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Madhya Pradesh High Court · body

2009 DIGILAW 1252 (MP)

VIDHYAWATI CONSTRUCTION CO. v. UNION OF INDIA

2009-11-09

RAJENDRA MENON

body2009
JUDGMENT RAJENDBA MENON, J. ( 1 ) THIS application has been filed by the applicant under section 11 (3) (6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'act of 1996') seeking appointment of an arbitrator for resolution of the dispute existing between the parties. ( 2 ) BRIEF facts of the case, necessary for deciding this application are as under: applicant M/s Vidhyawati Construction Company, with its Head Office at Vidhya kunj,allahabad is a Partnership Firm, and this application is filed by one of the partners, who is authorized to file it. The Firm is a registered firm with the competent authority in the State of Uttar Pradesh. Non-applicant No. 2, General Manager, Central Railway is Head of the department and certain tenders were floated for construction work on behalf of union of India. Offer made by the applicant was accepted and a contract entered into on 6. 6. 01, for the purpose of making certain construction activities, as are detailed in the contract agreement. Clauses 63 and 64 of the contract agreement, which is the General Conditions of Contract, contemplates a provision for settlement of dispute and for making demand for arbitration. It is the case of the applicant that the said work, which was entrusted to the applicant, was completed successfully and to the full satisfaction of the non-applicants on 25. 11. 2002 and a certificate - Annexure 1 was issued by the Executive Engineer (Construction)Bhopal in this regard. It is stated that after the work was completed the applicant submitted a final bill vide Annexure 2, demanding a sum of Rs. 89,16,602=81, after deducting amount already paid to the tune of Rs. 2,18,91,502=71. It is stated that after about five months on 16. 4. 03, vide Annexure 3, certain information were sought for and correspondence took place vide Annexure 4, in this regard. It is stated that finally vide Annexure 5, on 6. 6. 03, applicant raised a claim to the tune of Rs. 89,16,602. Thereafter, reminders were sent, but instead of adjudicating the claim as per Clause 63 of the General Terms and Conditions, vide Annexure 8, non-applicants informed the applicant that they should nominate an arbitrator from the panel indicated in Annexure 8, so that the dispute can be resolved by arbitration. Applicant again submitted the claim and on 9. 7. 89,16,602. Thereafter, reminders were sent, but instead of adjudicating the claim as per Clause 63 of the General Terms and Conditions, vide Annexure 8, non-applicants informed the applicant that they should nominate an arbitrator from the panel indicated in Annexure 8, so that the dispute can be resolved by arbitration. Applicant again submitted the claim and on 9. 7. 04 proposed the name of one hon'ble Shri Justice A. N. Dixit, Former Judge of the Allahabad High Court, to be appointed as Arbitrator, vide Annexure 9. When nothing was done, this application has been filed. ( 3 ) SHRI V. R. Rao, learned Senior Advocate, taking me through the documents and material available on record, submitted that there being a dispute between the parties, when the claim was raised by the applicant, instead of adjudicating the claim in accordance to the terms contemplated under Clause 63 of the General conditions, non-applicants vide Annexure 8 directly resorted to the procedure of arbitration, when no demand was made for arbitration by the applicant. Subsequently, when demand for arbitration was made vide Annexure 9, as no action was taken it is stated that non-applicants have forfeited their right to nominate the arbitral Tribunal in accordance to the agreement, instead now this Court should appoint an Independent arbitrator. Interalia contending that the claim is for more than 1 Crore and the arbitrator appointed or proposed by the non-applicants in annexure 8 will not be an independent arbitrator, it is stated that a Former Judge of the High Court should be appointed as arbitrator. Inviting attention of this Court to an order passed in the case of the present applicant themselves, the Hon'ble supreme Court in SLP (Civil) on 20. 11. 97, 19. 11. 2001,shri V. R. Rao, learned senior Advocate, argued that exercising jurisdiction in the matter,this Court should now appoint the arbitral Tribunal. ( 4 ) SHRI Sheel Nagu,learned counsel appearing for the non-applicants, refuted the aforesaid and submitted that as the non-applicants have proceeded to nominate the arbitral Tribunal in accordance with the terms and conditions of the agreement, the applicant should have accepted the same instead chose to file this application under section 11, which was not the proper course to be adopted. Placing reliance on a recent judgment of the Supreme Court, in the case of Indian Oil Corporation limited and cithers Vs. Placing reliance on a recent judgment of the Supreme Court, in the case of Indian Oil Corporation limited and cithers Vs. Raja Transport Private Limited, (2009) 8 SCC 520 ,shri Sheel Nagu submitted that the contention of the applicant that the arbitral tribunal as per the agreement cannot be appointed is unsustainable and taking me through the questions framed by the Supreme Court in the case of Indian Oil corporation Limited (supra), particularly questions No. (i) and (ii) and answers