Allahabad High Court Judgement

Allahabad High Court Judgement

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JUDGEMENT HEADLINE : Appointment Of The Arbitrator Named/designated In The Agreement Is The Rule Which Can Only Be Deviated By The Chief Justice For Valid Reasons.
JUDGEMENT TITLE : Bharat Wire Ropes Ltd. Vs. Unio Of India Thru' Ministry Of Railway And Others On 17/05/2012 By Allahabad High Court
CASE NO : ARBITRATION AND CONCILI. APPL.U/S11(4) NO. 64 OF 2011
CORAM : Hon'ble Pankaj Mithal,J.

HIGH COURT OF JUDICATURE AT ALLAHABAD

A.F.R.

[Reserved]

Case :- ARBITRATION AND CONCILI. APPL.U/S11(4) No. 64 Of 2011

Petitioner :- Bharat Wire Ropes Ltd.
Respondent :- Unio Of India Thru' Ministry Of Railway And Others
Petitioner Counsel :- Govind Krishna
Respondent Counsel :- Govind Saran,Navneet Chandra Triparthi

Hon'ble Pankaj Mithal,J.
Heard Shri Govind Krishna And Sri Navneet Tripathi, Learned Counsel For The Parties.
Petitioner Was Issued A Purchase Order On 13.1.2009 For The Supply Of Hard Drawn Round Copper Dropper Wire Of 5 Mm Diameter. It Was Followed By An Agreement. The Relevant Extract Of The Terms And Conditions Of The Said Contract Have Been Filed As Annexure-CA-1. The Agreement Contained An Arbitration Clause For Referring The Disputes Arising Out Of The Above Purchase Order/agreement To The Arbitrator Designated.
In Connection With The Above Purchase Order/agreement A Dispute Had Arisen With Regard To Supplies Made, Delay In Making The Supplies And The Non Payment Of The Material Supplied.
Petitioner In Connection With The Non-payment Of Dues For The Supply Made In Pursuance Of The Above Purchase Order/agreement Filed Writ Petition No. 38790 Of 2011 Before This Court. It Was Disposed Of Vide Judgment And Order Dated 8.8.2011 Observing That The Court Is Satisfied On The Submission Of The Respective Parties That There Is A Clause For Arbitration In The Agreement. Thus, The Court Relegated The Petitioner To The Remedy Of Approaching This Court Under Section 11 Of The Arbitration And Conciliation Act, 1916 (hereinafter Referred To As 'Act') For Appointment Of An Arbitrator And For Seeking Any Interim Relief, If Necessary, Before The Appropriate Court.
The Authorities Have Refused To Refer The Disputes/claims Raised By The Petitioner To The Arbitrator On The Ground That On Examination By The Competent Authority The Claims Are Not Acceptable.
The Arbitration Clause Reads As Under:-


2900. Arbitration
(a) "In The Event Of Any Question, Dispute Or Difference Arising Under These Conditions Called Special Conditions Of Contact, Or In Connection With This Contract (except As To Any Matters The Decision Of Which Is Specially Provided For By These Or The Special Conditions) The Same Shall Be Referred To The Sole Arbitration Of A Gazetted Railway Officer Appointed To Be The Arbitrator By The General Manager In The Case Of Contracts Entered Into By The Zonal Railways And Production Units By Any Member Of The Railway Board In The Case Of Contracts Entered Into By The Railway Board And By The Head Of The Organization In Respect Of Contracts Entered Into By The Other Organizations Under The Ministry Of Railways. The Gazetted Railway Officer To Be Appointed As Arbitrator However Will Not Be One Of Those Who Had An Opportunity To Deal With The Matters To Which The Contract Relates Or Who In The Course Of Their Duties As Railway Servant Have Expressed Views On All Or Any Of The Matters Under Dispute Or Difference. The Award Of The Arbitrator Shall Be Final And Binding On The Parties To This Contract.
(b) In The Event Of The Arbitrator Dying, Neglecting Or Refusing To Act Or Resigning Or Being Unable To Act For Any Reason, Or His Award Being Set Aside By The Court For Any Reason, It Shall Be Binding For The Authority Appointing The Arbitrator To Appoint Another Arbitrator In Place Of The Outgoing Arbitrator In The Matter Aforesaid.
(c) It Is Further A Term Of This Contract That No Person Other Than The Person Appointed By The Authority As Aforesaid Should Act As Arbitrator And That If For Any Reason That Is Not Possible, The Matter Is Not To Be Referred To 'arbitration' At All.
(d) The Arbitrator May From Time To Time With The Consent Of All The Parties To The Contract Enlarge The Time For Making The Award.
(e) Upon Every And Any Such Reference The Assessment Of The Cost Incidental To The Reference And Award Respectively Shall Be In The Discretion Of The Arbitrator.
(f) Subject As Aforesaid, The Arbitration Act, 1940 And The Rules Thereunder And Any Statutory Modifications Thereof For The Time Being In Force Shall Be Deemed To Apply To The Arbitration Proceedings Under This Clause.
(g) The Venue Of Arbitration Shall Be The Place From Which The Acceptance Note Is Issued Or Such Other Place As The Arbitrator At His Discretion May Determine.
(h) In This Clause The Authority, To Appoint The Arbitrator Includes, If There Be No Such Authority, The Officer Who Is For The Time Being Discharging Functions Of That Authority, Whether In Addition To Other Functions Or Otherwise."

