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2008 DIGILAW 3268 (MAD)

K. S. & COMPANY v. UNION OF INDIA

2008-09-05

ASOK KUMAR GANGULY

body2008
Judgment A. K. GANGULY, C.J. Heard the learned counsel for the parties. This is a petition for appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act"). The petitioner claims to be the registered partnership firm and civil engineering contractor engaged in the construction of roads, bridges and other civil works. Pursuant to a tender floated by the Railways, the petitioner submitted its tender and by letter of acceptance of the Chief Engineer dated 10.11.2000, the work was awarded to the petitioner and there was an agreement between the parties. In the course of execution of the work, disputes and differences cropped up between the parties. Admittedly, in the instant case, in the agreement there is an arbitration clause, as per the general conditions of contract. Admittedly, in this case, the claim of the petitioner exceeds Rs. 10 lakhs. The relevant arbitration clause runs as follows : "64(3)(a)(ii) In cases not covered by Clause 64(3)(a)(i) the arbitral tribunal shall consist of a panel of three Gazetted Railway Officers not below SA grade, as the arbitrators. For this purpose, the Railways will send a panel of more than three names of Gazetted Railway Officers of one or more departments of the Railways to the contractor who will be asked to suggest to General Manager up to two names out of the panel for appointment as contractor's nominee. The General Manager shall appoint at least one out of them as the contractor's nominee and will also simultaneously appoint the balance number of arbitrators, either from the panel or from outside the panel, duly indicating the presiding arbitrator from amongst the three arbitrators so appointed. While nominating the arbitrators, it will be necessary to ensure that one of them is from the accounts department. An officer of selection grade of the accounts department shall be considered of equal status to the officers in SA grade of other departments of the Railways for the purpose of appointment of arbitrator." In view of the disputes and differences between the parties, the petitioner made a claim under the arbitration clause by a letter dated 12.09.2006. Thereafter, the petitioner invoked the arbitration clause for appointment of arbitrator by a letter dated 11.01.2007. The said letter was addressed to the General Manager. Thereafter, the petitioner invoked the arbitration clause for appointment of arbitrator by a letter dated 11.01.2007. The said letter was addressed to the General Manager. The General Manager received the said letter and by their letter dated 22.02.2007 asked the petitioner to nominate its arbitrator from the panel of four names nominated by the General Manager. By communication dated 03.03.2007, the petitioner sent a reply communicating its nominees. The said reply of the petitioner dated 03.03.2007 was received by the respondent - Railways on 05.03.2007 and the respondents by their letter dated 20.03.2007 communicated the petitioner about the constitution of the arbitral tribunal by the General Manager, Southern Railway, Chennai. The said communication was, however, made to the petitioner by the Chief Engineer. The same was dispatched by registered post with acknowledgement due dated 21.03.2007. The petitioner received the same on 23.03.2007 and the petitioner's case is that it filed the petition under Section 11(6) of the Act before this court on 21.03.2007 and the petitioner submits that by the time it received the communication from the Railways about the appointment of arbitral tribunal, it had already moved the court and the Railways have lost their right for appointment of arbitrator in view of the decision of the Supreme Court in Datar Switchgears Ltd. v. Tata Finance Limited and another, (2000) 8 SCC 151 = 2000 (3) Arb. LR 447 (SC). In Datar Switchgears Ltd. v. Tata Finance Limited and another (supra) a question arose as to whether for the purpose of Section 11(6), the party to whom a demand for appointment is made forfeits its right to do so, if it does not appoint an arbitrator within 30 days. This was the question which was raised before the learned judges of the Supreme Court. The learned judges also recorded that even though Section 11(6) does not prescribe a period of 30 days, however, after considering several judgments, the learned judges in paragraph 19 of the judgment came to the following finding : "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 under Section 11(4) and Section 11(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 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 under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. We, therefore, do not agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited." In paragraph 21 of the judgment, it was held that the learned judges are not deciding whether for the purpose of sub-sections (4) and (5) of Section 11, which expressly prescribe a period of 30 days, the period of 30 days is mandatory or not. In the instant case, the appointment of arbitral tribunal under Section 11(6) has been made by the Railways and was communicated to the petitioner very much within a period of 30 days, namely, the Railways received the request on 05.03.2007 and the petitioner received the communication about the appointment of arbitral tribunal by 23.03.2007. The question is whether it can be said in the facts and circumstances of this case that the Railways have forfeited their right for appointment of arbitrator and arbitral tribunal. It goes without saying that Section 11(6) does not mention any prescribed period of 30 days, as has been mentioned in other sections, namely, Section 11(4) and Section 11(5) of the Act. But the court should take into account that while making such appointment, the railway administration, which is a government organization, has to be given some time. It goes without saying that Section 11(6) does not mention any prescribed period of 30 days, as has been mentioned in other sections, namely, Section 11(4) and Section 11(5) of the Act. But the court should take into account that while making such appointment, the railway administration, which is a government organization, has to be given some time. If it is unduly dilly-dallying with the matter and unduly taking long time to make the appointment, then a court may hold that it has forfeited its right if in the meantime, the petitioner seeking for appointment approaches the court. In the instant case, even though 30 days has not been prescribed under Section 11(6) of the Act, but, since 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act, the court can, therefore, proceed to hold that 30 days is a reasonable period of time. The right to appoint an arbitrator and arbitral tribunal is a valuable right and it is difficult for this court to hold that the Railways have forfeited this right just because it had made the appointment and the petitioner received the communication within a period of about 15 days from the date of receiving the request. Just because on the 16th day, the petitioner filed its Section 11(6) petition before this court, if the court comes to that finding, then any person can, after sending the request for appointment of arbitrator, file a petition