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2000 DIGILAW 52 (JK)

UNION OF INDIA v. D. KHOSLA

2000-02-29

ARUN KUMAR GOEL

body2000
JUDGMENT ARUN KUMAR GOEL, J. (Oral) - Since identical questions of law are involved in both these appeals, therefore, they are being disposed of by a common judgment. CIMA No. 157/96 and CIMA No. 158/96 2. Brief facts giving rise to these appeal need to be noted. CIMA No. 157/96 3. This appeal has arisen from the order passed by the learned Sessions Judge, Jammu in file No. 17/Arbitration dated 27-7-1996, whereby petition for appointment of an Arbitrator has been allowed and as a consequence of this authority of Arbitrator who was appointed by respondent during the pendency of the said petition before trial Court was revoked and in his place another Arbitrator viz. Brig. B. V. Ahuja (AVSM) Retd. Chief Engineer, A-2/53, Azad Apartment, Opp. IIT Gate, Houz Khas, New Delhi was appointed an Arbitrator and matters in dispute was further referred to him for adjudication. Parties had entered into an agreement No. CE(P) Samparak/MD-4/86-87 for the construction of permanent bridge over River Tain at KN 80, 50 on Akhnoor-Poonch Road. This work was allotted to the respondent. This work was undertaken by respondent, however, numerous difficulties on account of non-payment as well as lack of decision on the part of department. This resulted in work being not completed even within the extended period of contract. Though fault was on the part of Chief Engineer, Samparak, who instead of admitting the same chose to cancel the contract vide its communication dated 14-6-1993. 4. Since dispute had arisen between the parties to the agreement, therefore, respondent admittedly approach and requested designated authority for the appointment of the Arbitrator in terms of Clause 70 of the contract agreement for referring the dispute for determination. The contract period in the instant case has already expired on 31-3-1993. 5. The designated authority i.e., Director General Border Roads Organisations, Army Headquarters, Kashmir House, New Delhi was under obligation to have appointed an Arbitrator within a period of 15 days on receipt of communication in that behalf from the respondent. Since it failed to appoint an Arbitrator and thus neglected in his duty, therefore, respondent filed an application for appointment of an Arbitrator. The claim of the respondent was contested on behalf of the appellants. According to them whatever amount was due stands already paid. Since it failed to appoint an Arbitrator and thus neglected in his duty, therefore, respondent filed an application for appointment of an Arbitrator. The claim of the respondent was contested on behalf of the appellants. According to them whatever amount was due stands already paid. The contract had to be cancelled because of failure on the part of the respondent and alternate arrangement for its completion was undertaken by them. It was admitted that Arbitrator is to be appointed to adjudicate the disputes. He is to be appointed by the authority named in the agreement. It is specific case of the appellants that it is respondent who owes money to them and not other way around as claimed by latter. It is also case of the respondent that Arbitrator if at all could be appointed was only after the arrangement to carry out the balance work at the risk and costs of the respondent was completed. 6. Another fact that needs to be noted is that respondents approached the competent authority in terms of the agreement to appoint an Arbitrator on 16-2-1994. Till 11th July, 1995 no action had been taken by the appellants. Even in the objections filed by the appellants to the application for appointment of an Arbitrator by the Court, it is nowhere stated that Arbitrator has been appointed on 11th July, 1995, i.e., during the pendency of the application for appointment of an Arbitrator. It appears that when Brig. Sudhir Kumar was appointed as an Arbitrator, an application was filed for quashing the said order. This application has also been disposed of by means of impugned order by the learned Court below. CIMA No. 158/96 7. In this case vide Agreement No. GE(P) Samparak/Mn-1/89/89 parties entered into an agreement for construction of permanent bridge over Nisra Tawi at KN 65.50 on Akhnoor-Poonch Road. Other facts are almost identical as are of CIMA No. 157/96. In this case also Brig. Sudhir Kumar was appointed an Arbitrator on 11-7-1995 for quashing the said order of appointing him as Arbitrator, an application was filed. And by means of impugned order dated 27-7-1996 authority of Brig. Sudhir Kumar has been revoked and in his place Brig. B. V. Ahuja (AVSM) Retired above named has been appointed an Arbitrator. 