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2015 DIGILAW 581 (CAL)

Maa Enterprise v. Union of India

2015-07-16

SANJIB BANERJEE

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JUDGMENT : Sanjib Banerjee, J. The request under Section 11 of the Arbitration and Conciliation Act, 1996 has been carried by a contractor following the failure of the appointing authority recognised in the arbitration agreement to constitute an arbitral tribunal to adjudicate upon the disputes raised by the petitioner. The arbitration agreement is contained in clause 25 of the special conditions governing the contract. Most of the arbitration agreement is not in dispute, except the following :- "It is also a term of this contract that no person, other than a person appointed by such Chief Engineer CPWD or Additional Director General or Director General of works, CPWD as aforesaid, should act as arbitrator and if for any reason that is not possible, the matter shall not be referred to arbitration at all." 2. The respondent does not question either the existence of the arbitration agreement between the parties or the fact that the petitioner had invoked the same by calling upon the Chief Engineer of the Central Public Works Department to appoint an arbitrator to adjudicate upon the disputes that have arisen between the parties; the respondent says that the clause unequivocally mandates that only the Chief Engineer or the Additional Director General or Director General of CPWD may nominate an arbitrator. It is the respondents assertion that if the nomination of the arbitrator cannot made by any of the named officials of CPWD, there would be no arbitration at all. 3. Though it has not been expressly so submitted on behalf of the respondent, the substance of such argument is that the contractor is not left without a remedy in such a situation as it will be open to the contractor to institute a regular action before a Civil Court in respect of the contractors claim. What the respondent maintains is that if there were to be an adjudication of the disputes covered by the arbitration agreement, such adjudication has to be before an arbitrator appointed by the officials of CPWD mentioned in the clause and not by any other appointee. 4. Such aspect of the matter has received the consideration of several Courts, including the Supreme Court, for nearly two decades. There is a view which now holds the field that may upset the traditional jurists. 4. Such aspect of the matter has received the consideration of several Courts, including the Supreme Court, for nearly two decades. There is a view which now holds the field that may upset the traditional jurists. Ordinarily, it is not the business of Courts to re-write contracts for the parties or to delete or add to the clauses of the contract executed by the parties. However, in the new-found mantra of promoting arbitration, the traditional view in interpreting the terms of an arbitration agreement has been given a go-by for a more pragmatic approach in promoting arbitration. In essence, the rule of interpreting contracts has been turned on its head in that the freedom of a party to indicate certain situations in which an arbitral reference may be conducted and certain other situations pertaining to the same agreement when an arbitral reference would not be permissible, has been taken away by judge-made law in its interpretation of a clause similar to the one extracted above to imply that such provision in the contract will impinge on the authority of the Chief Justice or his designate to exercise their statutory jurisdiction under Section 11 of the said Act. 5. The history of the rule can be traced to the judgment in Datar Switchgear Ltd. v. Tata Finance Limited [ (2000) 8 SCC 151 ], where the Supreme Court recognised that though Section 11(6) of the Act did not indicate a time limit for an appointing authority or the named arbitrator to appoint an arbitral tribunal or take up the reference, a reasonable period of 30 days had to be regarded as the outside limit in view of the stipulation in another part of Section 11 of the 1996 Act as to the 30-day period. What followed next was a view that once the appointing authority under the arbitration agreement had failed to discharge the obligation of making the appointment - and within the reasonable time limit as predicated by judge-made law - the appointing authority or the party who was the employer of the appointing authority could have no further say on the constitution of the arbitral tribunal. This view expressed by the Supreme Court lead to a divergence of opinion which was reconciled in Northern Railway Admn. v. Patel Engg. Co. Ltd. [ (2008) 10 SCC 240 ]. 6. This view expressed by the Supreme Court lead to a divergence of opinion which was reconciled in Northern Railway Admn. v. Patel Engg. Co. Ltd. [ (2008) 10 SCC 240 ]. 6. The rule as recognised in Northern Railway was extended to imply that a stipulation in the arbitration agreement that if the nominating authority were not to appoint the arbitrator there would be no arbitration, was contrary to the scheme of Section 11 of the 1996 Act in Indian Oil Corpn. Ltd. v. Raja Transport Private Limited [ (2009) 8 SCC 520 ]. It is necessary to see paragraph 46 of such report in exact words of the Supreme Court as to how the rule was recognised : "46. This takes us to the effect of the condition in the arbitration agreement that "it is also a term of this contract that no person other than the Director, Marketing or a person nominated by such Director, Marketing of the Corporation as aforesaid shall act as the arbitrator". Such a condition interferes with the power of the Chief Justice and his designate under Section 11(8) of the Act to appoint a suitable person as arbitrator in appropriate cases. Therefore, the said portion of the arbitration clause is liable to be ignored as being contrary to the Act." 7. Later judgments in Union of India v. Singh Builders Syndicate [ (2009) 4 SCC 523 ], Deep Trading Co. v. Indian Oil Corpn.