thereto, and placing reliance on an earlier judgment of the Supreme Court in the case of Northern Railway Administration Vs. Patel Engineering Company limited, (2008) 10 SCC 240 ,shri Nagu submits that even now the non-applicants are willing to proceed in accordance to the terms and conditions stipulated in clause 64 of the General Conditions of the Contract and, therefore, jurisdiction be not exercised in this application. ( 5 ) I have heard learned counsel for the parties and perused the record. From the records it is seen that the agreement in question was entered into and applicant had raised the claim as detailed hereinabove and non-applicants vide Annexure 8 had proposed for resolution of the dispute by arbitration. ( 6 ) EVEN though under Clause 63 of the General Conditions of the Contract, the provision is to decide the claim by the competent authority, but in this case the competent authority instead of adjudicating the claim thought it appropriate to refer the matter for arbitration in accordance to Clause 64 of the General Terms and Conditions. ( 6 ) EVEN though under Clause 63 of the General Conditions of the Contract, the provision is to decide the claim by the competent authority, but in this case the competent authority instead of adjudicating the claim thought it appropriate to refer the matter for arbitration in accordance to Clause 64 of the General Terms and Conditions. ( 7 ) CLAUSE 64 (1) (I), 64 (3) (a) (i) and 64 (3) (a) (ii) of the General Conditions of contract, reads as under: "64 (1) (I): Demand for Arbitration: in the event of any dispute or difference between the parties hereto as to the construction or operation of this contract or the respective rights and liabilities of the parties on any matter in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the contractor may claim to be entitled to, or if the Railways fails to make a decision within 120 days, then and in any such case, but except in any of the expected matters' referred to in Clause 63 of these conditions, the contractor, after 120 days but within 180 days of his resenting his final claim on disputed matters shall demand in writing that the dispute or difference to be referred to arbitration. 64 (3) (a) (i): in cases where the total value of all claims in question added together does not exceed Rs. 10,00,000/- (Rupees Ten Lac only), the Arbitral Tribunal consist of a sole arbitrator who shall be either the General Manager or a gazetted officer of Railway not below the grade of JA Grade nominated by the General Manager in that behalf. The sole Arbitrator shall be appointed within 60 days from the day when a written and valid demand for arbitration is received by Railway. 64 (3) (a) (ii): in case not covered by clause 64 (3) (a) (i), the Arbitral Tribunal shall consist of a panel of three Gazetted Railway Officers not below JA Grade, as the arbitrators. For this purpose, the Railway 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 the General Manager up to 2 names out of the panel for appointment as contractor's nominee. For this purpose, the Railway 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 the General Manager up to 2 names out of the panel for appointment as contractor's nominee. The General Manager s'hall appoint atleast 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 3 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 for equal status to the officers in SA Grade of other departments of the Railways for the purpose of appointment of arbitrators. " ( 8 ) A perusal of the material available on record indicates that when the applicant raised the claim and demanded final payment, non-applicants initially asked the applicant to submit certain particulars, applicant protested and raised his claim, which was considered and vide Annexure 8, non-applicants straight-away proposed reference of the matter for arbitration in accordance to Clause 64 of the General terms and Conditions of the agreement. Applicant instead of accepting the same has approached this Court. ( 9 ) EXCEPT for contending that without adjudicating the claim, non-applicants cannot appoint an arbitrator as per the Terms and Conditions of the contract, learned Senior Counsel for the applicant is unable to bring to the notice of this court any provision, statutory or otherwise, which prohibits such an action to be taken. Nothing is brought to the notice of this Court to indicate that non-applicants cannot take direct recourse to the remedy of arbitration when a dispute exists, without deciding the claim first. ( 10 ) BE that as it may be, the question now which requires consideration is as to whether an independent arbitral Tribunal should be appointed or this Court should relegate the parties to take recourse to the procedure already agreed to between them as per Clause 64, of the agreement. ( 11 ) THE Supreme Court, in the case of Indian Oil Corporation (supra) has considered this question in a detailed manner. ( 11 ) THE Supreme Court, in the case of Indian Oil Corporation (supra) has considered this question in a detailed manner. The questions formulated by the supreme Court for consideration in the said case are indicated in paragraph 12, which reads as under: " (i) Whether the learned Chief Justice was justified in assuming that when an employee of one of the parties to the dispute is appointed as an arbitrator, he will not act independently