The Existence Of The Arbitration Clause In The Agreement Aforesaid Is Not Disputed Rather Is Accepted By The Respondents. It Has Been Brought On Record From Their Side. It Is Also Not Disputed That The Petitioner Has Invoked The Arbitration Clause But The Disputes And Claims Raised By It In Connection With The Above Purchase Order/agreement Have Not Been Referred To Any Arbitrator As Contemplated Therein.
In View Of The Above, It Is A Fit Case Where The Disputes/claims Raised By The Petitioner Arising Out Of The Above Purchase Order/agreement Are Referable To Arbitration And An Arbitrator Is Required To Be Appointed For Resolving The Same.
Sri Tripathi However Contends That The Reference Should Be Made To The Person Designated In The Arbitration Clause And None Else, Whereas Learned Counsel For The Petitioner Contends That No Fetters Can Be Placed Up On The Power Of The Chief Justice Or The Person Designated By Him In The Matter Of Appointment Of Arbitrator Of His Choice.
Their Lordships Of The Supreme Court In Datar Switchgear Limited Vs. Tata Finance Limited And Another 2000 (8) SCC 151 Has Laid Down That Once The Party Moves To The Court, The Right To Make Appointment Conferred Upon The Authorities Under The Arbitration Clause Ceases To Exist And Stand Forfeited.
A Three Judges Bench Of The Apex Court In Punj Lloyd Limited Vs. Petronet MHB Limited 2006 (2) SCC 638 Followed The Principle Laid Down In The Datar Switchgear (Supra) And Ruled That The Party Looses His Right To Appoint An Arbitrator When It Fails To Do So Within 30 Days Of The Notice Served Upon Him To Make An Appointment And When The Other Side Moves To The Chief Justice Under Section 11 (6) Of The Act.
In View Of The Above Two Authorities The Law Is Clear That Where Under The Arbitration Clause One Of The Parties Demands Arbitration And The Party Having Right To Appoint Arbitrator Refuses To Act, The Party Aggrieved May Move Under Section 11 (6) Of The Act Before The Chief Justice And Once The Said Move Is Made, The Party Having The Power To Appoint The Arbitrator Losses The Said Power And The Chief Justice Or The Person Or The Institution Designated By Him Alone Acquires The Power To Appoint An Arbitrator Keeping In View The Provisions Of Section 11(8) Of The Act. The Object Is To Ensure That The Dispute/claims Raised By One Of The Parties To The Agreement Gets Resolved By An Independent And Impartial Person And The Party Having The Power To Appoint An Arbitrator Does Not Misuse It And Causes Unnecessary Delay In The Settlement Of Disputes.
The Only Question Which Therefore Surfaces For Consideration Is Whether In Exercise Of Jurisdiction Under Section 11 (6) Of The Act The Chief Justice Or The Person Or The Institution Designated By Him Is Obliged To Appoint Only The Person Designated In The Agreement And Not Any Other Person(s) Of His Choice.
A Three Judges Decision Of The Supreme Court In Union Of India And Another Vs. M.P. Gupta (2004) 10 SCC 405 Laid Down That Where The Agreement Specifically Provided For Appointment Of Two Gazetted Officers Of The Railways, The High Court Was Not Correct In Appointing A Retired Judge As The Sole Arbitrator.
The Aforesaid Decision Of The Supreme Court Has Been Followed By His Lordship Of This Court In Arbitration And Conciliation Application No. 55 Of 2011 M/S Sight And Sound Electronic (India) Private Limited And Another Vs. General Manager, Central Organization Railways And Others Decided On 17.11.2011.
It Is On The Basis Of The Aforesaid Two Decisions That Sri Tripathi Insists That The Reference Of The Disputes/claims Ought To Be Made To The Person As Provided In The Agreement Clause And To None Other.
A Glance At The Aforesaid Decision In M.P. Gupta (Supra) Reveals That It Was A Matter Under The Arbitration Act, 1940 And Not Under The Present Act. The New Act Is Quite Different From The Previous Arbitration Act And The Principles Laid Down Therein May Not Be Applied To Cases Arising Under The New Act Particularly With Regard To Appointment Of Arbitrator (s).
Section 10 Of The Act Very Unequivocally Declares That Though Parties Are Free To Determine The Number Of Arbitrators, But Such Number Shall Not Be An Even Number. Therefore, In View Of The Above Specific Bar In Appointing Even Number Of Arbitrators Neither The Arbitration Clause Stipulating For Appointment Of Two Arbitrators Or The Order Of The Court To Refer Disputes Or Differences To Two Arbitrators As Provided In The Arbitration Clause Could Be Justified. Therefore, The Ratio Of Law Laid Down In The Above Case Can Not Applied To Appointment Of Arbitrator Under The Present Act.
The Above Both The Aspects Have Gone Unnoticed By His Lordship Of This Court In Deciding M/S Sight And Sound Electronic (India) P. Ltd (Supra).
The Above Decision Of The Supreme Court In The Case Of M.P. Gupta (Supra) Was Considered By The Subsequent Decision Of The Supreme Court In The Case Of Union Of India Vs. Bharat Battery Manufacturing (2007) 7 SCC 684. In The Said Case The High Court In Exercise Of Powers Under Section 11 (6) Of The Act Had Referred The Dispute To Justice K.S. Gupta As Sole Arbitrator. The Appointment Of Arbitrator Was Challenged Before The Supreme Court And It Was Contended That The Appointment Is Bad As The High Court Did Not Follow The Mandate Of Section 11 (8) Of The Act And That There Is No Justification In Not Appointing An Arbitrator Specified In The Agreement Itself. The Supreme Court After Considering The Three Judges Decision Of The Supreme Court In The Case Of M.P. Gupta (Supra) Repelled The Argument And Held That After An Application Under Section 11 (6) Of The Act Is Filed, The Right Of The Department To Appoint An Arbitrator In Terms Of The Agreement In Terms Of The Agreement Stands Extinguished. The Court Thus Upheld The Appointment Of Justice K.S. Gupta While Dismissing The Appeal.
