MODERN FOOD INDUSTRIES (INDIA) LTD. v. PLEXIPACKS — 1991 DIGILAW 538 (KER)

ORDER L. Manoharan, J. - Counter petitioner in Arbitration O.P. 23 of 1988, an Original Petition under Section 8(1)(a) of the Arbitration Act, 1940 (for short 'the Act') is the revision petitioner. Respondent in this Civil Revision Petition contracted to supply 129 tonnes of waxed bread wrappers on conversion basis to the revision petitioner as per Ext. A-2 order dated 16.8.1984. The tender condition which forms part of the contract also contained an arbitration clause. Dispute arose with respect to the performance of the contract, and therefore, the respondent issued Ext. A-1 notice to appoint an Arbitrator in accordance with clause 14 of Ext. A-2. Since arbitrator was not appointed within 15 days of the receipt of Ext. A-1 respondent filed the Original Petition under Section 8(1)(a) of the Act. Revision petitioner contended that, the Chairman of the revision petitioner company appointed one Mahesh C. Jain as the sole Arbitrator in accordance with paragraph 14 of Ext. A-2 purchase order dated 16.8.1984, that the revision petitioner is not bound to consult the respondent for the appointment of the sole arbitrator, consequently Section 8(1)(a) of the Act has no application. Therefore, it was contended by the revision petitioner that the petition is not maintainable. The said Mahesh C. Jain was appointed after the expiry of 15 days of the receipt of Ext. A-1. Lower court by the impugned order appointed an arbitrator. 2. It was contended by the learned counsel for the revision petitioner that, clause 14 of Ext. A-2 does not provide that the arbitrator has to be appointed by consent of parties, and that only if such a provision is made in the arbitration clause can Section 8(1)(a) of the Act have application. On the other hand it was contended by the learned counsel for the respondent, that clause 14 of Ext. A-2 though does not expressly provide that the appointment of the arbitrator should be with consent of the parties, such consent is implied in clause 14 and therefore Section 8(1)(a) of the Act is applicable. According to him, since the revision petitioner did not appoint an arbitrator within 15 days of the receipt of Ext. A-1 notice, petitioner is entitled to invoke the jurisdiction of the court as per Section 8(2) of the Act. 3. According to him, since the revision petitioner did not appoint an arbitrator within 15 days of the receipt of Ext. A-1 notice, petitioner is entitled to invoke the jurisdiction of the court as per Section 8(2) of the Act. 3. Reliance was placed by the learned counsel for the revision petitioner on the decision reported in M/s. Western Coalfields Ltd. v. M/s. Harichand Rai (AIR 1986 Bombay 105) in support of his contention that unless the arbitration agreement provides that the arbitrators are to be appointed by consent of parties, Section 8(1)(a) of the Act will not apply. On the other hand, the learned counsel for the respondent relied on the decisions in Union of India v. D. P. Singh (AIR 1961 Patna 228), Food Corporation of India v. S. K. Samanta (AIR 1979 Calcutta 193) and State of Orissa v. Govinda Choudhury (AIR 1969 Orissa 280) in support of his contention that, it is enough that the consent is inherent or is implied in the arbitration agreement for attracting Section 8(1)(a) of the Act. For appreciating the conflicting contentions, it is necessary to read Section 8 of the Act. 8. Power of Court to appoint arbitrator or umpire - (1) In any of the following cases - (a) where an arbitration agreement provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties, and all the parties do not, after differences have arisen, concur in the appointment or appointments; or (b) if any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply the vacancy; or (c) where the parties or the arbitrators are required to appoint an umpire and do not appoint him; Any party serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy. (2) If the appointment is not made within fifteen clear days after service of the said notice, the court may, on the application of the party who gave the notice and after giving the other parties an opportunity of being heard, appoint an arbitrator or arbitrators or umpire, as the case may be, who shall have like power to act in the reference and to make an award as if he or they had been appointed by consent of all parties". A plain reading of Section 8(1)(a) of the Act would reveal that the arbitration agreement should provide the arbitrators to be appointed must be by consent of the parties. Even if the consent is given to a party for appointing or nominating arbitrators that is not sufficient for the purpose of Section 8(1)(a) of the Act. Section 8(1)(a) postulates appointment of the arbitrator at a future date as the agreement should provide that the reference shall be to one or more arbitrators to be appointed by consent of parties. The said consent in relation to the appointment of arbitrators evidently is for making such appointment or nomination. The decision in D. P. Singh's case (supra) holds the view that, an application under Section 8(1)(a) of the Act is maintainable where the party having the sole power under the arbitration agreement to appoint fails to make the appointment when called upon to do so. The decision proceeds to hold, in such case consent for appointment or nomination of arbitrator is inherent in the agreement as the appointment would be deemed to have been made with consent of the parties. The same reasoning is adopted in S. K. Samanta's case (supra) and Govinda Choudhury's case (supra). In S. K. Samanta's case (supra) it is observed, consent to the appointment of any person at the option of another, is appointment by consent of both parties by necessary implication. 