Calcutta High Court
Supriya Kumar Saha vs Union Of India on 24 December, 2013
Author: Debangsu Basak
Bench: Ashim Kumar Banerjee, Debangsu Basak
IN THE HIGH COURT AT CALCUTTA
Civil Appellate Jurisdiction
Original Side
Present :
The Hon'ble Mr. Justice Ashim Kumar Banerjee
And
The Hon'ble Mr. Justice Debangsu Basak
A.P.O. No. 329 of 2013
A.P. No. 296 of 2007
SUPRIYA KUMAR SAHA
VS.
UNION OF INDIA
A.P.O. No. 203 OF 2013
A.P. No. 333 OF 2007
ASHOKA TUBEWELL & ENGINEERING CORPORATION
VS.
UNION OF INDIA
AND
A.P.O No. 207 OF 2013
A.P. No. 333 of 2007
UNION OF INDIA
VS.
M/s. ASHOKA TUBEWELL & ENGINEERING CORPORATION
For the Appellant : Mr. Dipak Basu, Senior Advocate
In APO No. 329 of 2013 Mr. Susanta Dutta, Advocate
For Union of India : Mr. Partha Sarathi Bose, Senior Advocate
In APO No. 329 of 2013 Ms. Aparna Banerjee, Advocate
For Ashoka Tubewell : Mr. Ranjan Deb, Senior Advocate
Mr. Dhruba Ghosh, Advocate
Mr. Sarvapriya Mukherjee, Advocate
Ms. Debomitra Adhikari, Advocate
For Union of India : Mr. A.K. Ghosal, Senior Advocate
In APO No. 203 &
207 of 2013 Mr. Rajendra Chaturvedi, Advocate
Heard on : 2nd, 10th, 16th, 17th, 18th December, 2013
Judgment on : December 24, 2013
DEBANGSU BASAK, J.
PREFACE:
The scope and ambit of power of the Chief Justice or his designate under Section 11 of the Arbitration and Conciliation Act, 1996 in respect of domestic arbitration fell for consideration in these appeals.
Section 11(6) of the Arbitration and Conciliation Act, 1996 empowers the Chief Justice or his designate to take necessary measures to secure the appointment of arbitrator. Section 11(8) requires the Chief Justice or his designate to have due regard for the qualification of the arbitrator as well as other considerations agreed upon by the parties in securing the appointment of independent and impartial arbitral tribunal. Does Sub-Section (8) fetter the power of the Chief Justice or his designate to constitute an arbitral tribunal? Would these two Sub-Sections vest the Chief Justice or his designate the power to constitute an arbitral tribunal of their choice?
Initially these questions came up for consideration in A.P.O. No 203 of 2013 and A.P.O. No. 207 of 2013. Subsequently, the same question arose in A.P.O No. 329 of 2013. Although, we did not make any order for consolidated hearing, we proceeded to hear the three appeals one after the other as the same involved common issues. A.P.O. No. 329 of 2013 was heard first.
In all of these appeals the relevant portion of the arbitration clause concerned is as follows:-
"63.3(a)(iii). 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 the arbitration at all."
FACTS IN A.P.O. No. 329 OF 2013:-
Eastern Railways invited tender for construction of an additional platform at Sealdah station. The appellant participated therein. A contract was awarded to the appellant in respect of such tender.
Disputes and differences arose between the parties with regard to the execution of the contract. The appellant demanded arbitration. The respondent failed to constitute the arbitral tribunal in accordance with the arbitration agreement. The appellant applied under Section 11 of the Arbitration and Conciliation Act, 1996 before this Hon'ble Court for constitution of an arbitral tribunal. By an Order dated August 14, 2001 the Hon'ble Chief Justice was pleased to appoint a retired Judge of this Hon'ble Court as the sole arbitrator to arbitrate the disputes between the parties. In the arbitration proceedings the respondent submitted a counter-statement taking the point that the arbitral tribunal was not properly constituted. The arbitrator rejected the point of improper constitution in his award. The sole arbitrator made and published his award on June 15, 2007. The respondent filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the award dated June 15, 2007. The Section 34 petition was allowed by the judgment and order dated September 19, 2011. By the impugned judgment and order the learned Judge found that the arbitral tribunal was not constituted in accordance with the arbitration agreement.
