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1996 DIGILAW 490 (KER)

Central Warehousing Corporation v. Varghese

1996-11-22

K.A.MOHAMMED SHAFI

body1996
Judgment :- K.A. Mohamed Shafi, J. The defendants in arbitration O.S. No. 772/89 on the file of the Subordinate Judge's Court, Trissur are the revision petitioners. The judgment dated 11.7.1996 of the lower court referring the disputes involved in the suit to an arbitrator for adjudication is challenged in this revision petition. 2. The respondents filed the above suit under S.20 of the Arbitration Act for appointment of a sole arbitrator to adjudicate upon the disputes on claims Nos.1 to 7 mentioned in the plaint. The revision petitioners contended that as per the conditions of the contract though a clause for arbitration is provided, the claim made by the respondents being excepted matters, cannot be subjected to arbitration. They have also contended that as per Clause 25 which is the arbitration clause in the contract, the Managing Director of the revision petitioners-Corporation alone is competent to appoint the arbitrator and therefore, the contract conditions being self contained code, the civil court has no jurisdiction to appoint an arbitrator to adjudicate upon the alleged disputes involved in the suit. The lower court negatived all the contentions raised by the revision petitioners and by the impugned judgment referred the disputes to the arbitrator for adjudication. 3. A revision petition to this Court under S.115 CPC is maintainable against the order passed by the lower court referring the disputes for arbitration in a suit filed under S.20 of the Arbitration Act is well settled. In the decision in Charan Das v. GurSaran Das (AIR (32) 1945 All 146), a Division Bench of the Allahabad High Court observed as. follows: "We are, therefore, of opinion that there is nothing in S.39 or S.41 to deprive us of the powers conferred on us by S.115, Civil P.C." Therefore, the contention against the maintainability of the above revision petition against the order passed by the lower court under S.20 of the Arbitration Act referring the disputes involved in the suit to an arbitrator is not sustainable. . 4. . 4. The revision petitioners vehemently contended that the contract conditions entered into between the revision petitioner-Corporation and the respondent constitute a self contained code and as per clause 25 in the agreement which is the arbitration Central Warehousing Corporation v. Varghese (Mohamed Shafi J.) "clause, the Managing Director of the re vision petitioners alone is competent to appoint an arbitrator and the question whether the claim made by the respondents herein comes under the excepted category or not is to be gone into by an arbitrator appointed by the Managing Director alone and since the agreement does not provide for. appointment of an arbitrator by the Court and the parties to the dispute in this case have not agreed for the appointment of an arbitrator, the civil court has no jurisdiction to appoint the arbitrator. Therefore, according to them, the very appointment of the arbitrator by the lower court in this case is absolutely illegal and unsustainable. In support of the above contention, the counsel for the revision petitioners relied upon the decision of the Supreme Court in Rajan v. State of Kerala (1992 (2) KLT435) wherein it is observed as follows: "Thus, this is a case where the agreement itself specified and names the arbitrator. It is the Superintending Engineer, Buildings and Roads Circle, Trivandrum. In such a situation, it was obligatory upon the learned subordinate judge, in case he was satisfied that the dispute ought to be referred to the arbitrator, to refer the dispute to the arbitrator specified in the agreement. It was not open to him to ignore the said clause of the agreement and to appoint another person as an arbitrator. Only if the arbitrator specified and named in the agreement refuses or fails to Act does the court get the jurisdiction to appoint another person or persons as the arbitrator. This is the clear purport of sub-s.(4). It says that the reference shall be to the arbitrator appointed by the parties. Such agreed appointment may be contained in the agreement itself or may be expressed separately. To repeat, only in cases where the agreement does not specify the arbitrator and the parties cannot also agree upon the arbitrator, does the court get the jurisdiction to-appoint an arbitrator". 5. In this case, clause 25 of the contract conditions of Central Warehousing Corporation, Engineering Division stipulates for settlement of disputes by arbitration. To repeat, only in cases where the agreement does not specify the arbitrator and the parties cannot also agree upon the arbitrator, does the court get the jurisdiction to-appoint an arbitrator". 5. In this case, clause 25 of the contract conditions of Central Warehousing Corporation, Engineering Division stipulates for settlement of disputes by arbitration. As per that clause disputes should be adjudicated by an arbitrator appointed by the Managing Director, Central Warehousing Corporation. Therefore, the revision petitioners contended that since the arbitration clause in the agreement empowers only the Managing Director of the revision petitioner - Corporation to appoint an arbitrator, the Civil Court has no jurisdiction to appoint an arbitrator in this case. 6. From clause 25 of the contract conditions in this case, it is clear that the Managing Director of the revision petitioner-Corporation is the person or authority empowered to appoint the arbitrator and he has no jurisdiction to decide the disputes. It is for the arbitrator to decide whether the disputes alleged in the suit come under excepted category or not. But, it is clear from the contentions raised by the revision petitioners before this court as well as before the lower Court that no arbitrator appointed by them has ever considered whether the claim made by the respondents in this case come under excepted category and as such not arbitrable. 