Kerala High Court
Divisional Railway Manager vs West Coast Agencies on 16 March, 2005
Equivalent citations: AIR2005KER225, 2005(2)KLT734, AIR 2005 KERALA 225, (2005) 5 KHCACJ 76 (KER), 2005 ARBI LR(SUPP) 428, 2005 (5) KHCACJ 76, (2005) 2 KER LT 734
Author: Thottathil B. Radhakrishnan
Bench: Thottathil B. Radhakrishnan
JUDGMENT Thottathil B. Radhakrishnan, J.
1. This Writ Petition is filed challenging Ext.P10 Order dated 23rd July, 2004 passed in A.R.No. 51/2003, an order issued on an Arbitration Request made under Section 11 of the Arbitration and Conciliation Act, 1996, hereinafter referred to as 'the Act' for short.
2. Notice before admission was ordered in this matter. Respondents have entered appearance. We have heard the learned counsel for the parties.
3. The writ petitioner, the Divisional Railway Manager (Works), Southern Railway, Palakkad, acting on behalf of the Railways, entered into an agreement with the 1st respondent herein whereby the 1st respondent agreed to undertake the work of "transportation of 52 P.S.C. Sleepers from the Bommidi Sleeper Factory, unloading at site, and spreading near Track between K.M. 393.87 and 411.737". The total value of the work was Rs. 19,33,295/-. It is stated that the writ petitioner terminated the contract at the risk and costs of the 1st respondent as per an order dated 17.2.1999.
4. The writ petitioner is stated to have drawn the final bill as per which an amount of Rs. 1,04,013/- was found due to the 1st respondent without deducting recoveries including statutory recoveries which was quantified at Rs. 88,040/- and the 1st respondent was issued a cheque by the writ petitioner for Rs. 15,973/- after effecting the deductions. On receipt of that cheque, the 1st respondent is stated to have issued Ext.P1 letter dated 19.2.2002 seeking details of the recoveries which was replied by the writ petitioner as per Ext.P2 dated 28.2.2002 showing the split up details of the recoveries which included "Charges for not unloading of sleepers at the exact spot", "Advertisement charges for calling risk tender", "Penalty for the inconvenience caused to Railways" etc. On receipt of the said communication, the 1st respondent caused the issuance of Ext.P3 dated 27.5.2002 challenging the deductions and requesting payment of the same with interest. That claim was refuted by the writ petitioner as per Ext.P4 dated 4.7.2002.
5. On such demand and refusal, the 1st respondent issued Ext.P5 dated 23.11.2002 disputing the recovery and calling upon the writ petitioner to refer the disputes enumerated in Ext.P5 for arbitration. On receipt of Ext.P5 request for arbitration, the writ petitioner issued Ext.P6 letter dated 13.12.2002 justifying the recoveries and repudiating the claim for interest. By that letter the writ petitioner also rejected the demand of the 1st respondent for arbitration. The reason stated for the refusal to refer the issues for arbitration is as follows:
"As per Clause 64(1)(i) of GCC if the Railway fails to take a decision on the disputed matters within 120 days, the Contractor after 120 (sic) days but another (sic) 180 days of presenting his final claim on disputed matters has to demand for arbitration. In the instant case the final claim was submitted by the Contractor on 27.5.02 (Advocate Notice) whereas the demand for arbitration issued on 23.11.2002 is after 180 days of presenting final claim. Hence the demand for arbitration is unsustainable and untenable'".
6. After receipt of Ext.P6 rejection of the request for reference, the 1st respondent filed Arbitration Request No. 51/03 under Section 11 of the Act. The said request was opposed by the writ petitioner reiterating the contentions in Ext.P6 and also contending that in the event of it being found that the matter is to be referred for arbitration the writ petitioner (Railways) may be directed to appoint an Arbitrator and allow the Railway Administration to raise claims and counter-claims before the Arbitrator, if any, appointed.
7. The learned Single Judge, the nominee of the Chief Justice, for the purpose of exercise of the power under Section 11 of the Act, passed Ext.P10 Order dated 23rd July, 2004 appointing Advocate Sri. Boby Mathew as Arbitrator. This was done by holding that though as per the agreement between the parties a Gazetted Railway Officer is to be appointed as Arbitrator, no such appointment was made by the writ petitioner (Railways) until the Arbitration Request was made to the Chief Justice. The other aspects noted by the learned Single Judge are not being adverted to, having regard to the view that we take herein below.
8. To consider the correctness of Ext.P10 Order, it is relevant to notice the arbitration agreement contained in Clause 64 of the General Conditions of Contract (GCC), which reads as follows:
"Clause 64 of GCC Sub-clause 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 Railway fails to make a decision within a reasonable time, then and any such case, save the "excepted matters" referred to in Clause 63 of these conditions, the contractor, after 90 days but within 180 days of his presenting his final claim on disputed matters, shall demand in writing that the dispute or difference be referred to arbitration.