CONTENTIONS IN A.P.O, No. 329 OF 2013:-
Mr. Dipak Basu, learned Senior Advocate appearing for the appellant contended, once the Railways failed to appoint the arbitrator in spite of receipt of demand, the Chief Justice or his designate had ample power to constitute the arbitral tribunal. According to him, once the appointing authority failed to constitute the arbitral tribunal the Chief Justice or his designate had sufficient power to appoint an independent and impartial arbitral tribunal. Once a petition under Section 11 of the Arbitration and Conciliation Act, 1996 was taken up for consideration by the Chief Justice or his designate the appointing authority under the agreement would not be heard to say that the procedure for constitution of the arbitral tribunal as laid down in the arbitration agreement be strictly adhered to. In the present case, Mr. Dipak Basu contended that the arbitral tribunal constituted by the Order dated August 14, 2003 was an independent and impartial arbitral tribunal and that the constitution of such arbitral tribunal by the said order could not be assailed on the ground that the Chief Justice did not adhere to Clause 63 of the general conditions of contract. In support of his contentions Mr. Dipak Basu relied upon Deep Trading Company Vs. Indian Oil Corporation and others reported in 2013 Volume-IV Supreme Court Cases Page-35. In his fairness Mr. Dipak Basu, also drew our attention to the Bench decision reported at All India Reporter 2009 Calcutta page 59 (Niraj Kumar Bohra v. Union of India). According to Mr. Dipak Basu the Hon'ble Supreme Court in Deep Trading Company (Supra) having held that the Chief Justice or his designate need not be fettered by the appointing procedure in the arbitration agreement in constituting an arbitral tribunal the Order dated August 14, 2003 being the order of constitution of the arbitral tribunal, in the present case could not be assailed on the ground that the arbitral tribunal was not constituted in accordance with the Clause 63 of the general conditions of contract.
Mr. Dipak Basu submitted that the Chief Justice or his designate while constituting an arbitral tribunal needed to have due regard to the arbitration agreement or the procedure for constitution of an arbitral tribunal in terms of the arbitration agreement under Section 11(6) and 11(8) of the Arbitration and Conciliation Act, 1996. None of the requirements of these sub- sections were any fetter on the power of the Chief Justice or his designate. Once the Railways failed to appoint the arbitrator their right to do so ceased. The Railways cannot thereafter be allowed to have an arbitrator appointed from out of the gazetted Railway Officers. The Railways could not be placed on a higher footing after their default. On the meaning of the words "due regard" as used in the aforesaid Sub-Sections, Mr. Dipak Basu relied on All India Reported 1978 Supreme Court page 215 (State of Karnataka & Anr. v. Ranganatha Reddy & Anr.). Mr. Dipak Basu contended, the respondent having participated in the proceedings before the arbitral tribunal unconditionally the respondent waived their rights to challenge the constitution of the arbitral tribunal. He contended that under Section 16 of the Arbitration and Conciliation Act, 1996, a party objecting to the jurisdiction or the composition of the arbitral tribunal was required to make an application in writing to such effect prior to the submission of written statement. According to him, the respondent did not make any such application in writing. Consequently, the respondent gave up its right to challenge the constitution of the arbitral tribunal or the lack of jurisdiction of the arbitral tribunal in terms of Section 4 of the Arbitration and Conciliation Act, 1996.
Mr. Partha Sarathi Bose learned senior Counsel appearing on behalf of the respondent contended that the point of irregular constitution of the arbitral tribunal was taken at the first available opportunity, that is, in the counter-statement. Such point was duly raised before the arbitral tribunal. The point was considered by the arbitral tribunal and was rejected. The manner in which the arbitral tribunal dealt with the rejection was quoted in the impugned judgment and order. According to him, the respondent agreed to have the disputes and differences adjudicated by an arbitral tribunal constituted by gazetted Railway Officers. According to him, the parties agreed that in the event an arbitral tribunal could not be constituted comprising of gazetted Railway Officers there would be no arbitration at all. He placed reliance on Clause 63 of the general conditions of contract in this regard and on Niraj Kumar Bohra (Supra). FACTS IN A.P.O No. 203 OF 2013 AND A.P.O. No. 207 OF 2013:
A.P.O. No. 203 of 2013 was filed by the contractor impugning the judgment and order dated April 24, 2013. A.P.O. No 207 of 2013 was filed by the Union of India (Railways) against the same judgment and order. The Railways issued a tender notice for construction of additional abutment of Tamna side approach for Bridge No. 414 (upline) and for other ancillary work. The contractor was awarded the contract. The contractor demanded arbitration by a letter dated October 6, 1997. The contractor, thereafter, applied for constitution of an arbitral tribunal under Section 11 of the Arbitration and Conciliation Act, 1996 on November 4, 1997. The petition therefore was filed prior to the expiry of 30 days from the date of demand for arbitration. By an Order dated February 19, 1998 the learned Judge, hearing the petition under Section 11 of the Arbitration and Conciliation Act, 1996, was pleased to direct the same to be placed before the Chief Justice for appointment of an arbitrator in accordance with the provisions of the Arbitration and Conciliation Act, 1996. By an Order dated March 27, 1998, the Chief Justice was pleased to appoint a FORMER Judge of this Hon'ble Court as the sole arbitrator to decide the disputes between the parties. The Order dated May 27, 1998 recorded that the Chief Justice perused the Order dated February 19, 1998 and that both parties agreed to the appointment of the FORMER Judge named in the said order. The order dated March 27, 1998 was passed by consent of the parties.
