Allahabad High Court
M/S M.K. Traders vs State Of U.P. And Another on 23 May, 2023
Author: Manoj Kumar Gupta
Bench: Manoj Kumar Gupta
HIGH COURT OF JUDICATURE AT ALLAHABAD Neutral Citation No. - 2023:AHC:112994-DB Reserved on 11.05.2023 Delivered on 23.05.2023 Court No. - 21 Case :- APPEAL UNDER SECTION 37 OF ARBITRATION AND CONCILIATION ACT 1996 No. - 166 of 2022 Appellant :- M/S M.K. Traders Respondent :- State of U.P. and Another Counsel for Appellant :- Arun K. Singh Deshwal,Ankit Shukla,Javed Husain Khan,Rajeev Ratan Shukla Hon'ble Manoj Kumar Gupta,J.
Hon'ble Prashant Kumar,J.
(Delivered by Hon'ble Prashant Kumar, J)
1. In the instant matter the respondent herein, through its Executive Engineer, Provincial Division, P.W.D. Allahabad invited a tender for construction of the road (Chandra Link Road). The bids were invited and finally a contract was awarded to the appellant.
2. Consequent to the award of the contract, a formal agreement was executed between the parties on 16.06.2008 and as per this agreement, the work was to be started from 16.06.2008 and was to be completed by 15.11.2008. This period of five months also included rainy season. The value of contract was Rs.24,71,029/-
3. During course of the execution of contract, certain dispute arose between the parties.
4. In the agreement, Clause 21 of the of the General Conditions of Contract (in short "G.C.C.") provided for procedure for resolution of disputes. The relevant Clauses 21.1, 21.3 and 21.5 of G.C.C. which are important for execution of this order are quoted hereunder for ready reference:-
"21.1 The Competent Authority mentioned as mentioned below shall give a decision in writing within 45 days of receipt of a notification of a dispute.
21.3 Where the Initial Contract Price as mentioned in the Acceptence Letter is Rs.40 lacs and below shall be referred to a sole Arbitrator. The sole Arbitrator\ would be appointed by the agreement between the parties; failing such agreement within 15 days of the reference to arbitration, by the appointing authority, namely the Chief Engineer, P.W.D. 21.5 Subject as aforesaid the provision of the Arbitrational acts 1940 or any statutory modification or reenactment thereof and the rules made there under and for the time being enforce shall apply to the arbitration proceeding under the clause. The sole arbitrator to be appointed by the Chief Engineer shall be of the status given below
1. for claims or amount in disputes of not over Rs.20,000/- in case of work order and in case of contract accepted by an Assistant Engineer/Executive Engineer.
An Executive Engineer of UP. P.W.D.
2. for claims or amounts in disputes of over Rs.20,000/- but not over Rs.2,00,000/-.
Superintending Engineer of UP. P.W.D.
3. for claims or amounts in disputed aggregating to more than Rs.2,00,000/- but not more than Rs.40,00,000/-
Chief Engineer of UP Government.
5. The appellant herein, in order to get the dispute resolved wrote a letter on 12.10.2020 seeking an arbitration to resolve the dispute. The appellant herein, through this letter, which was addressed to the Chief Engineer suggested two names, namely Sri S.C. Atri, retired Superintending Engineer, U.P. Jal Nigam and Sri A.K. Malviya retired District Judge to be appointed as Arbitrator.
6. Since the claim amount was more than Rs.2 lacs and less than Rs.40 lacs, so as per Clause 21.5 of G.C.C., the sole Arbitrator can only be of the status of Chief Engineer of U.P. Government.
7. Both the names referred by the appellant were not as per the terms of Clause 21.5 of G.C.C. The Chief Engineer sent a letter dated 12.11.2010 to Engineer-in-Chief apprising him of the dispute between the parties and also the request sent by the contractor for appointment of any of the two arbitrators suggested by him. He further stated that as per Clause 21.5 of G.C.C, the Engineer-in-Chief was to appoint the Arbitrator. In this letter, the Chief Engineer also suggested the name of Sri S.C. Atri to be appointed as an Arbitrator. On this communication the Chief Engineer did not take any steps to appoint an Arbitrator to resolve the dispute.
8. In absence of any formal appointment of Arbitrator the appellant herein, on their own unilaterally, appointed Sri S.C. Atri, who was a retired Superintendent Engineer, U.P. Jal Nigam as an Arbitrator to arbitrate the dispute between the parties.
9. Taking note of the aforesaid communication dated 12.11.2010, Sri S.C. Atri (the sole Arbitrator), on his own assumed jurisdiction and vide his communication dated 03.12.2010 sent a letter to both the parties i.e. the contractor and the Executive Engineer U.P. P.W.D. Allahabad. The relevant part of the letter, which is necessary for adjudication of this case is quoted herein below:-
"Please refer to Chief Engineers, Allahabad Zone, U.P.P.W.D., Allahabad letter No.10544/27/इलाहाबाद क्षेत्र /को0के0/ 10 dated 12.11.2020 and claimant's letter dated 30.11.2010 regarding appointment of Arbitrator. As desired I take upon myself the responsibility to act as sole Arbitrator which means Arbitral Tribunal vide section 2 (1) (d) of Arbitration & Conciliation Act, 1996..............."
