P C :

1. This is an application filed under Section 11 of the Arbitration and Conciliation Act, 1996, seeking reference of disputes arising out of and in connection with Agreement, dated 16.04.2021, to an Arbitrator.

2. The said Agreement was entered into between the parties after the applicant‟s bid for procurement and supply of school bags for students of Classes I to X, under the “Jagananna Vidya Kanuka Scheme‟ for the academic year 2021-22 was accepted.

3. The applicant claims that the rates quoted and approved for supply were Rs.144.60/- per small bag for Classes I to V, Rs.148.86/- per medium bag for Classes VI & VII and Rs.153.86/- per large bag for Classes VIII to X. The applicant claims that supply was executed in accordance with the terms and conditions of the contract.

4. Apart from this, it is stated that an additional One Lakh bags were also supplied by the applicant without any delay, on the understanding that the applicant would be paid the same rates as were agreed in the contract by the parties.

               A total invoice of Rs.68,62,63,367/- (including GST) was raised by the applicant upon completion of the contract work and the payment ought to have been made in accordance with the terms of the contract, which envisaged the payment of 80% on supply and submission of delivery reports and invoices, 10% after confirmation from filed functionaries and 10% after receiving positive test reports from the respective testing agency.

5. Claim of the applicant is that, as against the amount claimed, only Rs.46,30,90,673/- was paid, withholding a balance amount of Rs.22,31,72,694/-, without any just cause or reason.

6. Efforts to seek release of the balance amount, it is stated, did not materialize, which forced the applicant to serve upon the respondents a Notice, dated 29.08.2024, invoking the arbitration clause and sought the appointment of a sole arbitrator in terms of the judgment of the Apex Court rendered in the case of Perkins Eastman Architects DPC vs. HSCC (India) Limited ((2020) 20 SCC 760).

7. At this stage, it is necessary to refer to the arbitration clause, which reads as under:

               “2. In case of dispute or difference relating to any matter arising out of or connected with this Tender, such disputes shall be referred to the Principal Secretary, Department of School Education, Govt. of AP and shall be the Arbitrator and the decision of the Principal Secretary shall be final and binding on both the parties. The SPD with mutual consent of the parties may extend the time for supply.”

8. In the response that has been filed by the respondents, the stand taken is that, no amount is due and payable to the applicant and in fact, an excess amount of Rs.6,91,870/- has been made to the petitioner. Detailed calculations have been submitted in the objections filed by the respondents to justify and buttress their assertions of excess payment.

9. While the respondents do not deny the existence of the arbitration clause in the agreement, reference has been made to certain pending litigation before the Delhi High Court, filed by one Mapsa Tapes Private Limited, claiming recovery of an amount of Rs.2,38,71,886.40/- (with interest) from the applicant, based upon some Tripartite Agreement, dated 31.08.2021, executed between the aforementioned firm, the applicant and the HDFC Bank, which parties, admittedly are not parties to the present agreement.

10. Apart from this, learned counsel for the respondents does not dispute the settled position of law as has been laid down by the Apex Court in Perkins Eastman Architects DPC(supra), with regard to the principle that a person who has an interest in the outcome of a decision of a dispute must not have the power to appoint a sole arbitrator. The Apex Court held:

               “20. We thus have two categories of cases. The first, similar to the one dealt with in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377] 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., 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.

               …

               21. But, in our view that has to be the logical deduction from TRF Ltd. Para 50 of the decision shows that this Court was concerned with the issue, “whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator” The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that 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.”

11. This principle was subsequently affirmed by a judgment of the Constitution Bench of the Apex Court in the case of Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) A Joint Venture Co. (2024 SCC OnLine SC 3219), wherein it was held:

               “129. Equal treatment of parties at the stage of appointment of an arbitrator ensures impartiality during the arbitral proceedings. A clause that allows one party to unilaterally appoint a sole arbitrator is exclusive and hinders equal participation of the other party in the appointment process of arbitrators. Further, arbitration is a quasi-judicial and adjudicative process where both parties ought to be treated equally and given an equal opportunity to persuade the decision-maker of the merits of the case. An arbitral process where one party or its proxy has the power to unilaterally decide who will adjudicate on a dispute is fundamentally contrary to the adjudicatory function of arbitral tribunals.

               …

               169. c. A clause that allows one party to unilaterally appoint a sole arbitrator gives rise to justifiable doubts as to the independence and impartiality of the arbitrator. Further, such a unilateral clause is exclusive and hinders equal participation of the other party in the appointment process of arbitrators;

               d. In the appointment of a three-member panel, mandating the other party to select its arbitrator from a curated panel of potential arbitrators is against the principle of equal treatment of parties. In this situation, there is no effective counterbalance because parties do not participate equally in the process of appointing arbitrators.”

12. Be that as it may, the present arbitration application is allowed. Justice Shriram Kalpathi Rajendran, former Chief Justice of the Rajasthan High Court, is appointed as an Arbitrator, who shall enter upon the reference and adjudicate upon the disputes arising out of and in connection with the Agreement, dated 16.04.2021, and render the Award within the statutory period. The parties shall be free to file detailed claims and counterclaims, before the learned Arbitrator. The learned Arbitrator shall also be entitled to claim the fee in consultation with the parties.

No costs. Pending miscellaneous applications, if any, in this petition, shall stand closed.