Before the Arbitrator the Railways placed a letter dated May 11, 1999 stating that the Arbitrator did not possess the necessary qualification in terms of the arbitration agreement between the parties. The appointment of the Arbitrator was challenged by the said letter. In the arbitration proceedings the Railways filed a counter-claim. In the counter-claim the point of lack of jurisdiction of the arbitrator to arbitrate was also taken. The arbitrator published his award dated July 16, 2007. Being dissatisfied, the Railways filed an application under Section 34 of the Arbitration and Conciliation Act, 1996. Such application was dismissed by the impugned judgment and order dated April 24, 2013. Being aggrieved the Railways preferred an appeal therefrom being A.P.O. No. 207 of 2013. The contractor also preferred an appeal being A.P.O. No. 203 of 2013. CONTENTION IN A.P.O No. 207 OF 2013 AND A.P.O. No. 203 OF 2013:
Appearing for the Railways Mr. Animesh Ghosal contended that:-
i) The arbitrator was not appointed in terms of the arbitration agreement;
ii) The request for arbitration was premature as the contractor did not submit final bill before making the request for arbitration; and
iii) Consent recorded in the Order dated March 27, 1998 was not material since the Chief Justice in any event was required to follow the agreed procedure of the arbitration agreement, cannot by itself will not convert to jurisdiction.
In support of such contentions Mr. Animesh Ghosal relied upon All India Reporter 1999 Bombay page 67 (Atul R. Shah v. M/s. V. Vrijlal Lalloobhai & Co. and Anr.) as well as 2009 volume 4 Calcutta High Court Notes page 252 (Union of India Vs. Builders Corporation Private Limited). He relied on Clause 63 of the general conditions of contract and submitted that the arbitral tribunal was required to be constituted by Railway Gazetted Officer. In the instant case, the same not being done the constitution of the arbitral tribunal was bad and that the present arbitral tribunal had no jurisdiction to arbitrate the disputes between the parties. He also submitted that the request for arbitration was made by a letter dated October 6, 1997 without submitting the final bill. The contractor did not allow 30 days to lapse therefrom. The contractor made an application under Section 11 of the Arbitration and Conciliation Act, 1996 on November 4, 1997 in which the Orders dated February 19, 1998 and March 27, 1998 were passed. The demand for arbitration was premature. According to him, as the final bill was not submitted by the contractor the constitution of the arbitral tribunal was bad as the arbitrator was not a gazetted Railway Officer in terms of Clause 63 of the general conditions of contract.
Mr. Ranjan Deb appearing on behalf of the contractor contended that disputes and differences existed between the parties and that the reference to arbitration was not depended upon submission of final bill by the contractor. The parties to the contract could invoke the arbitration clause once a dispute or a difference arose. Therefore, according to him the demand for arbitration contained in the letter dated October 6, 1997 could not be termed to be premature.
On the composition of the arbitral tribunal and Clause 63 of the general conditions of contract Mr. Deb submitted, by a subsequent circular the Railways amended Clause 63 and made such amendment applicable with immediate effect. According to him, the subsequent circular guided the present arbitration agreement. By the subsequent circular Clause 63 of the general conditions of contract was amended.
On the scope and ambit of a power of a Chief Justice or his designate to appoint an arbitrator Mr. Deb relied on various authorities. He submitted, a Section 11 petition was filed only upon the failure of the parties to constitute the arbitral tribunal in accordance with the agreement. A demand for arbitration was required to be made by one party to the arbitration agreement. On the failure of the party in the arbitration agreement required to constitute the arbitral tribunal and a period of 30 days elapsing from the date of demand for arbitration and such failure continuing thereafter a party to the arbitration agreement could invoke Section 11 of the Arbitration and Conciliation Act, 1996. Once such petition was filed the party entitled to constitute the arbitral tribunal forfeited its right. Once such right was forfeited the same defaulting party could not be heard to say that the Chief Justice or his designate was required to invoke the agreed procedure to constitute the arbitral tribunal. He relied on 2000 Volume 8 Supreme Court Cases page 151 (Datar Switchgears Ltd. v. Tata Finance Ltd. & Anr.) and 2006 Volume 2 Supreme Court Cases page 638 (Punj Lloyd Ltd. v. Petronet MHB Ltd.) in support of the contention that the right to nominate ceased on filing of a petition under Section 11 of the Arbitration and Conciliation Act, 1996. He contended that an arbitral tribunal constituting party could not be placed in a better position in a proceeding under Section 11 of the Arbitration and Conciliation Act, 1996, once that party failed to constitute the arbitral tribunal in terms of the agreement.