7. It is the common case and it is also clear from Ext. Al that the respondents sent notice to the revision petitioners requesting reference of the disputes to an arbitrator for adjudication. It is also admitted that by Ext. A3 reply the revision petitioners informed the respondents that they cannot accede to the request made by the respondents to refer the dispute to an arbitrator for adjudication. It is pertinent to note that by the mere provision in the agreement that certain items come under excepted category, it cannot be contended that the claim made by the respondents comes under excepted category. But there should be a proper decision by the appropriate authority competent to decide under the agreement whether those claims are in fact, coming under excepted category. Unless and until there is a proper decision by the appropriate authority, it cannot be contended that those claims are excepted. But there should be a proper decision by the appropriate authority competent to decide under the agreement whether those claims are in fact, coming under excepted category. Unless and until there is a proper decision by the appropriate authority, it cannot be contended that those claims are excepted. In this case, there is absolutely nothing on record to show that any such decision is taken by the competent authority since the only-evidence available in this case is Exts. Al to A4. 8. Under S.20 of the Arbitration Act a written application before the competent court which shall be registered as a suit and the satisfaction of the court after issuing notice to all parties to the agreement to show cause why the agreement should not be filed, are necessary before ordering reference of the disputes to the arbitrator and the court has no jurisdiction to decide the matter on merits. 9. In the decision in Wazirchand Mahajan and Ann v. Union of India (AIR 1967 SC 990 -1967(1) SCR 303) the Supreme Court observed as follows: "There is no doubt that cl. (1) of S.37 of the Arbitration Act deals only with the authority of the arbitrator to deal with and decide any dispute referred to him it has no concern with an application made to the Court to file an arbitration agreement and to refer a dispute to the arbitrator. After an agreement is filed in Court and the matter is referred to the arbitrator, it is for the arbitrator to decide by the application of the law contained in the Limitation Act, whether the claim is barred. But, S.37 does not confer authority upon the Court to reject the application for filing of an arbitration agreement under S.20 of the Arbitration Act because the claim is not made within 3 years from the date on which the right to apply arose. In dealing with an application for filing an arbitration agreement, the Court must satisfy itself about the existence of a written agreement which is valid and subsisting and which has been executed before the institution of any suit, and also that a dispute has arisen with regard to the subject-matter of the agreement which is within the jurisdiction of the Court. But the Court is not conferred in dealing with that application to deal with the question whether the claim of a party to the arbitration agreement is barred by the law of limitation: that question falls within the province of the arbitrator to whom the dispute is referred." 10. In the decision in Damodar Valley Corporation v. K.K. Kar (AIR 1974 SC 158 =1974 (1) SCC 141) the Supreme Court observed as follows: "In the circumstances, as we have held that where in a contract there is an arbitration clause, notwithstanding the plea that there was a full and final settlement between the parties, that dispute can be referred to the arbitration, the subordinate judge is directed to dispose of the petition of the appellant according to law." In that case, the Subordinate Judge dismissed the application for appointment of an arbitrator holding that the arbitration clause perished and the petitioner can adduce evidence to establish that the contract has come to an end since there was full and final settlement. 11. The counsel for the revision petitioners vehemently argued that even if it is found that the question whether the claim made by the respondents herein is in respect of excepted items in the agreement or not, is an arbitrable issue, it is for the Managing Director of the revision petitioner-Corporation to appoint the arbitrator as per clause 25 of the agreement and the civil Court has no jurisdiction to appoint the arbitrator. 