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2013 DIGILAW 544 (JK)

Reshi Construction Co. v. Union of India and Ors.

2013-09-13

M.M.KUMAR

body2013
M.M. Kumar, C.J.;— 1. This order shall dispose of two Arbitration Applications arising out of the same contract. The instant petition filed under Section 11 of the Jammu & Kashmir Arbitration and Conciliation Act, 1997 (for brevity, the Act) prays for referring the dispute between the parties to an independent arbitrator. Before embarking upon the legal issues, few facts may first be noticed. FACTS: 2. In the year 1999 a tender notice for construction of Single Living Accommodation at Gulmarg (Kashmir) was issued by the Chief Engineer Zone HQ 31 Sub Area. The petitioner succeeded in securing the tender and commenced the work. There was some dispute with regard to the handing over of the site to the petitioner on the date fixed in the agreement. Eventually vide letter dated 21.09.1999 Station Commander in clear terms denied the permission to construct the store and shed for various reasons. There are allegations by the petitioner that before allotment of work the respondents did not conduct the soil investigation of the site and the soil investigation report was infact issued on 03.03.2000 (Annexure-H). Therefore, the work could not have commenced on the stipulated dates on 06.09.1999. On 02.07.2000 the petitioner sent a legal notice to the respondents to make the site available to enable it to execute the work. The petitioner also demanded damages incurred by him due to delay caused by the respondents to perform their part of contract. Eventually on 20.07.2000 the contract was cancelled and the petitioner challenged the cancellation order of 20.07.2000 (Annexure-O) by filing OWP No. 431/2000. On account of arbitration clause the petitioner was relegated to the remedy of seeking appointment of an arbitrator in accordance with law. The order passed in OWP No. 431/2000 on 09.03.2010 would thus read as under:- Petitioner seeks enforcement of terms of the contract. Objection has been taken by respondents that there is an arbitration of agreement between the parties and, as such, the present writ petition is not maintainable. This writ petition is dismissed in view of objection raised by the respondents and petitioner is permitted to pursue the remedy under the arbitration agreement. Mr. Lone states that period spent by the petitioner in pursuing the present proceedings may be excluded for purposes of limitation. Prayer is allowed on the premise that petitioner has been pursuing the remedy before this Court. Mr. Lone states that period spent by the petitioner in pursuing the present proceedings may be excluded for purposes of limitation. Prayer is allowed on the premise that petitioner has been pursuing the remedy before this Court. On 19.05.2010 the petitioner sent a legal notice under Section 11 of the Act seeking appointment of arbitrator in terms of the arbitration Clause No. 70, which deals with settlement of disputes by arbitrator. However, the arbitrator could not be appointed within the period as provided by Section 11(4)(a) of the Act. The petitioner filed the instant application under Section 11 of Act on 20.10.2010 seeking appointment of independent arbitrator. After filing of the application, respondents appointed Chief Engineer Western Command, Sh. S.S. Bansal as arbitrator on 19.11.2010. Copy of the order appointing arbitrator has been placed with the objections as Annexure-2. It would be appropriate to read the order of appointment of arbitrator, which is reproduced hereunder in extenso:- Tele: 23012246 REGISTERED/ACK DUE Engineer-in-Chief's Branch Integrated HQ of MOD (Army) Kashmir House, Rajaji Marg New Delhi-110011 19 Nov. 2010 13600/NC/417/02/E8 Shri SS Bansal, CE(QS&C) CEWC Chandimandir-134107 APPOINTMENT OF ARBITRATOR: CA NO. CESZ-05/99-2000: PROVN OF SINGLE LIVING ACCN FOR 80 OR's AT GULMARG. Dear Sir, WHEREAS the above mentioned contract agreement was entered into between the President of India represented by Chief Engineer 31 Zone, Pin-914631 C/O 56 APO and M/s. Reshi Construction Co; AND WHEREAS the said Contract includes an arbitration agreement vide Condition 70 of IAFW-2249 forming part of the contract which inter-alia, provides that all disputes between the parties to the contract (other than those for which the decision of the CWE 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 Engineer-in-Chief; AND WHEREAS certain disputes had arisen and Hon'ble Court vide order dt. 09 Mar 10 had directed contractor to pursue the appointment of arbitrator for adjudication of disputes in terms of provisions of the contract; NOW THEREFORE, by virtue of the aforesaid the provisions contained in condition 70 of IAFW, I hereby appoint you as sole arbitrator to adjudicate upon the disputes