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2006 DIGILAW 68 (JK)

Shivalik Foods v. Union Of India

2006-04-03

Y.P.NARGOTRA

body2006
1. The petitioner is proprietorship concern registered as A-Class contractor with respondents. The respondents invited tenders for supply of frozen meat dressed at Chandigarh for Ladakh Sector for the period commencing from June 9, 2003 upto 31.3.2006. The petitioner submitted its tender which was accepted and a Contract Agreement No. CD-60 of 2003-04 came to be executed between the parties. Under the agreement the petitioner was to make supply of a specified quantity of meat per year on daily basis. Accordingly the petitioner started making supplies. 2. During the currency of the contract, however, the respondents demand for supply of meat could not be met by the petitioner to its entirety. The respondents, therefore, made good the shortfall by purchasing the same from the market at the risk and responsibility of the petitioner. For the excess money spent by the respondents for purchasing the shortfall recovery was levied upon the petitioner. On the question of said recovery the petitioner disputed his liability. Therefore, disputes arose between the parties. The petitioner on December 6, 2003 issued a notice to the Commanding Officer asking for the appointment of an arbitrator to settle the disputes. The Commanding Officer Shri Major Rajan Kadyan 2IC responded vide its letter dated 10th December 2003 which was received by the petitioner on 15.12.2003 by saying the office and staff of Contracting Operating Officer is, however, helpful in smooth functioning of contract within the framework of Contract deed. In case of any more problem you are requested to discuss the same with the authorities for immediate result instead of wasting precious time in writing letters. The Commanding Officer also forwarded the notice of the petitioner dated 6.12.2003 to his Headquarters Northern Command as well as HQ 14 Corps for information and necessary action. 3. From the response of the Commanding Officer it is manifest that he did not accede to the request of the petitioner for the appointment of an arbitrator. It may be pointed out here that admittedly the agreement has been executed by and Major General MG ASC Northern Command Executive Officer for and on behalf of President of India. The Commanding Officer to whom the petitioner had served the notice was the Contract Operating Officer appointed in terms of Clause 6(a) of the Agreement. It may be pointed out here that admittedly the agreement has been executed by and Major General MG ASC Northern Command Executive Officer for and on behalf of President of India. The Commanding Officer to whom the petitioner had served the notice was the Contract Operating Officer appointed in terms of Clause 6(a) of the Agreement. When the Contract Operating Officer i.e. Commanding Officer by his letter dated 10th December 2003 declined the request of the petitioner for appointment of an arbitrator, the petitioner filed the present application under section 11 of Jammu and Kashmir Arbitration and Conciliation Act, 1997(for short the Act) for seeking appointment of the arbitrator. On 11 December 2003 the application of the petitioner was registered and respondents were put on notice. The respondents have filed their objections for contesting the application of the petitioner. 4. During the pendency of this case the respondents filed CMP No.2 of 2005 on 15.3.2005 and therein pleaded as follows:- "That the respondents most respectfully submit that respondents have decided to refer the matter to the Arbitrator as per terms and conditions of the Contract Agreement as the contract has become unworkable. Since the applicant/contractor has prayed in its arbitration application that the subject matter be referred to an arbitrator as per terms and conditions of the contract agreement, the arbitration application titled above as such( has become infructuous) and liable to be dismissed." 5. The respondents thus have agreed to the appointment of an arbitrator for determination of the disputes arising between the parties through arbitration. Mr. Magoo learned Assistant Solicitor General admits that arbitrable disputes have arisen between the parties which require settlement by arbitration. The appointment of arbitrator by the respondents is however, not acceptable to the petitioner. He is seeking appointment of an independent arbitrator. 6. The contention of Mr. Raina learned Senior Counsel for the petitioner is that since the respondents have failed to appoint arbitrator in terms of Arbitration Agreement within 30 days from the date of notice of the petitioner demanding appointment of an arbitrator, therefore, they have forfeited their right to appoint the arbitrator in terms of the Arbitration clause. So according to him instead of allowing the respondents to appoint the arbitrator an independent person should be appointed by the court. 7. On the other hand the contention of Mr. So according to him instead of allowing the respondents to appoint the arbitrator an independent person should be appointed by the court. 7. On the other hand the contention of Mr. Magoo learned Assistant Solicitor General is that right of respondents to appoint the arbitrator in terms of arbitration clause has yet not been forfeited for the reason that the petitioner had not given notice of demand for appointment of an arbitrator to the other party to the agreement i.e. Major General MG ASC Northern Command who had signed/executed the agreement on behalf of Union in the name of President of India. He submits that the petitioner issued notice of demand only to the Contract Operating Officer and the same cannot be deemed to be a notice to other party to the agreement. He argues that the right and option of the respondents to appoint an arbitrator in terms of arbitration clause is still open and, therefore, the petitioner cannot seek legally the appointment of an independent arbitrator. 