Sub-clause 64(1)(ii) of GCC The demand for arbitration shall specify the matters which are in question, dispute or difference. Only such dispute(s) or difference(s) in respect of which the demand has been made shall be referred to arbitration and other matters shall not be included in the reference.
Sub-clause 64(1)(iii) of GCC If the contractor(s) does/do not prefer his/their specific and final claims in writing, within a period of 90 days of receiving the intimation from the Government that the final bill is ready for payment, he/they will be deemed to have waived his/their claim(s) and the Railway shall be discharged and released of all liabilities under the contract in respect of these claims.
Sub-clause 64(2) of GCC Obligation during the pendency of arbitration Work under the contract shall, unless otherwise directed by the Engineer, continue during the arbitration proceedings, and no payment due or payable by the Railway shall be withheld on account of such proceedings provided however it shall be open for the Arbitrator or Arbitrators to consider and decide whether or not such work should continue during arbitration proceedings.
Sub-clause 64(3)(a)(i) of GCC A sole arbitrator who shall be the General Manager or a Gazetted Railway Officer nominated by him in that behalf in cases where the claim in question is below Rs. 5,00,000/- (Rupees five lakhs) and in cases where the issues involved are not of a complicated nature. The General Manager shall be the sole Judge to decide whether or not the issues involved are of a complicated nature.
Sub-clause 64(3)(a)(ii) of GCC Two Arbitrators who shall be Gazetted Railway Officers of equal status to be appointed in the manner laid in Clause 64(3)(b) for all claims of Rs. 5,00,000/- (Rs. five lakhs) and above, and for all claims irrespective of the amount or value of such claims if the issues involved are of a complicated nature. The General Manager shall be the sole Judge to decide whether the issues involved are of a complicated nature or not. In the event of the two Arbitrators being divided in their opinions the matter under dispute will be referred to an Umpire to be appointed in the manner laid down in Clause 3(b) for his decision.
Sub-clause 64(3)(a)(iii) of GCC "It is a term of this contract that no person other than a Gazetted Railway Officer should act as an Arbitrator/Umpire and if for any reason, that is not possible, the matter is not to be referred to Arbitration at all."
Sub-clause 64(3)(a)(iv) of GCC In cases where the claim is upto Rs. 3,00,000/- (Rs. three lakhs), the Arbitrator(s)/Umpire so appointed, as the case may be, shall give the award on all matters referred to arbitration indicating therein break up of the sums awarded separately on each individual item of dispute. In cases where the claim is more than Rs. 3,00,000/- (Rs. Three lakhs), the Arbitrator(s)/Umpire so appointed, as the case may be, shall give intelligible award (i.e., the reasoning leading to the award should be stated) with the sums awarded separately on each individual item of dispute referred to arbitration.
Sub-clause 64(3)(b) of GCC For the purpose of appointing two Arbitrators as referred to in Sub-clause (a)(ii) above, the Railway will send a panel of more than three names of Gazetted Railway Officers of one or more departments of the Railway to the contractor, who will be asked to suggest to the General Manager one name out of the list for appointment as contractor's nominee. The General Manager while so appointing the Contractor's nominee, will also appoint a second arbitrator as the Railway's nominee either from the panel or from outside the panel, ensuring that one of the two Arbitrators so nominated is invariably from the Accounts Department. Before entering up on the reference the two Arbitrators shall nominate an Umpire who shall be a Gazetted Railway Officer to whom the case will be referred to in the event of any differences between the two Arbitrators. Officers of the Junior Administrative grade of the Accounts Department of the Railways shall be considered as of equal status to the officers in the intermediate administrative grade of other departments of the Railway for the purpose of appointment as Arbitrators.
Sub-clause 64(3)(c) of GCC If the sole Arbitrator appointed under Sub-clause (a)(i) or one or both of the Arbitrators appointed under Sub-clause (b) above resigns his appointment/resign their appointments or vacates his office/vacate their offices or is/are unable or unwilling to act for any reason whatsoever or dies/die, General Manager may appoint a new Arbitrator/Arbitrators to act in his/their place in accordance with the provisions of Sub-clause (a)(i) or Sub-clause (b) above as the case may be, shall be entitled to proceed with the reference from the stage at which it was left by the previous Arbitrator/Arbitrators.
Sub-clause 64(3)(d) of GCC The Arbitrator or Arbitrators or the Umpire shall have power to call for such evidence by way of affidavits or otherwise as the Arbitrator or Arbitrators or Umpire shall think proper, and it shall be the duty of the parties hereto to do or cause to be done all such things as may be necessary to enable the Arbitrator or Arbitrators or Umpire to make the award without any delay.