Niraj Kumar Bohra (Supra) was distinguished by submitting that Datar Switchgears Ltd. (Supra) was not considered by the Division Bench. The concept of forfeiture of right was not considered. He also drew out attention to the Bench decisions of this Hon'ble Court reported at 2010 (Suppl. 2) Arbitration Law Reporter page 443 (Calcutta) (Division Bench) (Union of India & Ors. v. Sukbrinder Singh Atwal) and 2010 volume 4 Calcutta High Court Notes (Calcutta) page 952 (Union of India v. A.D. Chakraborty & Co.). He submitted that the various authorities considered by the aforesaid judgments should be taken as relied upon in these proceedings. He distinguished Sukbrinder Singh Atwal (Supra) on the same ground that of Niraj Kumar Bohra (Supra). With regard to the A.D. Chakraborty and Co. (Supra) he submitted that the Division Bench held that appointment of a retired District Judge instead of a Railway Gazetted Officer was not hit by the principles of quorum non juris. He also submitted relying on A.D. Chakraborty & Co. (Supra) that the question of legality of appointment of an arbitrator by virtue of a judicial order on the ground that the arbitrator appointed was not qualified to be appointed in terms of the agreement is no longer open to the parties in a proceeding under Section 34 of the Arbitration and Conciliation Act, 1996.
On the interpretation of the powers of the Chief Justice under Section 11 (6) and 11 (8) of the Arbitration and Conciliation Act, 1996, Mr. Deb relied on 2007 volume 1 Arbitration Law Reporter page 252 Delhi (Hbhl-Vks (J.V.) v. Union of India & Ors.). On the question of the meaning of the words "due regard"
Mr. Deb relied on All India Reporter 1978 Supreme Court 215 (State of Karnataka v. Ranganatha Reddy & Anr.). We put a query to Mr. Deb as to the validity of the consent recorded in the Order dated March 27, 1998 in relation to Order XXIII Rule 3 of the Code of Civil Procedure, 1908. To such query Mr. Deb submitted that the Railways did not contend that the counsel had no authority to give consent as recorded in the Order dated March 27, 1998.He submitted that there was no averment in the petition under Section 34 or in the present stay petition or in the affidavit-in-opposition filed in the appeal of the contractor made on behalf of the Railways that the learned Counsel appearing for the Railways on March 27, 1998 did not have the authority to give such consent. In any event he submitted relying on All India Reporter 2006 Supreme Court page 3335 (B.S.N.L. & Ors. v. M/s. Subash Chandra Kanchan & Anr.) that a concession made by the Advocate was binding on the party. The Railways could not be allowed to resile from the consent. According to him, the Railways might have had a legal right as to the constitution of the arbitral tribunal by Gazetted Railway Officer which they had consciously waived on March 27, 1998. The Railways never challenged the consent given by them on March 27, 1998. It would be improper to allow the Railways to resile form the consent at this stage. He also relied upon an unreported decision of the Bombay High Court dated August 13, 2010 rendered in Arbitration Petition No. 35 of 2009 (Khurana Constitutions Vs. IOT Infrastructure & Energy Services Limited).
Mr. Deb submitted, the Railways lost their right to have a Gazetted Railway Officer constituting the arbitral tribunal when the Railways did not constitute the arbitral tribunal in spite of request. The Railways had 30 days' time to do so even if the petition under Section 11 of the Arbitration and Conciliation Act, 1996 was filed prematurely. Such right stood forfeited on the petition under Section 11 being filed, at lease, on the expiry of 30 days from the date of demand. When the petition under Section 11 of the Arbitration and Conciliation Act, 1996 was taken up for hearing the Railways did not come forward to state that they had appointed an arbitrator. According to him, the Railways having lost their right could not have such right resurrected in a petition Section 34 of the Arbitration and Conciliation Act, 1996 or under Section 37 thereof. Mr. Deb next contended that Clause 63 of the general conditions of contract was amended by the circular dated August 6, 1997. He drew our attention to Clause 1 (iii) interpretation of the regulations for tenders and contracts. It provided, the regulations for tenders and contracts should be read in conjunction with the general conditions of contract which were referred to and should be subject to the modifications, additions or supersession by special conditions of contract and/or special specifications if any, annexed to the tender forms. According to him, the circular dated August 6, 1997 revised Clause 63 of the general conditions of contract.
DISCUSSION:
The Arbitration and Conciliation Act, 1996 came into effect on and from August 22, 1996. The statement of objects and reasons of the Bill that culminated into the Act would disclose, the main objective of the Act was to make provision for an arbitral procedure which was fair, efficient and capable of meeting the needs of the specific arbitration; to provide that the arbitral tribunal gives reasons for its awards; the arbitral tribunal remains within the limits of its jurisdiction; to minimize the supervisory role of courts in the arbitral process. Under the Arbitration and Conciliation Act, 1996 arbitration agreement was required to be in writing. Section 7 of the Arbitration and Conciliation Act, 1996 deals with arbitration agreement and stipulated so.
