the same, the Parliament in its wisdom, Parliament amended Section 28 of the Contract Act, presumably to dilute the rigours of the said judgment, by way of Indian Contract (Amendment) Act, 1996 (Act 1 of 1997), effective from 01.08.1997, as per recommendation of the Law Commission of India in its 97th report, whereby the amended Section 28 read as under :
“ Every agreement, –
(a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or
(b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to the extent. ”
Thereafter, the National Consumer Disputes Redressal Commission had the occasion to consider the validity of the restrictive clause requiring filing of a suit within 12 months, in the case of H.P. State Forest Company Ltd v United India Insurance Co Ltd, OP No. 95 of 1994. The restrictive clause 6(ii) of the policy, read as under :
“ In no case whatsoever shall the company be liable for any loss or damage after the expiration of 12 months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration: it being expressly agreed and declared that if the company shall declaim liability for any claim hereunder and such claim shall not within 12 calendar months from the date of the disclaimer have been made the subject matter of a suit in a court of law then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder. ”
The National Commission, based on the judgment of the Supreme Court in Sujir Nayak’s case (supra), vide order dated 16.08.2000 dismissed the original petition as barred.
H.P. State Forest Produce Company Ltd challenged the order dated 16.08.2000 of the National Commission by way of Civil Appeal No. 6347 of 2000 before the Supreme Court. During the pendency of the said appeal however, the Parliament, for some inexplicable reasons, vide the Repealing and Amending Act, 2001, repealed the Indian Contract (Amendment) Act, 1996, whereby the position reverted to status quo ante, i.e. prior to the said amendment, and in turn, to the judgment of the Supreme Court in Sujir Nayak’s case.
In the meantime, the issue once again came up before the National Consumer Disputes Redressal Commission in the case of Real Laminates Pvt Ltd v The New India Assurance Company Limited, First Appeal No. 450 of 1995, where it was erroneously argued that the Amendment Act 1 of 1997 had come into force prior to the date when the judgment in Sujir Nayak’s case was pronounced by the Supreme Court. The National Commission vide judgment dated 18.07.2001 held that the law laid down by the hon’ble Supreme Court under Article 141 of the Constitution of India was supreme, but that, in view of the amendment, the restrictive clause in the said policy, was not valid. The restrictive clause 4(iii) of the policy read as under :
“ …. In no case whatsoever shall the Company be liable for any loss or damage after the expiration of 12 months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration; it being expressly agreed and declared that if the Company shall disclaim liability for any claim hereunder and such claim shall not within 12 calendar months from the date of the disclaimer have been made the subject matter of a suit in a court of law then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder.”
It is pertinent to mention here that the restrictive clause in the said policy was in the nature of extinguishing of a ‘right’ rather than reducing the period of limitation for ‘enforcing’ such right, as in the present case.
The Supreme Court thereafter passed the judgment reported as HP State Forest Produce Company Ltd v United India Insurance Company Ltd on 18.12.2008, reported as (2009) 2 SCC 252, wherein it has been held that in view of the repealing of the Indian Contract (Amendment) Act, 1996 in the year 2001, the position reverts to pre-amendment. Thus sub-section (b) of Section 28 of the Indian Contract Act, 1872 apparently does not stand in the statute book.
The law laid down by the hon’ble Supreme Court is binding on all courts and Tribunals in India. However the judgment in HP Forest Company case (supra) has been distinguished by Punjab & Haryana High Court in the case of Sunil Goyal vs Haryana State Agriculture Marketing Board & others : MANU/PH/1886/2011 and by Delhi High Court in the case reported as NHAI vs Mecon-GEA Energy Systems India Ltd, JV : MANU/DE/0791/2013 holding that the repealing of the Amendment Act does not repeal what is amended in the parent Act. Hence the 1997 amendment in Section 28 of the Act to incorporate sub section (b) thereof would be deemed to be valid.
Though the Punjab & Haryana High Court and Delhi High Court in the above cases have distinguished the judgment of the hon’ble Supreme Court in the case of HP State Forest Produce Company Ltd (supra), it will be in the fitness of things that the law in this regard is confirmed by the hon’ble Supreme Court, so that there is no ambiguity in the law barring any restriction on the period of limitation, under Section 28 of the Indian Contract Act, 1872, particularly since several courts and tribunals in India continue to follow the decision of the hon’ble Supreme Court in the case of HP State Forest Produce Company Ltd.