8. Sudhir Kumar was appointed an Arbitrator on 11-7-1995 for quashing the said order of appointing him as Arbitrator, an application was filed. And by means of impugned order dated 27-7-1996 authority of Brig. Sudhir Kumar has been revoked and in his place Brig. B. V. Ahuja (AVSM) Retired above named has been appointed an Arbitrator. 8. Record of these cases show that applications were initially filed in this Court in both the cases for appointment of an Arbitrator. Those appear to have been assigned to learned District Judge for disposal in accordance with law vide order dated 13-3-1995. This is how the matter came to be adjudicated upon by the said Court. 9. Other fact that needs to be noticed is that both the parties did not lead any evidence before trial Court. So Court proceeded on the basis of the facts as were pleaded by both the sides before it. Even during the course of hearing of these appeals, learned counsel for the parties stated that no evidence in the face of admitted position was necessary as such, those appeals may be disposed of accordingly. 10. Learned Sr. Central Government Standing Counsel submitted that Court has no power muchless authority to have appointed an Arbitrator as has been done in the case that too by cancelling appointment of the Arbitrator appointed by the competent authority and thereby revoking his power to act as such. Besides this, he submitted that even if it be assumed for the sake of argument that there were disputes existing between the parties which were to be adjudicated upon by the Arbitrator still power to appoint him always remained with the authority named in the arbitration clause and not with the Court. Therefore, he has prayed for allowing the appeals and upholding the appointment of Brig. Sudhir Kumar as Arbitrator and for allowing both the appeals accordingly. This plea has been seriously contested by Shri Pandita who urged that no doubt, the power to appoint an Arbitrator was vested with the competent authority named in the agreement, still no exception can be taken to the revocation of the authority of Brig. Sudhir Kumar in the peculiar circumstances of this case that too without spelling out such an appointment in the objections which were filed after such appointment. Therefore, he urged for dismissal of the appeals with costs. 11. Sudhir Kumar in the peculiar circumstances of this case that too without spelling out such an appointment in the objections which were filed after such appointment. Therefore, he urged for dismissal of the appeals with costs. 11. On the basis of aforesaid submissions urged on behalf of the parties, sole question involved in this case is that whether the appellants had forfeited their right to appoint Arbitrator in both the cases, after competent authority failed to do so when it was notified on behalf of the respondent or not. 12. As already noted that power to appoint an Arbitrator is with the competent authority in terms of Clause 70 of the General Conditions of the Contract contained in A.A.F.W. No. 2249. Arbitrator was to be appointed by C.W.E. or any other person who was to refer the dispute after written notice by either party to the contract had been given to him for sole Arbitrator by an Engineer Officer. As already noted admittedly, on 16-2-1994 CWE was called upon to appont an Arbitrator since disputes had arisen between the parties. For the reasons best known to him he chose to sleep over the matter for more than one year and four months till Brig. Sudhir Kumar was appointed an Arbitrator on 11-7-1995. This in my considered view tantamounts to over-reaching as well as circumventing judicial process which were pending before the learned Court below. 13. As per Section 8 of the Arbitration Act, if the competent authority like CWE in the present case in terms of Clause 70 (supra) fails to appoint an Arbitrator then there is nothing that prohibits the Court to appoint an Arbitrator as has been ordered in the present case. 14. In Om Parkash Nargotra v. Union of India and others (A.A. No. 64/90), matter relating to removal of Arbitrator was pending since appointee was not Engineer Officer as was directed by the Court on 2-11-1989 in A.A. No. 631/88. As such, a prayer was made for removal of the Arbitrator and independent Engineer be appointed to act as Arbitrator. This application was contested and resisted. In addition to this, another Arbitrator was appointed during the pendency of the matter before this Court. As such, a prayer was made for removal of the Arbitrator and independent Engineer be appointed to act as Arbitrator. This application was contested and resisted. In addition to this, another Arbitrator was appointed during the pendency of the matter before this Court. In these circumstances when Arbitrator