or impartially? (ii)In what circumstances, the Chief Justice or his designate can ignore the appointment procedure or the named arbitrator in the arbitration agreement, to appoint an arbitrator of his choice? xxx xxx xxx xxx. . " ( 12 ) QUESTION No. (i) is answered in paragraphs 13,14 and 15 and it is laid down by the Supreme Court that when parties enter into an alternate dispute resolution process by a private forum voluntarily, it is binding on them. Similar arguments advanced were negated by the Supreme Court in the said case and after taking note of the objection with regard to feasibility of appointing a departmental authority as arbitrator and the question of independent exercise of power by such authority, various judgments on the question is considered and after elaborately dealing with the matter, finally in paragraph 30 it has been held that there is no bar under the act for providing for an employee of the Government Department/statutory corporation or Public Undertaking to be appointed as an arbitrator and finally it is held that if a named arbitrator contemplated in the arbitration agreement is an employee, that by itself is not a ground to raise a presumption of bias and partiality or lack of independence on his part. ( 13 ) HOWEVER, certain exceptions are carved out in the case of private establishments. In the case of Government Departments/public Sector undertakings and statutory corporations, question No. (i) framed is answered by holding that an employee of one of the parties to the dispute, if appointed, can act independently and in all cases it cannot be said that the person does not act independently except when reasonable grounds are available to hold so, particularly in a case where the person appointed as arbitrator was involved in the work, in the execution of which the dispute arose. ( 14 ) IN the light of the aforesaid principle, if the case in hand is scanned, it would be seen that except for making vague allegations, unsupported by any cogent material to the effect that a department officer will not act independently, no material is adduced to show that the apprehension of the applicant is based on any material, which justify the apprehension. Mere allegation without any base or foundation cannot be a ground for deviating from the general principles laid down by the Supreme Court, as indicated hereinabove. ( 15 ) ACCORDINGLY, the contentions advanced by Shri V. R. Rao, learned Senior advocate, to the effect that a departmental authority would not act independently, if appointed as an arbitrator, has to be negated in the facts and circumstances of the present case. ( 16 ) HAVING held so, the second question would be as to whether this Court should proceed to appoint an independent arbitrator or is bound to relegate the parties to follow the procedure contemplated under the agreement. The said question is considered by the Supreme Court in question No. (ii ). From paragraph 40 onwards, the matter is considered and after taking note of the principles laid down in the case of Northern Railway Administration (supra), in paragraph 45, the matter is so summed up: "45. If the arbitration agreement provides for arbitration by a named arbitrator, the Courts should normally give effect to the provisions of the arbitration agreement. But as clarified by Northern Railway admn. ,where there is material to create a reasonable apprehension that the person mentioned in the arbitration agreement as the arbitrator is not likely to act independently or impartially, or if the named person is not available, then the Chief Justice or his designate may, after recording reasons for not following the agreed procedure of referring the dispute to the named arbitrator, appoint an independent arbitrator in accordance with Section 11 (8) of the act. In other words, referring the disputes to the named arbitrator shall be the rule. The Chief Justice or his designate will have to merely reiterate the arbitration agreement by referring the parties to the named arbitrator or named Arbitral Tribunal. Ignoring the named arbitrator/arbitral Tribunal and nominating an independent arbitrator shall be the exception to the rule, to be resorted for valid reasons. The Chief Justice or his designate will have to merely reiterate the arbitration agreement by referring the parties to the named arbitrator or named Arbitral Tribunal. Ignoring the named arbitrator/arbitral Tribunal and nominating an independent arbitrator shall be the exception to the rule, to be resorted for valid reasons. " (Emphasis supplied) ( 17 ) THEREAFTER, the final conclusion is summarized by the Hon'ble Supreme Court in paragraph 48, in the following manner: "48. In the light of the above discussion, the scope of Section 11 of the Act containing the scheme of appointment of arbitrators may be summarized thus: " (i) Where the agreement provides for arbitration with three arbitrators (each party to appoint one arbitrator and the two appointed arbitrators to appoint a third arbitrator), in the event of a party failing to appoint an arbitrator within 30 days from the receipt of a request from the other party (or the two nominated arbitrators failing to agree on the third arbitrator within 30 days from the date of the appointment), the Chief Justice or his designate will exercise power under sub-section (4) of Section 11 of the Act. (ii) Where the agreement provides for