10. The Engineer-in-Chief, Allahabad Zone vide his letter dated 10.01.2011 communicated to the sole Arbitrator that there is no information with this office that any Arbitrator has been appointed by the Engineer-in-Chief, in such a situation no arbitration proceedings could be carried out.
11. In addition to this letter written by the Engineer-in-Chief, the Executive Engineer also sent a letter on 19.02.2021 informing the Arbitrator that he has not been appointed as an Arbitrator and, hence, he is not competent to proceed with the reference. He had also informed the Arbitrator that as per Clause 21.5 of G.C.C. the sole Arbitrator should be of the level of Chief Engineer under the U.P. Government. Since he was not a Chief Engineer, hence, he was not competent to act as an Arbitrator.
12. The respondent herein moved an application under Section 16 of the Arbitration and Conciliation Act, 1996 (herein after for the sake of brevity has been referred to as "Arbitration Act") raising an objection that the Arbitrator was not competent to adjudicate the issue. The appellant herein filed his objection. The Arbitrator vide its order dated 29.03.2011 rejected the application filed by the appellant under Section 16 of the Arbitration Act and held that the appointment of the Arbitrator was valid in law.
13. Thereafter, the sole Arbitrator proceeded with the arbitral proceedings and vide his award dated 05.07.2011 allowed the claims filed by the claimants and directed the appellant to pay an amount of Rs.24,93,672/-. The payment was to be released by 30.09.2011 in case of default, the claimant was awarded further simple penal interest @ 24% per annum.
14. The respondent herein challenged the abovementioned award by means of an application under Section 34 of the Arbitration Act before the District Judge, Allahabad. After the Commercial Court came in existence, this case was transferred before the Commerial Court, Allahabad.
15. Learned Commercial Court vide its order dated 18.08.2022 allowed the application filed by the respondents under Section 34 of the Arbitration Act. While allowing the applicaton under Section 34 of the Arbitration Act, the Commercial Court has held that the Arbitrator has assumed jurisdiction as a sole Arbitrator, which was contrary to the Clause 21.3 of G.C.C.
16. Heard Sri W.H. Khan, learned Senior Advocate assisted by Sri Ramanuj Pandey for the appellants and Sri Santosh Kumar Srivastava, learned Additional Chief Standing Counsel for the State-respondents.
17. Counsel for the appellant argued that the appointment of Sri S.C. Atri as an Arbitrator was justified as his name was also recommended by the Chief Engineer to Engineer-in-chief and, hence, he was competent to be appointed as sole Arbitrator and as a sole Arbitrator he has rightly entered into the reference and passed the award.
18. Counsel for the respondent on the other hand argued that the letter sent by the Chief Engineer to the Engineer-in-Chief recommending the name of an Arbitrator does not amount to appointment of the Arbitrator. Clause 21.3 of the G.C.C. mentions that if the dispute is for a sum, which is between Rs.2 lacs to Rs.40 lacs, the Arbitrator competent to be appointed as a sole Arbitrator would be nobody less than that of the status of Chief Engineer with the U.P. Government. Whereas, in this case, the sole Arbitrator unilaterally appointed by the appellant was a Superintendent Engineer, hence, was not competent to be appointed as an Arbitrator to adjudicate the dispute between the parties.
19. It was right from the inception that the respondent had opposed the appointment of Arbitrator and stated that a mere recommendation of a name by the Chief Engineer to the Engineer-in-Chief does not entitle him to become a sole Arbitrator.
20. The following issues arise in this matter, which calls for adjudication:-
(i) Whether a party can unilaterally appoint an Arbitrator,
(ii) Whether Arbitrator can be appointed contrary to the agreement.
21. In response to the first issue, it is held that the parties are free to appoint any Arbitrator of their choice provided it has been laid down in the agreement. The agreement, which lays down the procedure for appointment of Arbitrator is paramount where the procedure for the appointment of the Arbitrator is laid down in the agreement it has to be strictly followed.
22. The Hon'ble Supreme Court in the matter of Dharma Prathishthanam Vs. Madhok Construction (P) Ltd.1 has held that the reference of disputes to such arbitrator and the ex parte proceedings and award given by the arbitrator are all void ab initio and hence nullity, liable to be ignored. In case of arbitration without the intervention of the Court, the parties must rigorously stick to the agreement entered into between the two. If the arbitration clause names an arbitrator as the one already agreed upon, the appointment of an arbitrator poses no difficulty. If the arbitration clause does not name an arbitrator but provides for the manner in which the arbitrator is to be chosen and appointed, then the parties are bound to act accordingly. If the parties do not agree then arises the complication which has to be resolved by reference to the provisions of the Act.
23. One party cannot usurp the jurisdiction of the Court and proceed to act unilaterally. A unilateral appointment and a unilateral reference both will be illegal.