In Union Of India Vs. M/S V.S. Engineering (P) Ltd. AIR 2007 SC 285 The Apex Court Again After Considering M.P. Gupta (Supra) Observed That Where The General Manager, Railway Does Not Appoint The Arbitral Tribunal And The Party Approaches The High Court After The Expiry Of 30 Days, In That Case, High Court Will Be Fully Justified In Appointing The Arbitrator Who In Its Discretion May Even Be A Retired High Court Judge. Apart From The Above, The Supreme Court Itself In Union Of India Vs. M/s Singh Builders Syndicate 2009 AIR SCW 3374 Pointed Out That The Principle Of Law Laid-down In M.P. Gupta (Supra) Was In Respect Of The Old Arbitration Act, 1940 But The Position In The Present Act Is Different As The Appointment Of Arbitrator (s) Named In The Arbitration Agreement Is Not Mandatory Or Must And The Chief Justice Or His Designate Is Not Powerless To Make Appropriate Alternative Arrangements To Give Effect To The Provision For Arbitration.
It Is Thus Evident That Once The Matter For Appointment Of Arbitrator Is Before The Chief Justice/person Designated By Him, He Is Not Powerless To Appoint An Independent And Impartial Person Of His Choice As Arbitrator Based Upon The Qualifications Of The Arbitrator, If Any, Provided In The Agreement. The Principal That Emerges Is That Once The Power Of The Party Under The Agreement To Make An Appointment Of Arbitrator Stands Determined, On Filing Of An Application Under Section 11 (6) Of The Act, The Conditions Of Appointment Contained In The Agreement Would Pale Into Insignificance To A Limited Extent. It Must Be Borne In Mind That The Chief Justice Or The Person Designated By Him Is To Act Independently And Judicially And Is Not To Simply Perform The Administrative Functions Of The Authority Under The Agreement As Anything Contrary To It Would Signify Reducing The Authority Of The Chief Justice Or The Person Designated By Him To That Of The Authority Under The Agreement Which Could Never Be The Intention. The Chief Justice Or His Nominee Is Not Supposed To Take Over The Task Of The Officer/authority Conferred Under The Agreement.
The Controversy Regarding Power Of The Chief Justice Or His Designate To Appoint An Arbitrator Of His Choice May Not Be Covered By The M.P. Gupta (Supra) But Is No Longer Res-integra In View Of The Decision Of The Supreme Court In The Indian Oil Corporation Limited And Others Vs. Raja Transport Limited 2009 (8) SCC 520. In The Said Case Out Of The Three Questions Formulated For Decision One Of The Questions Was In What Circumstances Can The Chief Justice Or His Designate Ignore The Appointment Procedure Or Named Arbitrator In The Arbitration Agreement To Appoint An Arbitrator Of His Choice.
The Court In Answering The Above Question Laid-down That In View Of Section 11(8) Of The Act Referring The Dispute To The Named/designated Arbitrator In The Agreement Should Be A Matter Of Rule And Appointing/nominating Any Other Person On The Pretext Of Independent Arbitrator Shall Be An Exception. The Court Observed That Section 11 (8) Of The Act Gives A Discretion To The Chief Justice/his Designate To Choose An Arbitrator Suited To Meet The Requirements Of A Particular Case. The Said Power Is In No Way Intended To Nullify A Specific Term Of Arbitration Agreement Naming A Particular Person As Arbitrator. The Power Under Section-section (8) Of Section 11 Of The Act Is Intended To Be Used Keeping In View The Terms Of The Arbitration Agreement.
The Court Therein Observed That Arbitration Is A Binding Voluntary Alternative Dispute Resolution Process By A Private Forum Chosen By The Parties. If A Party With Open Eyes And Full Knowledge And Comprehension Of The Said Provision Enters Into A Contract With A Government/statutory Corporation/public Sector Undertaking Containing An Arbitration Agreement Providing That One Of Its Officers Shall Be The Arbitrator, He Can Not Subsequently Turn Around And Contend That He Is Agreeable For Settlement Of The Dispute By Arbitrator But Not By The Named Arbitrator Who Is An Employee Of The Other Party. In Other Words, No Party Can Be Permitted To Say That He Will Be Bound By Only A Part Of The Agreement And Not By The Other Part Unless Such Other Part Is Impossible Of Performance Or Is Void Being Contrary To The Provisions Of The Act, And Such Part Is Severable From The Remaining Part Of The Agreement. A Party To An Arbitration Agreement Can Not Claim A Benefit Of Arbitration And At The Same Time Ignore The Appointment Procedure Relating To The Named/designated Arbitrator. Thus It Was Also Observed:-
" In Other Words, Referring The Disputes To The Named Arbitrator Shall Be The Rule. The Chief Justice Or His Designate Will Have To Merely Reiterate The Arbitration Agreement By Referring The Parties To The Named Arbitrator Or Named Arbitral Tribunal. Ignoring The Named Arbitrator/Arbitral Tribunal And Nominating An Independent Arbitrator Shall Be The Exception To The Rule, To Be Resorted For Valid Reasons."