arbitration by a sole arbitrator and the parties have not agreed upon any appointment procedure, the Chief Justice or his designate will exercise power under sub-section (5) of Section 11, if the parties fail to agree on the arbitration within thirty days from the receipt of a request by a party from the other party. (iii) Where the arbitration agreement specifies the appointment procedure, then irrespective of whether the arbitration is by a sole arbitrator or by a three-member tribunal, the Chief Justice or his designate will exercise power under sub- section (6) of Section 11,if a party fails to act as required under the agreed procedure (or the parties or the two appointed arbitrators fail to reach an agreement expected of them under the agreed procedure or any person/institution fails to perform any function entrusted to him/it under the procedure ). (iv) While failure of the other party to act within 30 days will furnish a cause of action to the party seeking arbitration to approach the Chief Justice or his designate in cases falling under sub-sections (4) and (5), such a time-bound requirement is not found in subsection (6) of Section 11. (iv) While failure of the other party to act within 30 days will furnish a cause of action to the party seeking arbitration to approach the Chief Justice or his designate in cases falling under sub-sections (4) and (5), such a time-bound requirement is not found in subsection (6) of Section 11. The failure to act as per the agreed procedure within the time-limit prescribed by the arbitration agreement, or in the absence of any prescribed time-limit, within a reasonable time, will enable the aggrieved party to file a petition under Section 11 (6) of the Act. (v) Where the appointment procedure has been agreed between the parties, but the cause of action for invoking the jurisdiction of the Chief Justice or his designate under clauses (a), (b) or (c) of sub-section (6) has not arisen, then the question of the Chief Justice or his designate exercising power under sub-section (6) does not arise. The condition precedent for approaching the Chief Justice or his designate for taking necessary measures under sub-section (6) is that (i) a party failing to act as required under the agreed appointment procedure; or (ii) the parties (or the two appointed arbitrators) failing to reach an agreement expected of them under the agreed appointment procedure; or (iii) a person/institution who has been entrusted with any function under the agreed appointment procedure, failing to perform such function. (vi) The Chief Justice or his designate while exercising power under sub-section (6) of Section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause. (vii) If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore the designated arbitrator and appoint someone else. (vii) If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore the designated arbitrator and appoint someone else. " ( 18 ) FROM the aforesaid principle laid down by the Supreme Court, it is clear that if the procedure agreed to by the parties is available, then normally the Chief justice or his designate exercising power under section 11 (6) should not appoint an independent arbitral Tribunal, but should direct the parties to take recourse to the procedure contemplated in the agreement itself, as referring the dispute to the arbitrators named in the agreement is the general rule and ignoring the same and appointing an independent arbitrator is an exception to be resorted to for valid reasons. In the present case, no valid and justifiable reason for deviating from the general rule is pointed out. In the case in hand, non-applicants have adhered to the procedure, which was accepted by the parties, and had given a proposal indicating a panel of arbitrators to be nominated by the applicant, on his behalf, as per the requirement of Clause 64. Instead of accepting the offer made and adhering to the process accepted by the applicant, as per the agreement for appointment of arbitrator, for the reasons best known and without any just cause or reason, applicant has approached this Court. ( 19 ) CONSIDERING the totality of the circumstances and the principles laid down by the Supreme Court, in the case of Indian Oil Corporation Limited (supra), as detailed hereinabove, this Court is of the considered view that in the present application, it is not proper to appoint an independent arbitrator, as the same would be contrary to the well settled principle laid by the Supreme Court, as indicated hereinabove. Instead, applicant and the non-applicants should be directed to proceed further in the matter in accordance to Clause 64 of the Agreement and resolve the dispute by adhering to the said process. Instead, applicant and the non-applicants should be directed to proceed further in the matter in accordance to Clause 64 of the Agreement and resolve the dispute by adhering to the said process. ( 20 ) ACCORDINGLY, finding no merit in the prayer made in this application for appointment of an arbitrator, exercising jurisdiction in these proceedings under section 11, this application is disposed of granting liberty to the parties to proceed further in the matter for resolution of the dispute in accordance to the provisions of Clause 64, of the agreement. Application stands disposed of with the aforesaid without any order so as to costs. Application disposed of. .