pertaining to the above contract and request you to enter upon the reference and publish your findings and award in respect of disputes between the parties. However, as regards claims which are covered under the final and binding powers of CWE or any other officer mentioned in the contract and those which have been raised by the contractor after signing the final bill with some specific claims as also the claims, for which there is specific prohibition in the contract, I request you to first decide on the jurisdiction and arbitrability of those claims as per terms and conditions of the contract and Section 16 of J&K Arbitration & conciliation Act 1997 and only thereafter take up these for adjudication on merit. Please acknowledge. Yours faithfully, Sd/- (M.C. Badhani) Lt. Gen Engineer-in-Chief 3. It is patent that the appointment of the arbitrator has been made after the expiry of statutory period of 30 days and significantly after filing of instant application before this Court on 20.10.2010 when the notice had already been served. The appointing authority of the arbitrator is Engineer-in-Chief and the named arbitrator Sh. S.S. Bansal, Chief Engineer is directly subordinate to the Engineer-in-Chief because his ACRs are to be recorded by the Engineer-in-Chief. Legal Issues: 4. By virtue of various judgments of Hon'ble the Supreme Court rendered in the cases of Datar Switchgears Limited v. Tata Finance Ltd. and anr., (2000) 8 SCC 151 , Union of India v. Bharat Battery Mfg. Co. (P) Ltd., (2007) 7 SCC 684 and Punj Llyod Ltd. v. Petronet MHB Ltd. (2006) 2 SCC 638 , it is now well settled that the party entitled to appoint arbitrator would be divested of the power so to do after the expiry of 30 days but before filing of an application under Section 11 of the Act. In other words, if the arbitrator was appointed by the respondents before filing of application under Section 11 of the Act by the petitioner then it would have brought the controversy to an end. Then the petition could have been disposed of having been rendered infructuous. In other words, if the arbitrator was appointed by the respondents before filing of application under Section 11 of the Act by the petitioner then it would have brought the controversy to an end. Then the petition could have been disposed of having been rendered infructuous. However, the situation in the present case is different as has already been noticed in the preceding paras. The arbitrator was appointed on 19.11.2010 when not only the period of 30 days had expired by that time but the petitioner had also filed an application under Section 11 of the Act on 20.10.2010. Even notice of the application was issued by this court and it has been served on the respondents. Therefore, the Chief Justice or his nominee acquired right to appoint an independent arbitrator. 5. The question then is who would be an independent arbitrator. In various applications filed by the petitioner the impartiality of Sh. S.S. Bansal, Chief Engineer, the named arbitrator by the respondent has been doubted. In Application No. 04/2011 it has been pleaded that the named arbitrator is an army officer and colleague of respondent No. 2. Likewise in CMP No. 02/2011 seeking appointment of an independent arbitrator same averments have been made coupled with the fact that the arbitrator is not expected to act as an independent person. 6. Mr. Hakim Aman Ali, learned counsel for the petitioner has argued that once Sh. S.S. Bansal is subordinate of the Engineer-in-Chief, who has appointed him as arbitrator, there is no possibility for him to act independently. There is likelihood of bias particularly when the ACRS of the arbitrator are to be recorded by the Engineer-in-Chief. 7. As against the aforesaid submissions, Mr. Makroo, learned counsel for the respondents has argued that there is an obligation cast on the Court to take into consideration the stipulation in the arbitration agreement regarding qualification of the arbitrator. According to the learned counsel, arbitrator is required to have qualification of AMIE or Engineering Degree. However, on the asking of the Court Mr. Makroo has not been able to point out from Clause-70 qualification of Degree. All that is stipulated in Clause 70 is that he has to be an Engineering officer. It would be appropriate to read Clause-70 of the arbitration agreement, which is reproduced in extenso:- 70. However, on the asking of the Court Mr. Makroo has not been able to point out from Clause-70 qualification of Degree. All that is stipulated in Clause 70 is that he has to be an Engineering officer. It would be appropriate to read Clause-70 of the arbitration agreement, which is reproduced in extenso:- 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. Unless both parties agree in writing such reference shall not take place until