was appointed during the pendency of the proceedings for removal of the Arbitrator who had not been appointed in terms of the earlier order of the Court it was held as under : ".... It is now after a lapse of more than nine months that Arbitrator has been appointed. Section 8(2) of Arbitration Act makes it obligatory to appoint Arbitrator within a period of 15 days after service of notice. It comes out from abovesaid provision of law that the party who receives notice for appointment of Arbitrator has to act in haste and shall communicate appointment of Arbitrator otherwise other party would be justified in taking action under above said law, in which case the Court assumes jurisdiction to appoint any other Arbitrator. Respondent No. 2 has now appointed Arbitrator after institution of this petition which cannot be permitted under law." In State of Rajasthan and others v. M/s. G. S. Atwal & Co. (AIR 1996 Raj 170 = 1996(2) Arb. LR 36), while considering the case in almost circumstances it was observed as under: "Where State Government failed to appoint the Arbitrator in accordance with Section 8(1)(a) of the Act within the stipulated period of 15 days from notice as envisaged under arbitration clause of the agreement, the claimant can make an application. He before Court for appointment of Arbitrator was not obliged to wait indefinitely since rights which were already vested with the claimant had got to be exercised in accordance with Section 8(2) of the Act and, therefore, the claimants could not get its rights defeated at the instance of the State Government. The very purpose of the arbitration agreement in view of Clause 23 of the agreement would have stood defeated. Consequently the appointment of the Arbitrator by the Court by treating the application as under Section 8 was perfectly justified, valid and in accordance with law. The very purpose of the arbitration agreement in view of Clause 23 of the agreement would have stood defeated. Consequently the appointment of the Arbitrator by the Court by treating the application as under Section 8 was perfectly justified, valid and in accordance with law. It could not be said in such a case, that as under arbitration clause there was no mention of appointment of Arbitrator by concerned authorities and a specific power was given to Chief Engineer to appoint Arbitrator, it was only application under Section 20 which was maintainable and, therefore, appointment of Arbitrator by Court under Section 8(1) was illegal." In Executive Engineer, Prachi Division, Bhubaneshwar v. Gangaram Chhapolia and another (AIR 1980 Orissa 51), it was observed as under : "(4) It is well settled that when the parties do not concur in the appointment of an Arbitrator or Arbitrators, or the party who was to appoint the Arbitrator does not make a proper appointment in accordance with the agreement within time the Court may, on the application of the party who gave the notice and after giving the other party an opportunity of being heard, appoint an Arbitrator or Arbitrators, as the case may be, who shall have the 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. There is no doubt that on the failure of the Chief Engineer to appoint a proper Arbitrator in accordance with the Clause 23 of the F-2 agreement within 15 days of due service of notice as provided in sub-section (2) of Section 8 of the Act, the Court below had the jurisdiction to appoint an Arbitrator and it actually did so by appointing Sri Dey as the Arbitrator in this case. As the Chief Engineer did not make a proper appointment within time, he forfeited his right to appoint the Arbitrator, and the Court, in due exercise of its power vested on it under the Act, has already appointed an Arbitrator. The Arbitrator therefore has the power to act in the reference made or to be made to him and to pass an award on that matter as if he had been appointed by the consent of all the parties." In Union of India and another v. Prahallad Moharana (AIR 1996 Orissa 19 = 1996 (Suppl.) Arb. The Arbitrator therefore has the power to act in the reference made or to be made to him and to pass an award on that matter as if he had been appointed by the consent of all the parties." In Union of India and another v. Prahallad Moharana (AIR 1996 Orissa 19 = 1996 (Suppl.) Arb. LR 267), after following 1994(5) SCC 142, it was observed as under : "(9) To take up the first point of Mr. Behura i.e., whether the Court is competent to appoint an Arbitrator of its own choice when the parties agreed to appoint a named arbitrated in the written agreement. A direct decision on the point in the case of G. Ramchandra Reddy & Co., 1994(5) SCC 142, has been cited to support the view that the Court is competent to appoint an Arbitrator of its