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2005 DIGILAW 2507 (RAJ)

Union of India v. Maheshwari Builders

2005-09-19

MANAK MOHTA

body2005
Judgment N.N. Mathur, J.-The instant special appeal is directed against the order of the learned Single Judge dated 19.04.2005 refusing the interfere with the order of the sole Arbitrator Honble Mr. Justice D.N. Joshi (Retired) rejecting the preliminary objection raised on behalf of appellant Union of India as to his appointment as Arbitrator. 2. Shorn of un-necessary details, the factual background giving rise to the present special appeal are that appellant granted contract for construction MD Accommodation (Quarters) vide contract agreement C.E./BTZ-12/1990-1991. The respondent contractor namely M/s Meheshwari Builders, Bikaner quoted the rates keeping in view the minimum wage of Rs. 10.25 prevailing at the relevant time. However, when the contractor completed the work the minimum wages notified under the Minimum Wages Act was Rs. 22/-per day. Thus, a dispute arose between the parties with regard to the minimum wages to be paid by the Union of India as claimed by the contractor. For redressal of the grievance the contractor claimed appointment or arbitrator, which was refused by the appellant. For ready reference the letter dated 24th January, 1998 refusing to refer the matter to arbitration is extracted as follows:- “Registered Head Quarters Chief Engineer Bhatinda Zone Bhatinda Mil. Stn 24 January 1998 83724/678 M/s Maheshwari Builders 25-B Sadulganj, Bikaner-334001 C.A. No. C.E./BTZ-12/90-91 PROVN OF ND Acon for Jods of certain Units at Bikaner, Maheshwari Builders. Dear Sir, 1. Referenceyour letter No. MB/152 II/ARB/209 dated 12 November 1996 claims withdrawn vide your letter No. MB/152 dated 15.02.1997 except claim of labour escalation and letter No. 2438/1217/1998 dated 20 March 1997, requesting II-in Cs Br. For appointment of aribtrator. .2. Regarding claim of escalation the position is clarified as under. .a. Please refer to Para 3 on Sl. page 2 of CA wherein it has been mentioned that in case of minimum rate of wages fixed by the notification are lower than that minimum rates of wages fixed by the State Government, the rate of wages fixed by the State Government shall be deemed to be the minimum rates of wages payable under this notification. .b. Your attention is invited to special Condition 6.1 and 6.3 on page 85 of CA vide which is has been clarified that the contractor shall not pay wages lower than the minimum wages for labour as framed by the Government of India/State Government/Union Territory whichever is higher. .b. Your attention is invited to special Condition 6.1 and 6.3 on page 85 of CA vide which is has been clarified that the contractor shall not pay wages lower than the minimum wages for labour as framed by the Government of India/State Government/Union Territory whichever is higher. .c. Your attention is also invited to special Condition 15 on page 92 of CA the value of LO means the minimum wages of unskilled adult man as on last due date of receipt of tender. 3. In view of the above nothing extra is due to you and your escalation of labour wages and interest on that is not tenable and is not referable for arbitration. 4. Please note the above decision is final and binding and without prejudice. 5. Please acknowledge receipt. Yours faithfully, Sd/- (R.S. Jamwal) Brig. Chief Engineer”. .3. When appellant did not respond to even another notice dated 16.06.1998 of the respondent for appointment of Arbitrator, an application was made to the District Judge, Bikaner. The application was returned by the District Judge on the ground that he did not have jurisdiction in respect of claims exceeding Rs. 5 Lakh to entertain application under Section 11 of the Indian Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act of 1996). Thus, the respondent contractor submitted an application under Section 11 of the Act of 1996 before the learned Designated Judge. The appellant contested the application on the ground that no dispute exist and in terms of the agreement the respondent has lost the right to seek arbitration as the same has been denied by the appellant, whose decision is final. The learned Designated Judge rejected the contention observing that such questions cannot be adjudicated by the Chief Justice or his Designate while considering the application under Section 11 of the Act of 1996. It was further observed that objection with regard to the appointment of arbitrator or the validity of the reference to the arbitrator or the maintainability of the arbitration proceedings are to be raised before the Arbitrator, which may be appointed by the Chief Justice or his Designate. The Honble Designated Judge by order dated 27th May, 2004 invoking the powers under Section 11 of the Act appointed Honble Shri D.N. Joshi a retired Judge of this Court