24. In Union of India Vs. Prafulla Kumar Sanyal2 the Court observed that an order of reference can be either to an arbitrator appointed by the parties, as per the agreement, and where the parties cannot agree upon an arbitrator, the Court may proceed to appoint an arbitrator itself. Clearly one party cannot force his choice of arbitrator upon the other party to which the latter does not consent. The only solution in such a case is to seek an appointment from the Court.
25. The Delhi High Court in the matter of Atelier Automobiles Private Limited and Ors. Vs. M/s Religare Finvest Limited3 has held that the sole Arbitrator, unilaterally appointed by a party is declared illegal.
26. Insofar as the second issue is concerned, in the instant matter procedure for appointment of Arbitrator was laid down in the agreement. Even the Hon'ble Supreme Court has laid down that appointment of an Arbitrator would be made in accordance with the agreed procedure. The Court further held that the party cannot unilaterally appoint an Arbitrator.
27. The Hon'ble Supreme Court in the matter of Voestalpine Scheinen GMBH vs. Delhi Metro Rail Corporation Limited 4has categorically held that the Arbitrator should be appointed strictly as per the agreement entered between the parties. The procedure laid down and agreed between the parties has to be followed. If the procedure for appointing an Arbitrator is not followed, it is open for any of the parties to invoke provisions of Arbitration & Conciliation Act, which lays down the process for appointing an Arbitrator through the Court. However, it is made clear that if the procedure of appointing an Arbitrator is not followed as agreed by the parties in agreement then such appointment shall be illegal.
28. The Hon'ble Supreme Court in the matter of Swadesh Kumar Agarwal Vs. Dinesh Kumar Agarwal and others5 has held that the parties are free to agree on a procedure for appointment of the Arbitrator. If parties fail to agree on the Arbitrator within thirty days from receipt of request by one party, the parties may approach the Court for appointment of the Arbitrator. However, in a case where there is an arbitration agreement and the written contract and the appointment procedure is agreed upon by the parties then provisions of Section 11 (6) of the 1996 Act will only be attracted on the eventuality.
29. The Hon'ble Supreme Court in the matter of Central Organization for Railway Electrification v. M/S ECI-SPIC-SMO-MCML (JV) A Joint Venture Company6 has held that the High Court was not justified in appointing an independent Arbitrator without proceeding with the procedure prescribed under the General Conditions of Contract or the agreement between the parties.
The Hon'ble Supreme Court has given a complete precedence, to the provisions of agreement for appointment of the Arbitrator.
30. The Hon'ble Supreme Court in the matter of Walter Bau Ag. Legal Successor, of the Original Contractor, Dyckerhoff and Widmann A.G. vs. Municipal Corporation of Greater Mumbai and another 7 has held as under :-
"it cannot be lost sight of that in the present case the appointment of Shri Justice A.D. Mane is clearly contrary to the provisions of the Rules governing the appointment of Arbitrators by ICADR, which the parties had agreed to abide in the matter of such appointment. The option given to the respondent Corporation to go beyond the panel submitted by the ICADR and to appoint any person of its choice was clearly not in the contemplation of the parties."
31. The Hon'ble Supreme Court in the matter of Indian Oil Corporation Limited and others. vs. Raja Transport Private Limited8 has held that a party to the contract cannot claim the benefit of arbitration under the arbitration clause, but ignore the appointment procedure relating to the named Arbitrator contained in the arbitration clause. The clause has to be read completely.
32. In this judgement the Hon'ble Supreme Court has held that in case, the agreement between the parties, which is genesis of arbitral dispute lays down the procedure for appointment of the Arbitrator, the same has to be followed in pith and substance.
33. The appointment of the Arbitrator was contrary to the agreement between the parties. Since Clause 21.5 (3) of the agreement was absolutely clear that if the claim was in between Rs.2 lacs to 40 lacs the Arbitrator appointed have to be a Chief Engineer working in the U.P. Government. However, in the instant matter, the appellant had unilaterally appointed an Arbitrator, who was just a Superintending Engineer. Moreover, the respondent had never appointed him as an Arbitrator or given consent to his name. In fact, his unilateral appointment by the appellant was opposed right from the inception of the arbitration proceedings. The objection was raised before the Arbitrator, an application under Section 16 of the Arbitration Act was also filed before him, which the Arbitrator had rejected.
34. Since the appoitment of the Arbitrator was unilateral and without the consent of the respondent and contrary to the General Conditions of Contract, the Commercial Court vide its order dated 18.08.2022 has rightly allowed the application under Section 34 of the Arbitration Act filed by the respondents.
35. When the appointment of Arbitrator itself was illegal and unilateral, the Arbitrator could not have proceeded and pass an award.
36. We see that there is no illegality in the order passed by the Commercial Court by which the application under Section 34 of the Arbitration Act filed by the respondent was allowed.
37. Accordingly, the instant appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 is devoid of any merit and is dismissed with no costs.
(Prashant Kumar, J.) (Manoj Kumar Gupta, J.) Order Date :- 23.5.2023 S.P.