8. Section 11 of the J&K Arbitration and Conciliation Act, 1997 deals with the procedure for appointment of an arbitrator. It reads as follows "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- @L3 = (a) @L4 = a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or @L3 = (b) @L4 = 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 of the High Court 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 arbitration 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 of the High Court or any person or institution designated by him. (6) Whereunder an appointment procedure agreed upon by the parties,- @L3 = (a) @L4 = a party fails to act as required under that procedure; or @L3 = (b) @L4 = the parties, of the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or @L3 = (c) @L4 = a person, including an institution, fails to perform any function entrusted to him or it under that procedure; @L4 = a party may request the Chief Justice of the High Court 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 of the High Court or the person or institution designated by him is final. (8) The Chief Justice of the High Court or the person or institution designated by him in appointing an arbitrator, shall have the regard to- @L3 = (a) @L4 = any qualification required of the arbitrator by the agreement of the parties; and @L3 = (b) @L4 = other considerations as are likely to secure the appointment of an independent and impartial arbitrator. (9) The Chief Justice of the High Court may make such scheme as he may deem appropriate for dealing with matters entrusted by sub-section (4) or sub- section (5) or sub-section (6) to him. 9. From the bare perusal of Section 11 it is manifest that in terms of sub-section (2) parties are free to agree on the procedure for appointment of an arbitrator. If only there is any failure of that procedure the aggrieved party can invoke sub sections (4), (5) or (6) of Section 11 as the case may be. 10. 9. From the bare perusal of Section 11 it is manifest that in terms of sub-section (2) parties are free to agree on the procedure for appointment of an arbitrator. If only there is any failure of that procedure the aggrieved party can invoke sub sections (4), (5) or (6) of Section 11 as the case may be. 10. In the present case in terms of sub-section (2) of Section 11 procedure for appointment of an arbitrator stands agreed upon by the parties in clause-24 of the contract agreement. In clause-24 (a) it has been provided as follows:- "(a) In the event of any question, dispute or differences arising under these conditions or any special conditions of contract or in any connection with this contract ( except as to any matter, the decision of which is specially provided for by these or the special conditions) the same shall be referred to the sole arbitration of the officer sanctioning the contract as per powers conferred by clause (i) of Article 299 of the Constitution or any officer appointed by him not below the rank of Lt. Col. The award of the arbitrator shall be final and binding on the parties to this contract." 11. In terms of the above arbitration clause the parties have agreed that in the event of disputes arising out of contract agreement the same shall be settled through arbitration of the officer sanctioning the contract or a person to be nominated by him. As admittedly arbitrable disputes and differences have arisen between the parties , each party has a right to ask the other party to appoint the arbitrator for settlement of disputes. 12. The case of the petitioner is that he issued notice to the Contract Operating Officer for demanding the appointment of the arbitrator but despite notice the arbitrator has not been appointed. So he is entitled to invoke sub-section (6) of Section 11 of the Act. 13. The stand of the respondents is that notice to Contract Operating Officer is not a notice to the other party to the agreement, therefore, the petitioner is not entitled to invoke sub-section (6) of Section 11 for seeking the appointment of an independent arbitrator and the respondents have the right to appoint the arbitrator in terms of the arbitration clause. 14. 14. It has not been disputed by the respondents that petitioner has given notice of demand for appointment of arbitrator to Contract Operating Officer. Whether the notice to Contract Operating Officer can be deemed to be a notice to other party to the agreement? 15. Union of India is empowered to enter into contracts for any purpose in exercise of its executive powers under Article 298 of the Constitution of India. As the Union of India is a juristic person, it acts and operates through its officers on behalf of Union. Its authorized officer called Contract Sanctioning Officer accords sanction for a contract in which the Union desires to enter. On behalf of Union its authorized officer executes the contract in the name of President of India in terms of Article 299 of the Constitution. After execution of the contract the Contract Operating Officer controls and supervises the actual execution of the contract work. The Contract Operating Officer is appointed in terms of clause 4(a) of the agreement which provides:-- "The officer sanctioning the contract may authorise such officers as he may wish to operate the contract on his behalf and I/we and my/our agents will accept and carry out his instructions given by such officers (or their representatives) in connection with the contract as if these were issued by the officer sanctioning the contract." 16. Thus in view of the above clause contract sanctioning officer operates through Contract Operating Officer for getting the proper execution of the contract from the contractor. In terms of clauses 6 (a) and 7 of the agreement articles to be supplied by the contractor are required to be delivered to the Contract Operating Officer who may accept or reject the supplies in whole or in part. Clause-10 of the agreement confers powers upon the Contract Operating Officer to recover from the contractor any compensation which he considers reasonable in case the contractor fails to observe or perform any condition of the contract or allows the goods entrusted to him under the contract to be lost or damaged or depreciated. Under clause 18 of the agreement the contractor is required to submit 95% of the bills to the Contract Operating Officer for payment who is competent to accept the same. 17. Under clause 18 of the agreement the contractor is required to submit 95% of the bills to the Contract Operating Officer for payment who is competent to accept the same. 17. A deep analysis of the above referred clauses of the agreement would show that position of the Contract Operating Officer is that of the agent of the officer sanctioning the contract and this way he can be deemed to be a representative of Union of India. In the contract of such nature as in hand, the real contracting parties are Union of India and the contractor (petitioner). Therefore, in such a situation the Contract Operating Officer being representative of Union of India and responsible for supervising the actual execution of the contract can be deemed to be a party to the agreement within the meaning of section 2 clause (g). Therefore, notice issued by the petitioner for seeking appointment of the arbitrator can be deemed to be a notice to Union of India, a party to the agreement. 