as the Sole Arbitrator to adjudicate upon the dispute raised by the respondent contractor. The Honble Designated Judge by order dated 27th May, 2004 invoking the powers under Section 11 of the Act appointed Honble Shri D.N. Joshi a retired Judge of this Court as the Sole Arbitrator to adjudicate upon the dispute raised by the respondent contractor. It appears that the appellant filed a misc. application before the Designated Judge for recalling of the order dated 27th May, 2004, which was rejected by order dated 27.08.2004 observing that the objection of the authority to act as an arbitrator can be raised before the Arbitrator appointed under Section 11 of the Act. Accordingly the appellant raised objection before the Sole Arbitrator to the effect that as per the Condition No. 70 of IAFW 2249 (general conditions of contract i.e., forming part of the contract) it is only the Engineer Officer, who can be appointed as an arbitrator and none else. For the convenience the relevant portion of Clause 70 is extracted as follows:- .“70. Arbitration.-All disputes, between the parties to the Contract (other than those for which the decision of the C.W.E. or any other person is by the contract expressed to be final and binding shall after written notice by either party to the contract to the other of them, be referred to the sole arbitration of an Engineer Officer to be appointed by the authority mentioned in the tender documents.” 4. The learned Arbitrator held that Clause 70 does not refer to any specific qualification for appointment of Arbitrator. Referring to a decision of the Apex Court in Konkan Rly. vs. Rani Constn. Pvt. Ltd., reported in AIR 2002 SC 778 the learned Arbitrator held that the controversy involved in the instant case relates to interpretation of clause in the contract read with relevant provisions of Minimum Wages Act, which requires an expert in the field of interpretation and a person having legal background. Thus, in the opinion of the learned Arbitrator, a Judge could be a most suitable person to adjudicate such issues. Accordingly, he rejected the preliminary objection by order dated 16th October, 2004. 5. The appellant challenged the said order by way of writ petition under Article 226 of the Constitution of India. Thus, in the opinion of the learned Arbitrator, a Judge could be a most suitable person to adjudicate such issues. Accordingly, he rejected the preliminary objection by order dated 16th October, 2004. 5. The appellant challenged the said order by way of writ petition under Article 226 of the Constitution of India. It was contended on behalf of the appellant that as per Section 11(8)(a) of the Act of 1996 only such person could be appointed as an arbitrator, who is qualified to be appointed and for that purpose due regard was required to be given of the qualification required of the arbitrator, as provided in the agreement between the parties. In the opinion of the learned Single Judge in view of Sub-section (5) of Section 11 if the arbiter Tribunal takes a decision rejecting the plea, then he is required to continue with the arbitral proceedings and make an arbitral award. .6. It is contended by the learned Counsel for the appellant that one of the condition of agreement is that in event of dispute between the parties the same shall be referred to the arbitration to be appointed .by the Engineer in Chief or in his absence the officer officiating the Engineer in Chief or Director General of Works. He has also referred to Condition No. 70, which provides that in event of dispute the same shall be referred to the sole arbitration of an Engineer Officer to be appointed by the authorities mentioned in the tender documents. Thus, the appointment of the arbitrator by the Designated Judge is contrary to Clause 70 of the contract agreement, which clearly provides that in case of any dispute it is only the Engineer Officer and no other person can be appointed as an arbitrator. He has also referred to Section 11(8) of the Act of 1996, which provides that the Honble Chief Justice or the designated Judge while appointing an arbitrator shall have due regard to any qualifications required of the arbitrator by the agreement of the parties, in other words it is only the Engineer Officer, who can be appointed as an arbitrator. It is further submitted that in the similar case a retired Judge of the Delhi High Court was appointed as an arbitrator. It is further submitted that in the similar case a retired Judge of the Delhi High Court was appointed as an arbitrator. The same was challenged before the Supreme Court of India and the Honble Apex Court while entertaining SLP (Civil) No. 1380/2003 in the case of Union of India & Ors. vs. M/S J.R.C. Grid Engineers (P) Ltd. stayed the proceedings. It is also contended that the learned Single Judge committed error in not deciding the issue involved by referring Section 16(5) and (6) of the Act of 1996. The learned Counsel has also placed reliance on a decision of the Apex Court in Union of India & Ors. vs. M.P. Gupta, reported in 2005(1) Arbitration Law Reporter 368. On the other hand it is submitted by the learned Counsel for the respondent that the appellant has forfeited his right to nominate the arbitrator in terms of the clause as it failed to appoint the arbitrator. The learned Counsel has placed reliance. On a decision of the Apex Court in Datar Switchgears Ltd. vs. Tata Finance Ltd. & Anr., reported in 2000 (8) SCC 151 and in Konkan Rly. Corpn. Ltd. vs. Rani construction Pvt. Ltd., reported in 2000 (2) SCC 388. 