12. The respondents have contended that the Managing Director of the revision Petitioner- Corporation has refused to act in accordance with the arbitration clause and to appoint an arbitrator to adjudicate the issues. When the respondents requested him to appoint an arbitrator to adjudicate the dispute by Exts. Al and A2 letters, he sent Ext. A3 reply declining that request. Therefore, according to them, since the Managing Director of the revision petitioner- Corporation has refused to act as a persona designata to appoint the arbitrator, the respondents are entitled to apply to the Court for the appointment of an arbitrator to adjudicate the disputes involved in this case. In support of this contention the counsel for the respondents placed reliance on various decisions. 13. In support of this contention the counsel for the respondents placed reliance on various decisions. 13. In the decision in Excalcer v. State of W.B. (AIR 1980 Calcutta 86) a single judges of the Calcutta High Court observed as follows: "On the facts of the present case, I find that the Chief Engineer came to know about hi> appointments by the petitioner's letter dated 15.1.79. In spite of such knowledge he kept silent for over five months. This conduct on his part will clearly signify by implication that he ha; accepted his position as an arbitrator. The expiry of one month's time from the date of receipt of the said letter dated 15.1.79 without any attempt on the part of the Chief Engineer to enter: upon the reference will give rise to the statutory presumption of his negligence and refusal u act as an arbitrator within the meaning of the explanation to S.9 of the Act. The statutory notion required under S.8 of the Act has been duly served on live respondent and the statutory period of 15 days has expired. In the premises, I hold that the application is perfectly maintainable and the petitioner is entitled to the order prayed for." 14. In the decision in Sarkar & Sarkar v. State of West Bengal (MR 1992 Cal. 365 a single judge of the Calcutta High Court has observed as follows: "The present application has been filed more than one year after the sending of the letter dated 8th February, 1989. The Chief Engineer who under the Arbitration clause had to appoint an Arbitrator did not take any step whatsoever nor did he write to the petitioner dismissing his prayer for reference of the dispute to arbitration. This long silence for more than one year is sufficient to indicate that he failed and neglected either to appoint an Arbitrator or to enter into a reference himself. This long silence for more than one year is sufficient to indicate that he failed and neglected either to appoint an Arbitrator or to enter into a reference himself. In such a case, relying on the decision of our High Court reported in AIR 1980 Cat 861 am of the view that when within reasonable time, the Arbitrator did not appoint an Arbitrator it should be presumed that he himself wanted to enter into reference but when he did not enter into reference himself after having failed and neglected to appoint an Arbitrator there is a clear case in which he has failed and neglected to enter into reference being the Sole Arbitrator appointed under the Agreement and it is fit and proper that his authority should be revoked." 15. In the decision in Food Corporation of India v. Bihbutibhusan Patra (AIR 1987 Ori. 230) a single judge of the Orissa High Court has observed as follows: "Where no appointment is made by the Managing Director only on account of inaction, the Len does not come into operation. The parties never agreed that inaction of one of the parties to the contract will have the effect of the written agreement for arbitration being nullified. Therefore, where there is a written agreement for arbitration, the Court gets jurisdiction under S.8(2) for appointment of an Arbitrator." 16. In the decision in Nandyal Co-operative Spinning Mills Ltd. v. K. V. Mohan Rao (1993) 2 SCC 654) the Supreme Court has observed as follows: "It would thus be clear that if no arbitrator had been appointed in terms of the contract within 15 days from the date of receipt of the notice, the administrative head of the appellant had abdicated himself of the power to appoint arbitrator under the contract The court gets jurisdiction to appoint an arbitrator in place of the contract by operation of S.8(1)(a). The contention of Sri. Rao, therefore, that since the agreement postulated preference to arbitrator appointed by the administrative head of the appellant and if he neglects to appoint, the only remedy open to the contractor was to have recourse to civil suit is without force. It is seen that under the contract, the respondent contracted out from adjudication of his claim by the Civil Court. It is seen that under the contract, the respondent contracted out from adjudication of his claim by the Civil Court. Had the contract provided for appointment of a named arbitrator and the named person was not appointed, certainly the only remedy left to the contracting party was the right to suit. That is not the case on hand. The contract did not expressly provide for the appointment of a named arbitrator. Instead power has been given to the administrative head of the appellant to appoint sole arbitrator. When he failed to do so within the stipulated period of 15 days enjoined under S.8(1)(a), then the respondent has been given right under clause 65.2 to availed remedy under S.8(1)(a) and request the court to appoint an arbitrator. If the contention of Sri. Rao is given acceptance, it would amount to putting a premium on inaction depriving the contractor of the remedy of arbitration frustrating the contract itself". 17. In the decision in G. Ramachandra Reddy & Co. v. Chief Engineer, Madras, M.E.S.