before the court under Section 11(6) say within three days or seven days and in such cases, any party or organization and particularly any government organization will lose its right under the agreement to appoint an arbitrator. It is common knowledge that the government department takes a little time for processing the request for appointment of arbitrator and before the request reaches the appropriate authority of government it will lose its right to make the appointment. Such a construction, in my judgment, frustrates the concept of arbitration and would encourage litigation. If there is an agreed procedure for appointment of arbitrator between the parties, Section 11(6) of the Act can be pressed into service only in three situations. Such a construction, in my judgment, frustrates the concept of arbitration and would encourage litigation. If there is an agreed procedure for appointment of arbitrator between the parties, Section 11(6) of the Act can be pressed into service only in three situations. They are - (a) where a party fails to act, as required under the procedure, or (b) where the parties or one of the two arbitrators fail to reach an agreement expected of them under the procedure, or (c) where a person including an institution fails to perform any functions entrusted to him or it under the procedure. In any of those situations, a request may be made to the Chief Justice or any person or institution designated by him to take necessary measures for securing an appointment, unless the agreement provides otherwise. From the facts of the instant case, it will appear that the procedure for appointment of an arbitrator, as per the agreed procedure, has commenced as it appears from the following admitted facts : (i) On 11.01.2007, invoking the arbitration clause, the petitioner sent a request to the respondents. (ii) Responding to the said request, on 22.02.2007, the respondents wanted the petitioner to give its nomination in terms of the agreed procedure. (iii) Pursuant thereto on 03.03.2007, the petitioner nominated two persons and the said communication was received by the Railways on 05.03.2007. There is no dispute about these facts. Therefore, the procedure to constitute an arbitral tribunal, in terms of the agreed procedure, has already commenced. Thereupon, the Railways constituted an arbitral tribunal on 20.03.2007, i.e. within 15 days from receiving the petitioner's nomination. The same was posted to the petitioner on 21.03.2007, which the petitioner received on 23.03.2007. In between, the petitioner approached this court on 21.03.2007 by filing the application under Section 11(6) seeking appointment of arbitrator by the Chief Justice. In the aforesaid facts and circumstances of the case, it cannot be said that the Railways "has failed to act", as required under the procedure, in terms of Section 11(6)(a) of the Act. It may be noted that in the agreed procedure no time limit has been mentioned. Neither any time limit has been mentioned in Section 11(6). So, what is required to be done by the Railways, in the facts and circumstances of the case, is to act with reasonable dispatch, since it is a matter relating to the arbitration. It may be noted that in the agreed procedure no time limit has been mentioned. Neither any time limit has been mentioned in Section 11(6). So, what is required to be done by the Railways, in the facts and circumstances of the case, is to act with reasonable dispatch, since it is a matter relating to the arbitration. The fact that the Railways have acted within 15 days on receiving the petitioner's request cannot be equated with its failure to act. I would rather hold that considering the ground realities, in government organization, having regard to the bureaucratic set up, by acting within 15 days, the Railways have acted promptly. Therefore, this petition on the alleged ground that the Railways have failed to act, is not maintainable. If one compares the requirement under Section 11(4) or Section 11(5) with Section 11(6), it would be clear that the provision under Section 11(6) is a little more cumbersome than Section 11(4) or Section 11(5). But under Section 11(4) or Section 11(5), 30 days time limit has been mentioned by the statute, whereas under Section 11(6) the statute is silent about the time limit. The silence of the statute, in my opinion, is advisedly made having regard to the gamut of functions under Section 11(6). Therefore, the matter has been left to the discretion to the Chief Justice to ascertain whether the party has failed to act under clause (a) or failed to reach an agreement under clause (b) or failed to perform any function under clause (c). Thus, having regard to the scheme of Section 11(6), this court holds that 30 days mentioned in Section 11(4) and Section 11(5) would certainly be a reasonable time under Section 11(6). However, it cannot be said that the period of 30 days is mandatory. But if the party or parties or person referred to in clauses (a), (b) and (c) of Section 11(6) acts or act within the period of 30 days, then it cannot be held that the party/parties failed to act. So, in the facts and circumstances of this case, this court finds that the Railways have not forfeited their right to make the appointment. But this court makes it clear that it is not making any finding that period of 30 days has to be read into Section 11(6). So, in the facts and circumstances of this case, this court finds that the Railways have not forfeited their right to make the appointment. But this court makes it clear that it is not making any finding that period of 30 days has to be read into Section 11(6). The court merely opines that 30 days is reasonable period of time, and if an appointment is made within 30 days by the party who has the right to make the appointment, he cannot be said to have forfeited the right, even if the other party has approached the court within 30 days. The learned counsel for the petitioner has raised various other questions to the effect that the appointment of arbitrator was initially not made by the General Manager, but was made by the Assistant General Manager. The petitioner has come to know this on the basis of his petition under the Right to Information Act and ultimately the appointment has been ratified by the General Manager on 03.04.2007. Therefore, according to him, the appointment was not made by the General Manager. These questions are not to be decided by this court within the ambit of Section 11 of the Act. However, this court finds that in the arbitral tribunal, the petitioner's nominee has been made the Presiding Arbitrator and the petitioner has also appeared before the said arbitral tribunal and submitted its claims and documents. In view of this fact, this court is not considering those objections of the petitioner about the composition of the arbitral tribunal by an incompetent authority. It is open to the petitioner, if it is so advised, to raise all questions before the arbitral tribunal itself. The original petition is disposed of and the court does not make any appointment of arbitrator inasmuch as this court holds that the appointment was made by the Railways within a reasonable time and it has not forfeited its right to make the appointment under Section 11(6) of the Act. The petition is accordingly disposed of. No costs.