7. Before we advert to the rival contentions, it will be desirable to acquaint with the scheme of the Act of 1996 and analyse the relevant provisions of law. The Act of 1996 was enacted to update the Law of Arbitration in India on the lines of the Model Law of the UNCITRAL (United Nations Commission on International Trade Law). The Act has been enacted to make it more responsive to contemporary requirements. The process of economic liberalisation has seen the advent of huge foreign investment in India. The law, as it existed before the present enactment, was not seen as an effective mode of settlement of both domestic and international commercial disputes. The present enactment, based as it is on the UNCITRAL Model Law, seeks to provide for an effective mode of settlement of disputes between the parties, both for domestic as also for international commercial arbitration. The main object of the Act of 1996 is for early resolution of disputes. The procedural defects of 1940 Act have been sought to be removed by the 1996 Act. Restrictions have also been put on the Courts/judicial authorities intervening during the course of arbitral proceedings. The main object of the Act of 1996 is for early resolution of disputes. The procedural defects of 1940 Act have been sought to be removed by the 1996 Act. Restrictions have also been put on the Courts/judicial authorities intervening during the course of arbitral proceedings. The main objects of 1996 Act, amongst other, are to make provisions for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration; to provide that the arbitral tribunal gives reasons for its final award; to ensure that the Tribunal remains within the limits of its jurisdiction; to minimise the supervisory role of the Courts in the arbitral process; to provide that every final arbitral award is enforced in the same manner as if it were a decree of the Court. 8. Section 11 of the Act deals with the appointment of arbitrators, which reads as follows:- “Section 11 Appointment of Arbitrators.-(1) A person of any nationality may be an Arbitrator, unless otherwise agreed by the parties. .(2) Subject to Sub-section (6), the parties are free to agree on a procedure for appointing the Arbitrator or Arbitrators. .(3) Failing any agreement referred to in Sub-section (2), in an Arbitration with three Arbitrators, each party shall appoint one Arbitrator, and the two appointed Arbitrators shall appoint the third Arbitrator who shall act as the presiding Arbitrator. .(4) If the appointment procedure in Sub-section (3) applies and .(a) a party fails to appoint an Arbitrator within thirty days from receipt of a request to do so from the other party; or .(b) the two appointed Arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him. .(5) Failing any agreement referred to in Sub-section (2), in an arbitration with a sole Arbitrator, if .the parties fail to agree on the Arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party by the Chief Justice or any person or institution designated by him. .(6) Where, under an appointment procedure agreed upon by the parties,- .(a) a party fails to act as required under that procedure; or .(b) the parties, or the two appointed Arbitrators, fail to reach an agreement expected of them under that procedure; or .(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. .(7) A decision on a matter entrusted by Sub-section (4) or Sub-section (5) or Sub-section (6) to the Chief Justice or the person or institution designated by him is final. .(8) TheChief Justice or the person or institution designated by him, in appointing an Arbitrator, shall have due regard to- .(a) any qualifications required of the arbitrator by the agreement of the parties; and .(b) other considerations as are likely to secure the appointment of an independent and impartial Arbitrator. .(9) In the case of appointment of sole or third Arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an Arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities. .(10) The Chief Justice may make such scheme as he may deem appropriate for dealing with matters entrusted by Sub-section (4) or Sub-section (5) of Sub-section (6) to him. .