own choice in the peculiar facts and circumstances of a given case. In that case, the contract was terminated by the authorities. The contractor exercised his option under the General Conditions of Contract and called upon the appellants to appoint the sole. Arbitrator in terms of the agreement. When no action was taken by the authorities, the respondent filed a suit under Section 20 of the Act for appointment of Arbitrator by the Court. The Court appointed a Retired Judge of the High Court as the sole Arbitrator. That was reversed by a Division Bench of the High Court. The Apex Court following its earlier decision Nandyal Cooperative Spinning Mills Ltd. v. K. V. Mohan Rao, (1993) 2 SCC 654 = 1993(1) Arb. LR 469 (SC) held in para 6 of the judgment that when a notice was given by the contractor to the opposite contracting party to appoint an Arbitrator in terms of the contract and if no action had been taken, it must be deemed that he had neglected to act upon the contract. It further held that when no agreement was reached even in the Court between the parties, the Court would get jurisdiction and power to appoint an Arbitrator. It further held that when no agreement was reached even in the Court between the parties, the Court would get jurisdiction and power to appoint an Arbitrator. Even if Section 8(a) of the Arbitration Act per se does not apply, yet it was a notice indicating the opposite party to act upon the terms of the contract and in spite of this notice when it does not act in strict terms of the contract, this amounts to 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 Section 20 of the Act. Mr. Behura during course of argument very much relied on the case of Union of India v. Prafulla Kumar Sanyal, AIR 1979 SC 1457 = (1979) 3 SCC 631 and submitted that the Court shall always make an endeavour to find out the feasibility of appointing an Arbitrator agreed by the parties. The Apex Court in the case of G. Ramachandra Reddy (supra), distinguished the Prafulla's case from the case before them inasmuch as they observed that in Prafulla's case, the parties agreed that the Arbitrator should be appointed by the President and that too, even before the Court they agreed for such appointment, and such a situation was neither before the Apex Court in the case of G. Ramachandra Reddy (supra), nor the same situation is also before us in the case at hand. In the case before this Court, the defendant railway did not respond to the notice though admittedly the received the same. The non-response to the plaintiff's notice for appointing the named Arbitrator in the agreement amounts, as has been held by the Apex Court, to forefeiture of the right to appoint an Arbitrator so named in the agreement. In the case before this Court, the defendant railway did not respond to the notice though admittedly the received the same. The non-response to the plaintiff's notice for appointing the named Arbitrator in the agreement amounts, as has been held by the Apex Court, to forefeiture of the right to appoint an Arbitrator so named in the agreement. Therefore, I have no hesitation to hold that the Court is competent to appoint an Arbitrator of its own choice in a given situation as is found in the present case." "(11) In view of the decision of the Apex Court in the case of G. Ramachandra Reddy (supra), old that Section 20, sub-section (4) of the Act directly applies to a case where the contracting party does not respond to the notice of the contractor for appointment of the named Arbitrator in the agreement, the two Single Bench decisions of this Court should be held to have been overruled. That part, the two decisions of the Delhi High Court which were followed by this Court in the case of Lingaraj Das (supra) were overruled in the Full Bench decision of the Delhi High Court in the case of Ved Prakash Mittal v. Union of India, AIR 1984 Delhi 325. In that case the Court held that in a situation as in the case at hand, the could not be powerless to make an appointment of an Arbitrator itself. The Court is competent under Section 20(4) of the Act to appoint the Arbitrator of its own choice because it would be a case where the parties cannot agree upon to appoint an Arbitrator. It further held that if the so named Arbitrator, was not appointed by the parties, such a case was contemplated by the authors of Section 20(4). The Full Bench further held that to such a case, neither Section 8(1)(a) nor Section 8(1)(b) of the Act applied. I have no hesitation in following the proposition laid down by the Full Bench since a bare reading of Section 8 of the Act it would be amply clear that the section would not apply to a case as at hand. I have no hesitation in following the proposition laid down by the Full Bench