(AIR 1994 SC 2381) the Supreme Court observed as follows: "Thus, when the notice was given to the opposite con tracking party to appoint an arbitrator in terms of the contract and if no action had been taken, i t must be deemed that he neglected to act upon the contract. When no agreement was reached, even in the Court between the parties, the court gels jurisdiction and power to appoint an arbitrator. Even if S.8(a) per se does not apply, notice was an intimation to the opposite contracting party to act upon the terms of the contract and his/ its non-avail men entails the forfeiture of the power to appoint an arbitrator in terms of the contract and gives right to the other party to invoke the Court's jurisdiction under S.20. In the instant case, the respondent did not appoint an arbitrator, after the notice was received. The respondent averred in the written statement that it. was under consideration. Even before the learned single judge he did not even suite that he was willing to appoint an arbitrator. The learned single judge rightly exercised the power under S.20(4) of the Act and appointed the arbitrator. The respondent averred in the written statement that it. was under consideration. Even before the learned single judge he did not even suite that he was willing to appoint an arbitrator. The learned single judge rightly exercised the power under S.20(4) of the Act and appointed the arbitrator. The Division Bench, therefore, was not right in holding that the respondent has by giving option to the appellant to agree for appointment of an arbitrator out of the five named persons had left it to the appellant to appoint an arbitrator and allowing appellant to appoint an arbitrator. On the other hand, the appointment of an arbitrator made by the learned single judge must be deemed to have been approved by us". 18. From the above decisions of the various High Courts and the apex Court, it is clear that when the persona designata either refused or foiled to appoint an arbitrator within the time stipulated under law or the contract of agreement or failed to appoint an arbitrator within a reasonable time of receipt of the notice requiring him to appoint an arbitrator to go into the disputes, the civil Court has got jurisdiction to appoint an arbitrator under S.20 of the Arbitration Act. Even though the revision petitioners have admitted the receipt of Exts. Al and A2 notices, admittedly no arbitrator is appointed by the Managing Director to adjudicate the disputes involved in this case. The revision petitioners have no case that they are willing and prepared to appoint an arbitrator in this case. On the other hand, the vehement contention is mat the issues involved in this case are not arbitrable, being excepted items. As already noted the contention that the disputes alleged by the respondents in this case are not arbitrable since they are excepted items, is a defence available to the revision petitioners and the question whether they are arbitrable or not is to be decided by an arbitrator to be appointed i n this case. Therefore, the lower Court is perfectly justified in ordering appointment of an arbitrator to adjudicate the disputes involved in this case overruling all the objections raised by the revision petitioners. 19. Therefore, the lower Court is perfectly justified in ordering appointment of an arbitrator to adjudicate the disputes involved in this case overruling all the objections raised by the revision petitioners. 19. The counsel for the revision petitioners vehemently submitted that the lower court should have appointed an arbitrator only to decide as to whether the disputes involved in this case as alleged by the respondents in the plaint are arbitrable or not and liberty should have been given to the Managing Director of the Revision Petitioner as provided in clause 25 of the agreement to appoint an arbitrator to adjudicate the issues, in case the arbitrator appointed by the court found that those issues are arbitrable. The above contention of the revision petitioners is not acceptable. Once it is found that the persona designata either refused or abdicated his authority to appoint an arbitrator as provided in the arbitration clause, the court has jurisdiction to appoint an arbitrator to adjudicate all the issues involved in the case including the question whether those issues are arbitrable or not and to enter findings on all the issues involved in the case. Therefore, the contention that the civil Court should have appointed an arbitrator to adjudicate as to whether the disputes involved in this case are arbitrable or not and left the matter there so that a fresh arbitrator can be appointed by the persona designata in the arbitration agreement to adjudicate those issues found arbitrable. Such a course of action will not only delay the proceedings but also will be cumbersome and onerous to the parties. Therefore, this contention of the revision petitioners is also untenable. 20. The lower court has appointed Kumari Justice P. Janaki Amma, retired judge of this court as arbitrator, being one of the members in the panel filed by the respondents. The revision petitioners have not filed any panel and they have not objected the appointment of Kumari Justice P. Janaki Amma as the arbitrator. Therefore, the appointment of Kumari Justice P. Janaki Amma is also justified. In view of the above findings the revision petition is devoid of any merits and is dismissed.