(11) Where more than one request has been made under Sub-section (4) or Sub-section (5) or Sub-section (6) to the Chief Justices of different High Courts or their designates, the Chief Justice or his designate to whom the request has been first made under the relevant sub-section shall alone be competent to decide on the request. .(12) (a) Wherethe matters referred to in Sub-sections (4), (5), (6), (7), (8) and (10) arise in an international commercial arbitration, the reference to “Chief Justice” in those sub-sections shall be construed as a reference to the “Chief Justice of India”. .(12) (a) Wherethe matters referred to in Sub-sections (4), (5), (6), (7), (8) and (10) arise in an international commercial arbitration, the reference to “Chief Justice” in those sub-sections shall be construed as a reference to the “Chief Justice of India”. (b) Where the matters referred to in Sub-sections (4), (5), (6) (7), (8) and (10) arise in any other arbitration, the reference to “Chief Justice” in those sub-sections shall be construed as a reference to the Chief Justice of the High Court within whose local limits the principal civil Court referred to in Clause (e) of Sub-section (1) of Section 2 is situate and, where the High Court itself is the Court referred to in that clause, to the Chief Justice of that High Court.” Sub-section (1) of Section 11 permits a person of any nationality to be appointed as an Arbitrator as the scope of the Act of 1996 is extended to international arbitration as well. Sub-Section (2) says that the parties are free to agree to any procedure for appointing the arbitrator except under Sub-clause (6). Sub-sections (3) and (4) deals with the arbitration Tribunal of three. If there is any failure of the procedure referred to in Sub-section (2) as contemplated under Sub-section (3) the each party shall appoint one Arbitrator and the two appointed Arbitrators shall appoint third Arbitrator, who shall act as presiding Arbitrator. Thus, in case of an arbitration with three Arbitrators the procedure provide under Sub-section (3) fails the aggrieved party may within 30 days from the receipt of the request to do so may approach to the Chief Justice or the designated Judge for appointment of the third arbitrator as contemplated under Sub-section (4). Sub-section (5) of Section 11 can be invoked by a party, who has requested the other party to appoint an Arbitrator and the later fails to make any appointment within 30 days from the date of receipt of the notice. If the parties fails to reach to any agreement as referred to in Sub-section (2) or if they fail to agree on the appointment of arbitrator within 30 days from the date of receipt of request of one party the Chief Justice can be moved for appointing an arbitrator either under Sub-section (5) or (6) of Section 11 of the Act of 1996. An application under Sub-section (6) of Section 11 of the Act can be filed when there is a failure of the procedure for appointment of an arbitrator. This failure of procedure can arise under different circumstances. It can be a case where a party who is bound to appoint an Arbitrator refuses to appoint an Arbitrator or where the two appointed Arbitrators fail to appoint the third Arbitrator. If a person including an institution, fails to perform any function entrusted to any such person or institution and such person or institution fails to discharge such function, the aggrieved party can approach to the Chief Justice or the Designated Judge for appointment of an Arbitrator. In Datar Switchgears Ltd. case (Supra), the Apex Court considered the question whether for the purpose of Section 11(6) a party to whom demand for appointment is made, forfeits his right to do so if he does not appoint an Arbitrator within 30 days. The Apex Court held that in cases arising under Section 11(6) if the opposite party has not made appointment within 30 days of demand the right to make appointment is not forfeited but continues, but appointment has to be made before the former files an application under Section 11 seeking appointment of an arbitrator only then the right of the opposite party ceases. 9. A five Judges Bench in Konkan Rly. Corpn. Case (Supra), while dealing with Section 11 has also discussed the procedure for making an application before the Chief Justice or the Designated Judge for appointment of an Arbitrator. The Court observed that the party in its request to the Chief Justice to make appointment would aver that the period of 30 days has passed and ordinarily correspondences between the parties would be annexed. The Court observed that the party in its request to the Chief Justice to make appointment would aver that the period of 30 days has passed and ordinarily correspondences between the parties would be annexed. When such an application is made, as observed by the Apex Court, the Chief Justice or his Designated Judge will proceed as follows:- “That