since a bare reading of Section 8 of the Act it would be amply clear that the section would not apply to a case as at hand. The reason is as follows :" "(12) Section 8(1)(a) of the Act provides that the reference shall be to one or more Arbitrators to be appointed by consent of the parties and if all the parties do not after differences have arisen concur in the appointment or appointments, any of them can move under this section. It is not the case at hand. Therefore, sub-clause (a) is not applicable. Sub-clause (b) comes into play only when an Arbitrator already appointed either neglects or refuses to act or is incapable of acting, or does, and then only the question of supplying the vacancy would arise and that would itself depend on the peculiar facts and circumstances of each case and on the interpretation of the arbitration clause and we are not concerned with such a situation here. Sub-clause (c) prescribes a situation where the parties or Arbitrators do not appoint an Umpire. The question of supplying the vacancy would only arise in a case under Section 8(1)(b) and not under Section 2(4) of the Act, because Section 20, sub-section (1) clearly predicates that action under that section can be taken by either of the parties even if the party does not proceed under Chapter II in which Section 8 is included. Therefore, it is abundantly clear that the power under Section 20(4) of the Act and the power under Section 8 are distinct powers prescribed for meeting different situations and there is no reason to hold that both the sections overlap each other. To give the real effect and to serve better the purpose of arbitration, the provisions of both the sections can be resorted to independently. Therefore, the contention of Mr. Behura cannot be accepted." Shri Bhat learned counsel for the appellants placed reliance on a Full Bench decision reported in Ved Prakash Mittal v. Union of India (AIR 1984 Delhi 325) and urged that since agreement between the parties, require Arbitrator to be appointed by CWE, Srinagar, therefore, Section 8(1)(a) or 8(1)(b) of the Arbitration Act were not attracted as such, appointment of revocation of the authority of Brig. Sudhir Kumar and in his place appointment of another person as an Arbitrator as detailed hereinabove was liable to be set aside. When a reference is made to this decision, it does not in any manner support muchless advance the plea urged on behalf of the appellants. Because while conceding the situation as in the present two appeals what was observed by the Full Bench is as under : "325. A contractor and the Government were parties to an arbitration agreement a clause wherein provided that the reference of their disputes would be made to an Arbitrator who would be appointed by the Chief Engineer. A dispute arose and the contractor issued a notice to Chief Engineer requiring him to appoint the Arbitrator. The Chief Engineer refused to appoint the Arbitrator. An application under Section 20 was filed by the contractor against the Government and Chief Engineer. Held that, in such a case, the Court would not be powerless to make the appointment of the Arbitrator itself. Under Section 20(4) the Court would appoint the Arbitrator because then it would be a case "where the parties cannot agree upon an Arbitrator". In such a case a notice would be issued to the defendant, i.e., the Government, to show cause why the agreement should not be filed. If the Union of India showed a good cause for not filing the agreement, the Court would refuse to file the agreement and dismiss the petition. But if no sufficient cause was shown by the Govt. the Court would order the agreement to be filed and would make an order of reference by asking the Chief Engineer to appoint the Arbitrator, in terms of the clause. If the Chief Engineer would then refuse to appoint the Arbitrator he must mention a reason for his refusal. If the reasons were satisfactory the Court would refuse to appoint Arbitrator and file the arbitration agreement. The Chief Engineer was a third party to the agreement though he was the employee of the Government, one of the parties. It was a ministerial job which the Chief Engineer was to perform. Such a ministerial functionary could not destroy the arbitration agreement. Section 20(4) conferred upon the Court a general residual power to appoint an Arbitrator when the parties do not agree upon the Arbitrator. It was a ministerial job which the Chief Engineer was to perform. Such a ministerial functionary could not destroy the arbitration agreement. Section 20(4) conferred upon the Court a general residual power to appoint an Arbitrator when the parties do not agree upon the Arbitrator. The purpose of the section was to effectuate the intention of the