Section 11 of the Arbitration and Conciliation Act, 1996 would related to appointment of arbitrators. The section postulated that a person of any nationality may be appointed an arbitrator unless otherwise agreed by the parties. Sub-Section (2) laid down that the parties were free to agree on a procedure for appointing an arbitrator or arbitrators. Sub-Section (2) to (8) dealt with the procedure for appointment of an arbitrator. Under Sub-Section (3) in absence of an agreement referred to in Sub- Section (2) in an arbitration with three arbitrators each party should appoint one arbitrator and the two appointed arbitrators should appoint the third arbitrator who should act as the presiding arbitrator. An event of failure of Section (3) was contemplated and remedial measures for such purpose was provided in Sub-Section (4). Sub-Section (4) would provide that in the event of the appointment procedure in Sub-Section (3) applied and any party to the arbitration agreement failed to appoint an arbitrator within 30 days of the receipt of a request to do so from the other party or the two appointed arbitrators failed to agree on the third arbitrator within 30 days from the date of their appointment, the Chief Justice or his designate on a request from a party could make such appointment. Sub- Section 11(5) of the Arbitration and Conciliation Act, 1996 would specify that failing an agreement under Sub-Section (2), in an arbitration by a sole arbitrator, if the parties failed to agree on the arbitrator within 30 days from receipt of a request by one party from the other to agree the appointment should be made upon a request made by a party by the Chief Justice or his designate.
We are concerned, in the facts of these cases, with Sub-Section (6) and (8) of Section 11.
Sub-Section (6) of Section 11 contemplated an appointment procedure agreed upon by the parties. In the event of a party failing to act as required under the agreed procedure or the parties or the two appointed arbitrators failing to reach an agreement expected of them under that procedure or a person including an institution failing to perform any function entrusted to him or it under that agreed procedure the Chief Justice or his designate was empowered to take necessary measures for securing the appointment of an arbitral tribunal. Sub-Section (6) had to be read with Sub-Section (8) of Section
11. Sub-Section (8) provides that the Chief Justice or his designate in making the appointment under Section 11(6) should have due regard to any qualification required of the arbitrator by the agreement of the parties and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.
In SBP & Co. (Supra) the Hon'ble Supreme Court held that orders constituting arbitral tribunals prior to the date of the judgment of SBP & Co. (Supra) would be governed by 2002 Volume 2 Supreme Court Cases page 388 (Konkan Railways Corporation Ltd. v. Rani Construction Private Ltd.). Till SBP & Co. (Supra) an order constituting arbitral tribunal by the Chief Justice or his designate was considered as an administrative order. In SBP & Co. (Supra) the Hon'ble Supreme Court provided that all objections as to appointment of arbitrators or arbitral tribunals made prior to SBP & Co. (Supra) were left to be decided under Section 16 of the Arbitration and Conciliation Act, 1996. It was for the arbitral tribunal to decide and dispose of such application. Once the matter reached the arbitral tribunal the Courts would not interfere with the orders passed by the arbitral tribunal and the parties could approach the Court only in terms of Section 34 and 37 of the Arbitration and Conciliation Act, 1996.
Section 11 of the Arbitration and Conciliation Act, 1996 was a complete code. The extent of the right of an appointing authority under the arbitration agreement to constitute the arbitral tribunal and specifically the terminus of such power was considered by the Supreme Court in Datar Switchgears Ltd. (Supra) and Punj Lloyd Ltd. (Supra).
Datar Switchgears Ltd. (Supra) which was subsequently followed by Punj Lloyd Ltd. (Supra) laid down that the right of the party to constitute an arbitral tribunal did not cease after the expiry of 30 days but such right ceased when a petition under Section 11 of the Arbitration and Conciliation Act, 1996 was filed after expiry of the period of 30 days from the date of receipt of the demand for arbitration. Therefore, in terms of Datar Switchgears Ltd. (Supra) and Punj Lloyd Ltd. (Supra) a party can constitute the arbitral tribunal even after expiry of 30 days from the date of receipt of the demand, however, such appointment was required to be made prior to a petition under Section 11 of the Arbitration and Conciliation Act, 1996 was filed. Once such petition was filed after expiry of 30 days the right to appoint the arbitrator ceased.