Sub-clause 64(3)(e) of GCC It will be no objection that the person/persons appointed as Arbitrator/Arbitrators or Umpire is/are Government servant(s). If, however, the Arbitrator/Arbitrators/Umpire is/are Railway Servant(s) he/they shall not be one those who had an opportunity to deal with the matters to which the contract relates or who in the course of his/their duties as Railway servants has/have expressed views on all or any of the matters under dispute or difference. The award of the Arbitrator or Arbitrators or Umpire, as the case may be shall be final and binding on the parties to the contract.
Sub-clause 64(3)(f) of GCC Subject as aforesaid, Arbitration Act, 1940 and Rules thereunder and any statutory modification thereof shall apply to the arbitration proceedings under this Clause ".
9. It is contended on behalf of the writ petitioner that the stand taken by the writ petitioner in Ext.P6 Communication dated 13.12.2002 that the claim was raised only after 180 days of presenting the final claim and therefore, the reference cannot be made, is erroneous, having regard to Clause 64(1)(i). The submissions at the time of hearing are confined to the view in the impugned Order that no Gazetted Railway Officer having been appointed until the Arbitration Request was made, the Chief Justice or his nominee could appoint a person other than a Railway Officer.
10. To consider the said issue it is necessary to advert to the relevant provisions of the Act.
11. Chapter III of the Act relates to Composition of Arbitral Tribunal. Section 11 therein relates to Appointment of Arbitrators. Sub-section (2) of Section 11 provides that subject to Sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. Sub-section (6) to which Sub-section (2), as noticed above, is subject to, provides that where, under an appointment procedure agreed upon by the parties, a party fails to act as required under that procedure, a party may request the Chief Justice or his designate to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. Therefore, in our view, when the writ petitioner has failed to act as required under the procedure agreed upon by the parties in Sub-clause 64(1)(i) of GCC, the compulsion in Sub-clause 64(3)(a)(iii) of GCC that no person other than a Gazetted Railway Officer should act as an Arbitrator would not survive. This is so because Sub-section (5) of Section 11 provides that when an agreement on a procedure for appointing the Arbitrators referred to in Sub-section (2) fails, the appointment shall be made upon the request of a party by the Chief Justice or his designate. In doing so, the Chief Justice or his designate shall have due regard to the provisions contained in Sub-section (8) of Section 11 which works as a legislative guideline for the Chief Justice or his designate in making the choice of the person to be appointed as the Arbitrator. If it were the intention of the Legislature that the measure taken by the Chief Justice or his nominee can be to appoint only the arbitrator identified by name or office in the agreement, such a stipulation would have been expressly provided in Sub-section (8). The absence of such a provision therein and the prescription in Sub-section (8) that in taking the measure, the Chief Justice or his nominee shall, in appointing an arbitrator, have due regard to (a) any qualifications required of arbitrator by the agreement of the parties; and (b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator, the two factors enumerated in the said sub-section, go to show that the power to appoint an arbitrator while taking such measure as is required, includes the power to choose. The factor (b) noticed above enables the Chief Justice to secure the appointment of independent and impartial arbitrator. This is sufficient indication that the Chief Justice need not limit his choice to the arbitrator identified by name or office in the agreement (in this case, to a Railway Officer). Therefore, such power to appoint cannot be tied down to the terms as to appointment contained in the agreement as regards the identity of the arbitrator.
12. In our considered view, the object sought to be achieved by such a mechanism ensures that a party, who has the right to make the appointment of the Arbitrator, having not done so on request by the party seeking reference for arbitration, should not be permitted to urge before the Chief Justice or his nominee that notwithstanding the fact that it had rejected the' request for arbitration or has refused to make the appointment, the Chief Justice or his nominee exercising the statutory power under Section 11(6) of the Act is tied down to the preference dictated by the opposite party (Railways in this case) in the matter of choosing the arbitrator. Such a contention, if it is accepted, will lead to fetter the power of the Chief Justice or his nominee to take the necessary measure as warranted by the situation for which they are empowered in terms of Section 11(6) subject only to the legislative guidelines contained in Sub-section (8) of Section 11. In our view, any other construction would lead to whittling down the quality of power conferred by Sub-section 11(6) on a high office.
13. In this context, it is apposite to refer to the decision of the Apex Court in Datar Switchgears Ltd. v. Tata Finance Ltd. and Anr., (2000) 8 SCC 151, wherein it has been held as follows:
"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".
This means that if the appointment is not made before the Arbitration Request is made to the Chief Justice in terms of Section 11(6) seeking appointment of an arbitrator, the right of the opposite party (writ petitioner herein) ceases.