parties in certain events in which one would expect them to intend that the provision for arbitration should stand but which were not covered in terms by the arbitration provision. If the Arbitrator was not appointed by the agreed appointor such a case was contemplated by the authors of Section 20(4). They were the authors of Section 4 also where the power of appointment could be committed to some other party. ILR (1974) 2 Delhi 637, overruled. Case law discussed." Similarly, reliance placed on the Division Bench judgment Chief Engineer (Construction) Northen Railway and another v. M/s. Badri Nath Maggu. (1973 KLJ 311), does not in any manner improve the case of the petitioner especially under the light of the latter two decisions of Supreme Court relied upon by the Orissa High Court in AIR 1996, Orissa 19 (supra). Besides this, in both the cases under consideration it was on the failure of the appellant to have acted within the reasonable time in terms of the agreement by appointing Arbitrator in question, it was during the pendency of such proceedings when the Arbitrator came to be appointed. 15. Next decision relied by Shri Bhat Council of Scientific and Industrial Research and another v. M/s. Ganga Construction Corporation (AIR 1993 J&K 47 = 1993(2) Arb. LR 289), also does not in any manner advance the case of the appellants. Reliance was also placed on behalf of the appellants in Bhupinder Singh Bindra v. Union of India and another (AIR 1995 SC 2464 = 1995(2) Arb. LR 449 (SC)). This case is of no benefit in the circumstances of the present two appeals. It is no body who either has made any averment of misconduct against the Arbitrator or his having delayed in passing of the award. LR 449 (SC)). This case is of no benefit in the circumstances of the present two appeals. It is no body who either has made any averment of misconduct against the Arbitrator or his having delayed in passing of the award. While conceding these circumstances, Supreme Court held that revocation of the authority of the Arbitrator appointed by the parties was held to be un-jurisdictional and in such circumstances, appointment of an independent Arbitrator by the High Court was found to have been rightly set aside by the High Court in the appeal of the contract. 16. On examination of the precedent noted hereinabove as well as on consideration of the circumstances of this case there is no infirmity in the order of the trial Court. Even if it be assumed for the sake of argument that Section 8 is not applicable as was urged by Shri Bhat. The question that needs further examination is whether the authority like CWE in the present case can be permitted to sit over request for appointment of an Arbitrator for unreasonably long period. This can never be intention of either Clause 70 of the General Conditions of the Contract or for that matter no power can be assumed by the CWE to act on his whim and fancy. To meet such a situation, the court is to powerless. It was only after the objections having been filed in July 1995 with the order of appointment of Brig. Sudhir Kumar as an Arbitrator was conveyed for cancellation whereof an application was filed by the respondent. The whole effort by appointing Brig. Sudhir Kumar on the part of respondent appears to be to circumvent the judicial process started by the respondent on the failure of the appellants in the matter of appointment of an Arbitrator when called upon to do so on 16-2-1994. As already observed that proceedings were initiated for appointment of an Arbitrator in the Court somewhere in the year 1994 to be precised on 22-10-1994, nothing was done till 11-7-1995. That being so, there is nothing wrong with the order passed by the trial Court in passing the impugned order. Accordingly plea urged on behalf of the appellants against the impugned order has no merit and it is accordingly rejected. No other point is urged. 17. That being so, there is nothing wrong with the order passed by the trial Court in passing the impugned order. Accordingly plea urged on behalf of the appellants against the impugned order has no merit and it is accordingly rejected. No other point is urged. 17. As a result of aforesaid discussion, there is no merit in these appeals which both are accordingly dismissed. Appellants shall pay one set of the costs to the respondent. Registry is directed to place a copy of this judgment in file No. CIMA 158/96. Record of both these cases shall be sent back immediately to the trial Court which shall thereafter proceed in the matter and ex parte interim order passed on 3-9-1996 for staying the proceedings before the Arbitrator shall stand vacated forthwith. Copy of this order be also sent to Brig. B. V. Ahuja (AVSM) Retired, by the registry. Appeal dismissed.