after the completion or alleged completion of the Works or termination or determination of the Contract under Condition Nos. 55, 56 and 57 hereof. Provided that in the event of abandonment of the Works or cancellation of the Contract under Condition Nos. 52, 53 and 54 hereof, such reference shall not take place until alternative arrangements have been finalized by the Government to get the Works completed by or through any other Contractor or Contractors or Agency or Agencies. Provided always that commencement or continuance of any arbitration proceeding hereunder or otherwise shall not in any manner militate against the Governments right of recovery from the contractor as provided in Condition 67 hereof. If the Arbitrator so appointed resigns his appointment or vacates his office or is unable or unwilling to act due to any reason whatsoever, the authority appointing him may appoint a new Arbitrator to act in his place. The Arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties, asking them to submit to him their statement of the case and pleadings in defence. The Arbitrator may proceed with the Arbitration, ex-parte, if either party, inspite of a notice from the Arbitrator fails to take part in the proceedings. The Arbitrator may, from time to time with the consent of the parties, enlarge, the time upto but not exceeding one year from the date of his entering on the reference for making and publishing the award. The Arbitrator may, from time to time with the consent of the parties, enlarge, the time upto but not exceeding one year from the date of his entering on the reference for making and publishing the award. The Arbitrator shall give his award within a period of six months from the date of his entering on the reference or within the extended time as the case may be on all matters referred to him and shall indicate his findings, along with sums awarded, separately on each individual item of dispute. The venue of Arbitration shall be such place or places as may be fixed by the Arbitrator in his sole discretion. The Award of the Arbitrator shall be final and binding on both parties to the Contract. 8. Mr. Makroo has also pointed out that in the objections it has been asserted that Sh. S.S. Bansal is not an army officer and not a colleague of respondent No. 2. However, it is conceded that he is subordinate to Engineer-in-Chief. 9. Having heard learned counsel for the parties, I am of the considered view that once the Chief Justice acquires jurisdiction to appoint an independent Arbitrator then the only duty cast on the Court is to ensure that the Arbitrator should be independent and effort has to be made as far as possible to appoint the arbitrator keeping in view the stipulation of the arbitration agreement. The aforesaid principle flows from various judgments of the Supreme Court including Indian Oil Corporation Limited v. Raja Transport (P) Ltd., (2009) 8 SCC 520 and Denel (Proprietary) Limited v. Ministry of Defence, (2012) 2 SCC 759 . These judgments have been subject matter of consideration of this Court in A.A. No. 07/2013 decided on 24.07.2013. 10. It is now well settled that someone other than an officer of the department must be preferred to act as an arbitrator to achieve the requirement of appointing an independent arbitrator. In that regard reliance may be placed on para 20 of the judgment rendered in the case of Deep Trading Corporation v. Indian Oil Corporation and others, (2013) 4 SCC 35 . It has been observed that to secure the appointment of an independent and impartial arbitrator, it is rather necessary that someone other than an officer of the Corporation is appointed as arbitrator once the Corporation has forfeited its right to appoint the arbitrator under agreement. It has been observed that to secure the appointment of an independent and impartial arbitrator, it is rather necessary that someone other than an officer of the Corporation is appointed as arbitrator once the Corporation has forfeited its right to appoint the arbitrator under agreement. Accordingly, the appointment of Shri S.S. Bansal cannot be countenanced by this Court as it is unlikely that he would act independently uninfluenced by the instructions which might be received by him. As a sequel to the above discussion the instant petition is disposed of. The order, appointing Shri S.S. Bansal as an arbitrator, is declared as null and void and I appoint Shri Ghulam Mohi-Ud-Din, District & Sessions Judge (Retired) as an independent arbitrator as the aforesaid officer is acceptable to both the parties. He would proceed with the arbitration proceedings as per the provisions of the Act and will fix his fee by holding negotiation with the parties. The proceedings should be concluded expeditiously, preferably within a period of four months from the date of receipt of this order.