To our understanding neither Datar Switchgears Ltd. (Supra) nor Punj Lloyd Ltd. (Supra) answers the question whether or not the Chief Justice or his designate should have due regard to the qualification required of an arbitrator by the arbitration agreement of the parties and other considerations as are likely to secure of an appointment of an independent and impartial arbitrator once a petition under Section 11 came up for considerations. In other words, whether or not the Chief Justice or his designate was free to appoint any arbitrator of their choice once the person or the institution entrusted under the arbitration agreement to constitute the arbitral tribunal failed to perform his or its function, is the question that we have to answer.
On this question diverse authorities were cited. For the proposition that the Chief Justice or his designate must constitute an arbitral tribunal in accordance with the agreement between the parties that is to say that the Chief Justice or his designate should constitute an arbitral tribunal in accordance with the arbitration agreement in terms of Sub-Section (8) of the Arbitration and Conciliation Act, 1996, Niraj Kumar Bohra (Supra) and Builders Corporation (Supra) were cited. On the other side of the spectrum Deep Trading Company (Supra), Hbhl-Vks (J.V.) (Supra) and A.D. Chakraborty & Co. (Supra) were cited.
Niraj Kumar Bohra (Supra) and Builders Corporation (Supra) both Division Bench judgments of this Hon'ble Court were concerned with the interpretation of Clause 63(3)(a)(iii) of the General Conditions of Contract and Specification Standard, 1993 as in these appeals.
On consideration of the diverse authorities cited before it the Division Bench in Niraj Kumar Bohra (Supra) found that the parties agreed to have arbitrator only through Railway Gazetted Officers and in case that was not possible they would not go for arbitration. It held that the Chief Justice or his designate could not have appointed an arbitrator who was not a Railway Gazetted Officer. Appointment of retired Judge was contrary to the arbitration agreement. The Chief Justice or his designate was required to act in accordance with the arbitration agreement. Appointment of arbitrator by the Chief Justice must be in accordance with the arbitration agreement and could not be de hors it.
Builders corporation Private Ltd. (supra) was concerned with clause 63(3)(a)(iii) of the General Conditions of Contract as in these appeals and in Niraj Kumar Bhora(Supra). The Division Bench in Builders Corporation Private Ltd. (Supra) considered Datar Switchgears Ltd. (Supra) as well as Punj Lloyd Ltd. (Supra) amongst other authorities cited before it. In Builders Corporation Private Ltd. (Supra) the Division Bench found the appointment of a person other than Gazetted Railway Officer to arbitrate the dispute between the contractor and the Railways was not protected under Section 11(8) of the Arbitration and Conciliation Act, 1996. Their Lordships followed 2004 Volume 10 supreme Court Cases page 504 (Union of India and Anr. v. M.P. Gupta), unreported decision of Union of India v. Krishna Kumar and 208 Volume 10 Supreme Court Cases page 240 (Northern Railway Administration, Ministry of Railways v. Patel Engineering Co. Ltd.).
Sukbrinder Singh Atwal (Supra) was also a case relating to Clause 64(3)(a)(ii) of the general conditions of contract. While Niraj Kumar Bohra (Supra) concerned an appointment under the Arbitration and Conciliation Act, 1996. Sukbrinder Singh Atwal (Supra) was under the old Arbitration Act of 1940. In Sukbrinder Singh Atwal (Supra) two Railway Gazetted Officers were appointed as joint arbitrators. On the joint arbitrators failing to conclude the arbitration the personnel of the arbitral tribunal was substituted by a judgment and order dated July 31, 1991 passed by the Hon'ble Court on an application under Sections 5, 11 and 12 of the Arbitration Act, 1940. The Order dated July 31, 1991 was passed in the presence of the parties. The parties did not raise any objection with regard to the substitution of the arbitral tribunal by the new appointee. The new appointee proceeded to conclude the reference and passed his award which was the subject matter of challenge under Sections 30 and 33 of the Arbitration Act, 1940. Such challenge was dismissed giving rise to the appeal in which the judgment of Sukbrinder Singh Atwal (Supra) was delivered. In Sukbrinder Singh Atwal (Supra) the Division Bench held that the parties conferred jurisdiction on the arbitrator by agreement. It found that the agreement submitted that there could not be any arbitration of any individual other than the Railway Gazetted Officer. Consequently, the Division Bench in Sukbrinder Singh Atwal (Supra) found a Court could not have appointed any Advocate as an arbitrator. However, on facts the Division Bench in Sukbrinder Singh Atwal (Supra) found that the appointment of the arbitrator by the Court was valid. According to Sukbrinder Singh Atwal (Supra) the initial constitution of the arbitral tribunal was of two Railway Gazetted Officers. On their failure to act, the arbitrators' authorities were revoked by the Court under Sections 5, 11 and 12 of the Arbitration Act, 1940. Once such authority was revoked the Court was empowered to appoint an independent arbitrator. Moreover, on facts the Court found that the Railways did not raise any objection as to such appointment. The order appointing the sole arbitrator, therefore, attained finality which the Court in Sukbrinder Singh Atwal (Supra) refused to reopen on the principles of res judicata.