14. Elucidation of the law as above, when applied to the facts of the case in hand, justifies the impugned Ext.P10 order made by the nominee of the Chief Justice. As noticed supra, by issuing Ext.P6 dated 13.2.2002, the writ petitioner had rejected the request of the 1st respondent to refer the matter for arbitration. The term in Sub-clause 64(3)(a)(iii) of GCC which provides that only a Gazetted Railway Officer should act as an Arbitrator, in our view, applies only when the writ petitioner (Railways) makes a reference on a demand being made in terms of Sub-clause 64(1)(i) of GCC and does not survive as a term that the writ petitioner (Railways) could insist upon as a matter of right, after having rejected the request to appoint the Arbitrator.
15. Referring to para 23 of the judgment in Datar Switchgear's case (supra), the learned counsel for the writ petitioner emphasised that the parties having entered into the contract and settled on a procedure, due importance has to be given to such procedure and that the Court has to respect the terms of the contract entered into by the parties and endeavour to give importance and effect to it. It is urged that when the party has not disputed the arbitration clause, normally he is bound by it and obliged to comply with the procedure laid down under the said Clause. These observations have been made by the Apex Court in the context of the facts of that case wherein the crux of the issue was that appointment of arbitrator was made by the respondent therein before the filing of the Arbitration Request under Section 11(6). As we have already held, the effect of the provisions of the agreement would stand superseded by the authority of the Chief Justice and his nominee conferred by Section 11(6), in cases where the appointment is not made before the Arbitration Request is made by the presentation of the request in the form of an application in the Court, in terms of the Scheme for Appointment of Arbitrators by the Chief Justice of High Court of Kerala, 1996 and the Kerala Arbitration and Conciliation (Court) Rules, 1997. In the instant case, no appointment having been made before the filing of such request by the 1st respondent, the writ petitioner is precluded from claiming that the Chief Justice or his nominee could have either appointed or directed the Railways to appoint only a Gazetted Railway Officer as provided under Sub-clause 64(3)(a)(iii) of GCC.
16. The learned counsel for the writ petitioner advanced yet another argument. This is that, in terms of Sub-clause 64(3)(a)(iii) of GCC, in the event of it becoming not possible to appoint a Gazetted Railway Officer, the matter is not to be referred to arbitration at all. Having read Clause 64 as a whole, we are unable to accept this contention.
17. As already held by us, Sub-clause 64(3)(a)(iii) of GCC cannot be held to control the power of the Chief Justice or his nominee to make the appointment. The Chief Justice or his nominee may be well within jurisdiction to have appointed a Gazetted Railway Officer or any other person, having regard to the case. This does not necessarily mean that the appointment of any person other than a Gazetted Railway Officer cannot be made. This is a matter left to the consideration of the Chief Justice or his nominee, which consideration is essentially an administrative one, as has been so held by the Apex Court in Konkan Railway Corporation Ltd. and Ors. v. Mehul Construction Co., (2000) 7 SCC 201.
18. That apart, the identity of the arbitrator, by person, is not made by the arbitration agreement- In fact, the agreement permits even appointment to fill up vacancy of arbitrator arising on account of inability, death etc. Sub-clause 64(3)(e) also indicates that the Arbitrator can also be a Government servant who is not a Gazetted Railway Officer. Having read Clause 64 as a whole, we are of the considered view that it cannot be held that the intention of the parties to the contract is that arbitration agreement would itself fail if it is not possible to appoint a Gazetted Railway Officer as the Arbitrator. The intention is only that the arbitrator appointed by the Railways on the request of the contractor shall be a Gazetted Officer of the Railways or a Government servant, either of whom has not dealt with the contract in question during the course of his duty and expressed opinion touching the same. The preference made by the Chief Justice or his nominee to appoint a person other than a Gazetted Railway Officer cannot be challenged invoking Sub-clause 64(3)(a)(iii) of GCC.
19. We therefore hold that the decision contained in Ext. P10 Order holding that the writ petitioner, Railways cannot insist that a Gazetted Railway Officer shall be appointed as the Arbitrator since no such appointment has been made until the Arbitration Request was made, is in accordance with law and we uphold the same.
20. Having thus decided the issue raised on behalf of the writ petitioner (Railways), learned counsel for the writ petitioner (Railways) did not, in our view, rightly challenge the choice of the Arbitrator as regards the person appointed under Ext.P10 Order. We have assessed ourselves the nature of the contract, the value of the subject-matter of the dispute, the volume of work that may be involved etc. and we are of the considered opinion that the choice made is also in furtherance of a larger public interest, namely, providing sufficient openings for the younger section of the Bar. We are sure that this will only lead to equip the youngsters, with industry and integrity, to grow with the changing scenario of litigations and alternate disputes resolution systems, the inevitable need of the changing society.
In the result, we dismiss the Writ Petition leaving the parties to bear their respective costs.