In View Of The Above Discussion, The Legal Position Which Crystalises Is As Follows:-

1.once A Move Is Made Before The Chief Justice For Appointment Of Arbitrator Under Section 11 (6) Of The Act After Invoking The Arbitration Clause Contained In The Agreement, On Failure Of The Party To Act Thereon, The Chief Justice Or The Person Or Institution Designated By Him Acquires The Right To Refer The Dispute To An Independent And Impartial Arbitrator Keeping In View The Qualifications Of The Arbitrator, If Any, Contained In The Agreement;
2.the Principle That Reference Of Dispute Ought To Be To A Person Named And Designated In The Arbitration Clause As Laid Down In M.P. Gupta (Supra) Is In Relation To The Arbitration Act, 1940 And Would Not Be Ipso Facto Be Applicable To Cases Under The Present Act Where The Position Is Different And The Chief Justice Or His Designate Is Not Powerless To Make Appropriate Alternative Arrangements For The Appointment Of Arbitrator; And
3.referring Of Disputes By The Chief Justice Or His Designate To Arbitrator Named Or Designated In The Agreement Is The Rule In Contrast To Appointing Or Nominating A Third Person As An Arbitrator Which Shall Be An Exception To The Said Rule And Should Be Resorted To For Valid Reasons.
In The Case At Hand The Arbitration Clause Contained In The Agreement Per Se Does Not Provide For Any Particular Qualification For Appointment Of An Arbitrator Except That He Should Be A Gazetted Railway Officer. The Arbitrator Is Not Named In The Agreement. It Is Not Necessary Therefore That A Person Appointed Should Have Any Specialized Knowledge Regarding Working Of The Railways Or About The Nature Of The Contract.
Normally, There Could Have Been No Difficulty In Appointing A Gazetted Railway Officer But No Name Of Any Gazetted Railway Officer Or Of Any Person As Contemplated By The Agreement Has Come Forward From Either Of The Sides. There May Be Hundreds Of Gazetted Railway Officers And It Is Impossible For This Court To Find Out Any Suitable One For Handling The Arbitration Particularly When No Name Has Been Suggested. Thus, Viewing In The Light Of The Above, As No Particular Qualification For An Arbitrator Has Been Provided In The Agreement, An Independent And Impartial Arbitrator Has To Be Appointed. Therefore, The Court Considers It Expedient And Necessary In The Interest Of Justice To Deviate From The Rule Of Appointing The Person Designated In The Agreement And Appoint Mr. Justice D. P. S.Chauhan, Resident Of 262/191 Alenganj, Allahabad Mobile No. 9415338113 A Retired Judge Of This Court As The Sole Arbitrator.
Let Information Of This Effect Be Given To The Learned Arbitrator Appointed.
Petition Disposed Of.

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