[ (2013) 4 SCC 35 ] and North Eastern Railway v. Tripple Engineering Works [ (2014) 9 SCC 288 ] led to the view expressed in the penultimate paragraph of the most recent judgment reported at (2015) 2 SCC 52 (Union of India v. Uttar Pradesh State Bridge Corporation Ltd.). Paragraph 20 of the report must be noticed: "20. In the present case, we find the fact situation almost same as in Tripple Engg. Works and Singh Builders Syndicate. If the contention of the appellant is allowed, it would amount to giving premium to the appellant for the fault of the Arbitral Tribunals members who were appointed by none else but by the appellant itself. As pointed above, the appellant has not questioned the order of the High Court insofar as it has terminated the mandate of the earlier Arbitral Tribunal because of their inability to perform the task assigned to them. As pointed above, the appellant has not questioned the order of the High Court insofar as it has terminated the mandate of the earlier Arbitral Tribunal because of their inability to perform the task assigned to them. In such a situation, leaving the respondent at the mercy of the appellant thereby giving the power to the appellant to constitute another Arbitral Tribunal would amount to adding insult to the serious injury already suffered by the respondent because of non-conclusion of the arbitral proceedings even when the dispute was raised in the year 2007. In case, the cherished and benevolent purpose and objective of speedy resolution of the disputes by arbitral proceedings is to be accomplished, it becomes the bounden duty of the persona designata to appoint such arbitrators who have sufficient time at their disposal to attend to this task assigned to them and to conclude the arbitral proceedings in a speedy manner. It is a common sight that the officers who are awfully busy in their other routine functions, because of their status and position, are made arbitrators. For them, discharge of their other duties assumes more importance (and naturally so) and their role as the arbitrators takes a back seat. This kind of behaviour showing casual approach in arbitration cases is anathema to the very genesis of arbitration. Therefore, where the Government assumes the authority and power to itself, in one-sided arbitration clause, to appoint the arbitrators in the case of disputes, it should be more vigilant and more responsible in choosing the arbitrators who are in a position to conduct the arbitral proceedings in an efficient manner, without compromising with their other duties. Time has come when the appointing authorities have to take call on such aspects failing which (as in the instant case), Courts are not powerless to remedy such situations by springing into action and exercising their powers as contained in Section 11 of the Act to constitute an Arbitral Tribunal, so that interest of the other side is equally protected." 8. The rule as recognised by the Supreme Court appears to be that the Courts are not powerless to take appropriate measures under Section 11 of the said Act to ensure that arbitration is meaningfully held and concluded. 9. The rule as recognised by the Supreme Court appears to be that the Courts are not powerless to take appropriate measures under Section 11 of the said Act to ensure that arbitration is meaningfully held and concluded. 9. In view of the judgments as recognised, particularly, the dictum in Northern Railway, it cannot be said that the substantive agreement to go to an arbitral reference can be defeated by a recalcitrant appointing authority failing to discharge the obligation of constituting the arbitral tribunal in terms of the arbitration agreement. 10. The respondent has referred to a judgment reported at (2007) 5 SCC 703 (Iron and Steel Company Ltd. v. Tiwari Road Lines) for the emphasis therein that even under Section 11(6) of the said Act of 1996, the mechanism of constitution of the arbitral tribunal as agreed to between the parties should be honoured. The opinion has no relevance in the present context, since in that case, a party had directly invoked Section 11(6) of the said Act without affording an opportunity to the mechanism for the constitution of the arbitral tribunal as recognised in the arbitration agreement to ensure that the tribunal was set up. 11. In view of the undeniable position on facts that the Chief Engineer, CPWD, who is the sole appointing authority, received the letter of invocation of January 14, 2015 and declined the reference by his reply of February 6, 2015, the mechanism envisaged for securing the arbitral tribunal under the arbitration agreement has failed. In view of such default, the petitioner has carried the present request to the Chief Justice or her designate. It is neither permissible at this stage for the appointing authority to be given a chance to constitute the arbitral tribunal despite his admitted default; nor acceptable to defeat the substantive agreement between the parties to have their disputes resolved by arbitration merely because the constitution of the arbitral tribunal was declined by the appointing authority. 12. AP No. 574 of 2015 is allowed by appointing Mr. Tilak Bose, Sr. Advocate, as arbitrator to adjudicate upon the disputes between the parties at a consolidated remuneration of Rs. 15 lakh to be shared by the parties in equal measure at the first instance and subject to the direction as to costs as may be contained in the final award. Tilak Bose, Sr. Advocate, as arbitrator to adjudicate upon the disputes between the parties at a consolidated remuneration of Rs. 15 lakh to be shared by the parties in equal measure at the first instance and subject to the direction as to costs as may be contained in the final award. The arbitrator should endeavour to conclude the reference within a period of 14 months from the completion of the pleadings. 13. The petitioner has agreed to file the statement of claim within four weeks from date. The arbitrator will immediately issue directions for filing the counter-statement. 14. The petitioner will also be entitled to costs of the present proceedings assessed at 1000 GM.