the Chief Justice or his designate has to take into account the qualifications required of the arbitrator by the agreement between the parties (which, ordinarily, would also be annexed to the request) and other considerations likely to secure the nomination of an independent and impartial Arbitrator also cannot lead to the conclusion that the Chief Justice or his designate is required to perform an adjudicatory function.” It would further be convenient to refer to Paras 19 and 20 of the Judgment , which read as follows:- “19. As we see it, the only function of the Chief Justice or his designate under Section 11 is to fill the gap left by a party to the Arbitration agreement or by the two arbitrators appointed by the parties and nominate an arbitrator. This is to enable the Arbitral Tribunal to be expeditiously constituted and the arbitration proceedings to commence. The function has been left to the Chief Justice or his designate advisedly, with a view to ensure that the nomination of the Arbitrator is made by a person occupying high judicial office or his designate, who would take due care to see that a competent, independent and impartial Arbitrator is nominated. 20. It might be that though the Chief Justice or his designate might have taken all due care to nominate an independent and impartial arbitrator, a party in a given case may have justifiable doubts about that arbitrators independence or impartiality. In that event it would be open to that party to challenge the Arbitrator nominated under Section 12, adopting the procedure under Section 13. There is no reason whatever to conclude that the grounds for challenge under Section 13 are not available only because the Arbitrator has been nominated by the Chief Justice or his designate under Section 11”. 10. Thus, on the aforesaid discussion, it emerges that there is no time stipulated for appointment of an arbitrator under Sub-section (6). There is no reason whatever to conclude that the grounds for challenge under Section 13 are not available only because the Arbitrator has been nominated by the Chief Justice or his designate under Section 11”. 10. Thus, on the aforesaid discussion, it emerges that there is no time stipulated for appointment of an arbitrator under Sub-section (6). The limitation of 30 days is applicable only for appointment of an arbitrator under Sub-clauses (3) and (4) of Section 11, in other words in cases arising under Section 11(6) if the party has not made an appointment within 30 days of demand, the right to make appointment in terms of the agreement is not forfeited but continues. But such a right has to be exercised before the filling of the application for appointment of an arbitrator under Section 11(6). While considering such prayer, the Chief Justice or the designated Judge may take into account the qualification required of the arbitrator by agreement between the parties and the other consideration i.e., to secure the nomination of an independent and impartial arbitrator. Thus, the Chief Justice or the designated Judge is not bound by the agreement clause for appointment of arbitrator, but he may take into consideration the qualification if , provided ultimately guided by the sense of justice and fair play to secure appointment of a knowledgeable independent and impartial arbitrator. 11. Thus, in the instant case it was not obligatory on the part of the designated Judge to appoint an arbitrator as provided under Clause 70 of the agreement. The Clause 70 is relevant only to the extent to acquaint with one of the consideration as to the qualification of the arbitrator and nothing beyond that. As far as the decision of the Apex Court cited by the learned Counsel for the appellant i.e., Union of India vs. M.P. Gupta (Supra), is concerned, we are of the view that the said decision has no application to the facts of the case inasmuch as in the said case the arbitrator was appointed under the provisions of the Arbitration Act, 1940. It is not a case of Section 11 of the Act of 1996. Thus, the said case has no bearing on the controversy involved in the instant case. 12. It is not a case of Section 11 of the Act of 1996. Thus, the said case has no bearing on the controversy involved in the instant case. 12. A bare reading of Sections 13 and 16 of the Act makes it clear that the question of impendent and impartiality of the Arbitrator and question in respect of jurisdiction of the Arbitrator would be raised before the Arbitrator, who would decide the same. Section 16 of the Act empowers the arbitral Tribunal to rule on its jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement. The entire purpose is that the Chief Justice or the Designated Judge appoint an Arbitrator without wasting any time. 13. In view of the aforesaid, no interference is warranted with the order of the learned Single Judge. The special appeal stands dismissed.