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WHO CAN BE AN ARBITRATOR IN A CPWD DISPUTE
WHO CAN BE AN ARBITRATOR IN A CPWD DISPUTE
– By Jos Chiramel, Advocate, Supreme Court of India
Arbitrators are appointed for deciding CPWD disputes in terms of Clause 25 of the Standard Form No. CPWD 7 and 8 and other relevant clauses in Form No. CPWD 9, 11, 11-A and 12 relating to matters specified therein, and the proceedings are conducted as per provisions of the Arbitration & Conciliation Act, 1996. Government of India have appointed a panel of Arbitrators in the Ministry of Urban Development whose offices are located in New Delhi, Mumbai and Kolkata. As per the practice that was prevalent in CPWD, the contractor could give a list of disputes to the Chief Engineer, and it was the Chief Engineer who appointed an Arbitrator from the panel of Arbitrators of the Ministry.
The Arbitration & Conciliation Act, 1996 was amended by the Amendment Act of 2015 bringing in drastic changes, including in Section 12 of the Act with regard to grounds for challenge to the appointment of the Arbitrator. Sub-section (1) of Section 12 was entirely substituted with a new sub-section stating therein the circumstances that may affect his impartiality which are specifically stated in Schedule V as including the grounds stated therein. A new sub-section (5) is added after sub-section (4) as it stood earlier, stating therein that a person who falls under any of the categories specified in Schedule VII of the Act shall be ineligible to be appointed as an arbitrator. Incidentally, all the 19 clauses of Schedule VII are practically verbatim repetition of the first 19 clauses of Schedule V of the amended Act.
Clause 1 of Schedules V and VII refers to an arbitrator, inter alia who is an employee of a party. Clause 12 of Schedules V and VII deals with an arbitrator who is a manager, director or part of the management, or has a similar controlling influence in one of the parties. Hence a serving officer or employee of CPWD notwithstanding the fact that he may either be directly employed in CPWD (irrespective of the Division in which he may be employed – as CPWD has to be seen as a whole and not in relation to its divisions) or while on deputation with any other organization including the parent Ministry namely the Ministry of Urban Development, cannot act as an Arbitrator in a dispute to which CPWD is a party, as per the above amended provisions of the Act.
We may state here that none of the clauses of Schedules V and VII of the amended Act provides for any express bar of retired officials of CPWD from acting as Arbitrators, and nor any time or period bar is provided from the date when they cease to be in the service of CPWD to act as Arbitrators in cases in which CPWD is a party. The only clause which if at all deals with past relationship of a person with CPWD is Clause 1 which is common to Schedules V and VII of the amended Act. Technically it speaks only of a person in the present tense who is an employee, consultant or advisor, and in the past tense, of an consultant or advisor, inasmuch as much as the words “or has any other past or present business relationship” can only relate to the latter and not the former, as an employee by no stretch of imagination can have a business relationship with the employer. We may however state that Clause 1 is badly drafted, where the word ‘business’ ought not to have appeared at all, and one wonders how this word has crept in at all, as neither the employee nor the consultant or for that matter the advisor has any affinity to the said word. We are therefore constrained to expunge this word ‘business’ altogether from Clause 1 of Schedules V and VII of the amended Act, and we would not be wrong in doing so, inasmuch as, a close reading of Explanation 1 to sub-section (1) of Section 12 as substituted by the Amendment Act 2015 clearly says that the grounds mentioned in Schedule V of the Act “shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator”, and a guide can only act as a guide to one’s destiny and the lord of one’s destiny. Hence, once the word ‘business’ is removed, we are of the opinion that an officer or employee of CPWD on ceasing to be in the service of CPWD would not be entitled to be appointed as an Arbitrator for a period of three years. That apart, the bar would be permanent, if such officer has in fact dealt with the work involved in the dispute any level whatsoever.
Clause 22 of Schedule V of the amended Act provides that in case an arbitrator has within the past three years been appointed as an arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties, the same may constitute a ground that gives justifiable doubts as to the independence or impartiality of the arbitrator. There is no similar ground in Schedule VII with regard to grounds of ineligibility of an Arbitrator, and thus the likely challenge to his appointment is limited under the ground specified in Schedule V of the Act. In our view the ground of challenge under Clause 22 of Schedule V is only with regard to appointment by a party of a person as their Nominee Arbitrator, and not where a party such as CPWD has the right under contract to appoint a Sole Arbitrator, as would be apparent from the language used in Clause 22 of Schedule V. Our said view is further supported by Explanation 3 to Schedule V as inserted by the Amendment Act to the effect that for removal of doubts it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialized pool, and if in such fields it is the custom and practice for parties frequently to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out in Schedule V of the Act. In this regard it is also noteworthy that as per provisions of the amended Act, there is no bar on one of the parties appointing a sole arbitrator, if the contract provides as such.
It is provided in Clause 24 of Schedule V that a further ground of challenge is that an arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration in a related issue involving one of the parties or an affiliate of one of the parties. This bar, which is also limited to Schedule V relates only to another arbitration on a related issue. Here again, Explanation 3 to Schedule V as explained above, will apply with full force.
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