4. A Division Bench of the Jammu & Kashmir High Court in the decision in C. Rai v. Union of India (AIR 1957 J&K 27) held that, where the arbitration agreement provided that one of the parties alone had the power to appoint an arbitrator the other party's consent or no consent was immaterial. 4. A Division Bench of the Jammu & Kashmir High Court in the decision in C. Rai v. Union of India (AIR 1957 J&K 27) held that, where the arbitration agreement provided that one of the parties alone had the power to appoint an arbitrator the other party's consent or no consent was immaterial. That decision would support the view that such an arbitration agreement will not fall under Section 8(1)(a) of the Act; such an arbitration agreement is one with no provision for the appointment of an arbitrator by consent of parties. In the decision in Brij Bhushan Lal v. C.L.N.W. Zone (AIR 1972 P&H 266) also it is held that, unless the arbitration agreement specifically provides for the appointment of arbitrator with consent of both the parties, it will not attract Section 8(1)(a) of the Act and that it is not enough that a party agrees only as to the person or authority who will subsequently appoint an arbitrator; the decision in D. P. Singh's case (supra) was not followed. The decision in M/s. Western Coalfields Ltd.'s case (supra) held that clause (a) Section 8(1) of the Act can have application only when the arbitration agreement provides that the arbitrators are to be appointed by consent of parties, and the same would mean that individual arbitrators are to be appointed by consent of parties. Nomination of arbitrators by one of the parties in pursuance of express terms of the agreement cannot be treated as an appointment with consent. This decision did not accept the view in D. P. Singh's case (supra) and Govinda Choudhuri's case (supra). This decision adverted to the decision of the Supreme Court in Chander Bhan v. State of Punjab (AIR 1977 SC 1210) and distinguished it stating that, the said decision does not deal with a situation under Section 8(1)(a) of the Act. 5. In Chander Bhan's case (supra) an arbitration clause concerning construction work provided that in the matter of dispute the case shall be referred to Settlement Committee consisting of a Superintending Engineer, an Officer of the Finance Department of the Rank of atleast Deputy Secretary and an Accounts Officer, all to be nominated by the Government, for arbitration. 5. In Chander Bhan's case (supra) an arbitration clause concerning construction work provided that in the matter of dispute the case shall be referred to Settlement Committee consisting of a Superintending Engineer, an Officer of the Finance Department of the Rank of atleast Deputy Secretary and an Accounts Officer, all to be nominated by the Government, for arbitration. When a dispute arose the State Government appointed a committee, but before it could complete the arbitration, the Government abolished the committee and later appointed another committee, who entered upon the arbitration and passed an award. The award was challenged by the appellant before the Supreme Court and got the same set aside by the civil court. Thus the second committee also ceased to exist. Thereafter the Government gave notice under Section 8(1) of the Act to the appellant to concur in the appointment of a fresh committee to arbitrate the matter; the appellant did not reply. Thereupon the Government applied under Section 8(2) of the Act and the court to appointed fresh committee suggested by the Government. The challenge was against the same. It was contended on behalf of the appellant that one of the parties to the arbitration agreement when unilaterally abolished the Settlement Committee, the party cannot assert in such circumstance that the committee has become incapable of acting and therefore recourse to Section 8(2) of the Act is sustainable, it was also contended that, Section 8 of the Act will not apply when one of the parties could appoint a Settlement Committee by itself without reference to the other party. The Supreme Court did not accept the contention of the appellant that the unilateral act of the Government would put the case outside the purview of Section 8 of the Act. It was observed that, the Government could have appointed a committee without coming to the court and stated : "Equally untenable is the contention that Section 8 is not applicable to cases where the condition stipulates the appointment of a Settlement Committee by one of the parties". The appeal was dismissed. 6. If as a matter of fact the said observation concerns the applicability of Section 8(1)(a) of the Act, then it can be said, even where the arbitration agreement provides for appointment of arbitrator without consulting the other party would also attract Section 8(1)(a) of the Act. The appeal was dismissed. 