Sukbrinder Singh Atwal (Supra) considered both Niraj Kumar Bohra (Supra) as well as Builders Corporation Private Ltd. (Supra).
M.P. Gupta (Supra) was concerned with the appointment of a Judge of the High Court as no arbitrator was appointed by the Railway Authorities in terms of Clause 64 of the then prevailing agreement. The proceeding therein was under Section 20 of the Arbitration Act, 1940. Their Lordships were of the view that the appointment of an arbitrator by the High Court was not correct and set aside the order of appointment and directed the Railway Authorities to appoint arbitrators within 30 days. Their Lordships in Northern Railway Administration (Supra) held that the provisions contained in Sub-Section (6) of Section 11 were to be read along with Sub-Section (8). Although not mandatory the Court may ask two parties to do what was not done. The emphasis was on the terms of the agreement being adhered to and being given effect to as closely as possible. The expression "due regard" contained in Sub-Section (8) of the Act indicated that proper attention to several circumstances was required to be focused upon. In the facts of that case, their Lordships found the appointment of a person other than a Railway Gazetted Officer to arbitrate on the disputes could not be protected. The award made by such arbitrator was set aside. In Northern Railway Administration (Supra) Sub-Sections (2) to (6) and (8) of Section 11 of the Arbitration and Conciliation Act, 1996 were considered. In paragraph 11 of such judgment it was held that the expression "a party may request the Chief Justice or any person or institution designated by him to take the necessary measure" was to be read along with the requirement of Sub-Section (8). The Chief Justice or his designate in appointing an arbitrator should have due regard to the two conditions relating to qualifications and other considerations as were likely to secure the appointment of an independent and impartial arbitrator. In paragraph 12 of Northern Railway Administration (Supra) the Hon'ble Supreme Court held as follows:-
"A bare reading of the scheme of Section 11 shows that the emphasis on the terms of the agreement being adhered to and/or given effect as closely as possible. In other words, the Court may ask to do what has not been done. The Court must ensure that the remedies provided for are exhausted. It is true as contended by Mr. Desai, that it is not mandatory for the Chief Justice or any person or institution designated by him to appoint the named arbitrator or arbitrators. But at the same time, due regard has to be given to the qualifications required by the agreement and other considerations."
On facts the Hon'ble Supreme Court set aside the appointment and remitted the matters back to the High Court to make fresh appointment keeping in view the parameters indicated. In our humble view the law with regard to the scope and ambit of Section 11(6) and (8) of the Arbitration and Conciliation Act, 1996 was laid down in Northern Railway Administration (Supra).
On the other side of the divide as to the scope and ambit of Section 11(6) and (8) for the Arbitration and Conciliation Act, 1996, are Hbhl-Vks (J.V.) (Supra), A.D. Chakraborty & Co. (Supra) and Deep Trading Company (Supra). The Special Bench of the Delhi High Court Hbhl-Vks (J.V.) (Supra) found that the right to constitute the arbitral tribunal upon receipt of a demand for such purpose was a composite right and was incapable of being severed. Their Lordships negated the contention that there was a distinction between the power and procedure as contemplated under the arbitration clause. Their Lordships were of the view that the loss of power was bound to affect the procedure. Since the appointing authority did not constitute the arbitral tribunal within the prescribed period of 30 days it lost the power to have an arbitral tribunal constituted of its choice. Once such right was lost the rest of the prescribed procedure could not be implemented. Their Lordships relied on Datar Switchgears Ltd. (Supra) to hold that once the party which was served with the demand notice in terms of the arbitration clause failed or refused to act in making the appointment in terms of the arbitration clause within 30 days or in any case prior to the institution of a petition its right to make such appointment ceased or was forfeited. Such cessation was absolute. Their Lordships also held that the Court had jurisdiction to take necessary measures in terms of Clause 11(6) of the Arbitration and Conciliation Act, 1996 and that such expression will take within its ambit and scope to appoint independent and impartial arbitrator with reference to the accepted arbitration clause unless the Court in its discretion directed the institution specified in the arbitration clause not in default to make such appointment.
In A.D. Chakraborty & Co. (Supra) a Division Bench of this Hon'ble Court considered Clause 63(3)(a)(iii) and found that the appointment of a retired judicial officer was not in conformity of such provision. In other words their Lordships were of the same view as expressed by Niraj Kumar Bhora (Supra) and Sukbrinder Singh Atwal (Supra). In the facts of A.D. Chakraborty & Co. (Supra) their Lordships found that the arbitrator was appointed by a judicial order which the appellant accepted. Their Lordships noted the settled law that even if any wrong order was passed by virtue of a judicial order and the parties aggrieved did not challenge the order before a higher authority; such party was precluded from challenging the correctness of such order at the subsequent stages of the proceedings. In such factual and legal matrix their Lordships did not allow the appellant therein to reopen the issue of wrong constitution of the arbitral tribunal in a proceeding under Section 34 of the Arbitration and Conciliation Act, 1996. The facts involved in these appeals are different to that of A.D. Chakraborty & Co. (Supra). The orders of appointment of the arbitrators in these appeals are deemed administrative orders in terms of Konkan Railway (Supra).