18. This apart, no notice has been contemplated by sub-section (6) of section 11 to be issued by the party to another party to the agreement for seeking appointment of the arbitrator. However, as without intervention of the other party to the agreement the arbitrator cannot be appointed, a party who seeks to invoke sub-section (6) of Section 11 for approaching the Chief Justice or his designate for appointment of an arbitrator is required to first call upon the other party to the agreement for appointment of an arbitrator. Such demand is not required to be made by a formal notice, even an oral request made by one party to the other party to the agreement can suffice. In the present case it has not been disputed by the respondents that the Contract Operating Officer on receipt of the notice of demand from the petitioner/contractor had forwarded the same to the HQ Northern Command i.e. to the Officer who had executed the contract for and on behalf of President of India. Therefore, it can even be assumed that the officer who had executed the contract was aware of the demand of the petitioner for appointment of the arbitrator made in the month of December 2003. Till the filing of CMP No.2/05 which was filed on 15.3.2005 the respondents had not taken any steps for appointment of an arbitrator. Therefore, it can even be assumed that the officer who had executed the contract was aware of the demand of the petitioner for appointment of the arbitrator made in the month of December 2003. Till the filing of CMP No.2/05 which was filed on 15.3.2005 the respondents had not taken any steps for appointment of an arbitrator. Therefore, the question arising for consideration is as to whether the respondents are entitled to appoint the arbitrator in terms of the arbitration clause or is it for the court to appoint an independent arbitrator. In case Datar Switchgears Ltd. vs. Tata Finance Ltd. (2000)8 SCC 151 the parties had agreed for appointment of a sole arbitrator. The first respondent gave notice to the appellant for appointment of an arbitrator. The appellants appointed the 2nd respondent as arbitrator. The question arose before the Supreme Court whether for the purpose of section 11 (6) the party to whom a demand for appointment is made forfeits his right to do so, if he does not appoint an arbitrator within thirty days. Their lordships of the Supreme Court held as follows:- "So far as cases falling under section 11 (6) are concerned-such as the one before us- no time limit has been prescribed under the Act whereas a period of 30 days has been prescribed u/s 11 (4) (5) of the Act. In our view, therefore, so far as section 11 (6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after the expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the court u/s 11, that would be sufficient. In other words, in cases arising u/s 11 (6) if the opposite party has not made an appointment within 30 days of the demand right to make appointment is not forfeited but continues, but an appointment has to be made before the former files an application under section 11 of the Act seeking appointment of an arbitrator. Only then the right of opposite party ceases. Only then the right of opposite party ceases. We do not therefore, agree with the observations in the above judgment that if an appointment is not made within 30 days of the demand right to contractual arbitrator u/s 11 (6) is forfeited." In the present case the petitioner had issued the notice for seeking appointment of the arbitrator on December 6,2003 and the petitioner filed an application under section 11 on 11th December 2003. The contention of Mr. Magoo learned ASG is that the petitioner had not waited for at least 30 days for enabling the respondents to appoint the arbitrator and had immediately filed application after 5 days of issuance of his notice . Mr. Raina, learned counsel for the petitioner submits that as the contract operating officer by his reply dated 10th December 2003 had refused to consider the request of the petitioner for appointment of an arbitrator, therefore, he was justified in filing the application immediately after his request. I am in agreement with Mr. Raina. Once the Contract Operating Officer through his reply dated 10th December 2003 had declined the request of the petitioner, therefore, the petitioner was justified in filing the application under section 11 of the Act. He was not required to wait for any period, sub-section (6) of section 11 does not contemplate any waiting period. The respondents having not appointed the arbitrator before filing application under section 11, therefore, in view of the law laid down by the Supreme Court have forfeited their right to appoint the arbitrator. In such a situation it is open for this court now to appoint an independent arbitrator for adjudicating upon the disputes arising between the parties. The application of the petitioner, therefore, is allowed and Shri Justice O.P. Sharma (Rtd) is appointed as arbitrator. The arbitrator shall enter upon the reference and after giving an opportunity to the parties to file their claims/counter-claims adjudicate thereon and make and publish his award in accordance with the J&K Arbitration and Conciliation Act, 1997 and the rules made thereunder. 19. The fee of the arbitrator is tentatively fixed at Rs. 20,000/- per hearing which in the first instance shall be paid by the petitioner and the same shall be adjustable towards the cost of the arbitration.