6. If as a matter of fact the said observation concerns the applicability of Section 8(1)(a) of the Act, then it can be said, even where the arbitration agreement provides for appointment of arbitrator without consulting the other party would also attract Section 8(1)(a) of the Act. Then the same would lend support to the view expressed in the decisions in D. P. Singh's case (supra), S. K. Samanta's case (supra) and Govinda' Choudhuri's case (supra). 7. But the facts of the case adverted to early would reveal that, the same was a case under Section 8(1)(b) of the Act. The following observation in paragraph 5 of the decision makes that point clear. It is stated therein : "As already found by us when the second Settlement Committee ceased to function the Committee became "incapable of acting" and therefore it was within the competency of the court to proceed to appoint a new Committee." It will be noted that clauses (a), (b) and (c) of sub-section (i) of Section 8 of the Act are disjunctive; and when conditions in any one of the said clauses is satisfied, any party could serve the other party with a written notice to concur in the appointment of the arbitrator. Even where appointment is made pursuant to an arbitration agreement which enabled one party to the agreement to appoint an arbitrator without consulting the other party, when any of the conditions in Section 8(1)(b) of the Act exists a party may serve the other party with a written notice to concur in the appointment. If such appointment is not made within fifteen days of the service of the said notice, then court can on application appoint arbitrator as per Section 8(2) of the Act) Inasmuch as Chander Bhan's case (supra) arose under Section 8(1)(b) of the Act, the same cannot govern a case under Section 8(1)(a) of the Act. 7. Thus, unless the arbitration agreement expressly provides that reference shall be made to one or more arbitrators to be appointed by consent of parties, Section 8(1)(a) of the Act will not be attracted. In view of the above, it is not possible to agree with the decision in D. P. Singh's case, (supra), S. K. Samanta's case (supra) and Govinda Choudhury's case (supra). In view of the above, it is not possible to agree with the decision in D. P. Singh's case, (supra), S. K. Samanta's case (supra) and Govinda Choudhury's case (supra). On the other hand the correct interpretation of Section 8(1)(a) is obtained in the decision in Brij Bhushan Lal's case (supra), C. Rai's case (supra) and M/s. Western Coalfields Ltd.'s case (supra). The initial consent to one of the parties to nominate an arbitrator is not sufficient. An agreement that authorises one party to nominate an arbitrator or arbitrators is not the same as an agreement that provides that reference shall be made to one or more arbitrators to be appointed by consent of parties. The latter will attract Section 8(1)(a) of the Act whereas the former will not. The agreement should provide that dispute should be referred to an arbitrator or arbitrators to be appointed by consent of parties; consent should be for the individual appointment of arbitrators, not an agreement as to the party who can make the appointment or nomination of the arbitrators. 8. Now it is necessary to read the arbitration clause. Clause 14 of the arbitration agreement is quoted in the impugned order which reads : "All the disputes and differences arising out of or in any way touching or concerning the proposed said contract shall be referred to the sole arbitration of the Chairman of Modern Industries (India) Limited or any officer nominated by him whose decision shall be final, conclusive and binding on you. The Chairman or any officer nominated by him shall act as sole arbitrator even though he may have passed any orders in the matter in his executive capacity. Supply of bread wrapper agreed under the contract and as per indent shall be continued as usual by you under the terms and conditions of the contract. The submission of any disputes to arbitration shall not in any way prejudice company's right under the contract". The arbitration agreement thus names the sole arbitrator. When the parties have agreed upon an arbitrator, the question of appointment of arbitrator cannot arise. But, as has noted, the said clause though agrees upon the sole arbitrator states the dispute has to be referred to the sole arbitrator or any officer nominated by him. The arbitration agreement thus names the sole arbitrator. When the parties have agreed upon an arbitrator, the question of appointment of arbitrator cannot arise. But, as has noted, the said clause though agrees upon the sole arbitrator states the dispute has to be referred to the sole arbitrator or any officer nominated by him. Even the latter part of the arbitration agreement since only agrees as to the party who could make the nomination of arbitrators it cannot be said that the agreement provides that, the dispute has to be referred to an arbitrator to be appointed by consent of parties. Thus the arbitration agreement does not satisfy the condition in Section 8(1)(a) of the Act. Consequently the party cannot invoke Section 8(2) of the Act. Thus, it is clear that the Original Petition was not maintainable, and is liable to be dismissed. Consequently, the impugned order is set aside; the Civil Revision Petition is allowed.