The Courts were not empowered to rewrite the contract nor make a new contract between the parties. The arbitration agreement and its terms are of importance. In these cases the parties agreed to a particular mechanism of constitution of the arbitral tribunal. The parties agreed that in the event the arbitral tribunal was not constituted by the agreed personnel the arbitration agreement would automatically come to an end. Such contract was otherwise not assailed as being void. The parties were required to uphold their part of the bargain in a valid contract. It was not for the Court, far less the Chief Justice or his designate exercising powers under Section 11 of the Arbitration and Conciliation Act, 1996 to bring about any variation in the arbitration agreement or rewrite the arbitration agreement. Section 11 of the Act of 1996 required the Chief Justice or his designate to take necessary measures for securing the appointment of the arbitral tribunal following as closely as possible the appointment procedure agreed upon. It was one thing to suggest that the appointing authority ceased and/or forfeited its right the expiry of 30 days from the date of receipt of the request for arbitration or on the day of presentation of the petition under Section 11 after expiry of a period of 30 days and the other that the agreed procedure need not be followed at all thereafter.
We would respectfully not accept the proposition of Hbhl-Vks (J.V.) (Supra) that once the right to offer a panel was lost the rest of the prescribed procedure could not be implemented. With the failure of the appointing authority to appoint the arbitrator it would be harsh to hold that the parties to arbitration agreement gave a go bye to the agreed procedure. The parties must be held to their bargain. Such an interpretation would firstly, tantamount to bringing about a new procedure for appointment not agreed upon, secondly allow a party to the arbitration agreement to default deliberately to wriggle out of the agreed procedure. The right to appoint the arbitrator and the agreed procedure for constituting the arbitral tribunal ought not to be read as composite. The first right vests with the appointing authority agreed upon by the arbitration agreement to constitute the arbitral tribunal. The second comes into play when the agreed appointing authority failed to discharge its function. Section 11(6) and (8) of the Act of 1996 upon the triggers contemplated therein enjoins upon the Chief Justice or his designate to take necessary measures for securing the appointment.
In our humble opinion the views expressed by Hbhl-Vks (J.V.) (Supra) were not correct particularly in view of Northern Railway Administration (Supra).
In Deep Trading Company (Supra) the question considered by the Apex Court was whether the Respondent No. 1 therein forfeited its right to appoint the arbitrator having not done so after the demand was made and till the appellant therein moved the Court under Section 11(6) and if the answer was in the affirmative whether the appointment of the arbitrator by the Respondent No. 1 in the course of the proceedings under Section 11 (6) was of any legal consequence and that the Chief Justice ought to have exercised the jurisdiction and appointed an arbitrator. The arbitration clause in that judgment was different to the arbitration clause concerned in the present appeals. The appointing authority made an appointment during the pendency of the Section 11 petition. When the Section 11 petition came up for final hearing the Chief Justice did not appoint any person in view of the appointment already made. The appointment being made subsequent to the filing of the Section 11 petition the Apex Court answered the question before itself by saying that the respondent therein lost its right to appoint an arbitrator once the Section 11 petition had been filed. The High Court erred in accepting the nominee of the respondent as an arbitrator. Significantly, the Apex Court in that case explored the possibility of appointing retired Judges as arbitrators which the parties disagreed. On such disagreement, the Apex Court directed the matter to be placed before the Chief Justice or his designate and deserted an appointment to be made in accordance with law and in the light of the observations made therein. The observations made in the judgment relates to the forfeiture of right of the respondent therein to nominate the arbitrator after the Section 11 the petition was filed. Such judgment, with all due respect, cannot be read to mean that the Apex Court required the Chief Justice of his designate exercising powers under Section 11(6) to disregard the procedures and the requirements of Sub-Section (8) of Section 11 of the Arbitration and Conciliation Act, 1996.
This brings us to the questions once again. Northern Railway Administration (Supra) required the Chief Justice or his designate to adhere to and/or give effect to the arbitration agreement as closely as possible. Their Lordships held that the Chief Justice or his designate may ask to do what was not done. The Court must first ensure that the remedies provided for were exhausted. It was not mandatory for the Chief Justice or his designate to appoint the named arbitrator or arbitrators. But at the same time, due regard was required to be given to the qualifications laid down by the agreement and other considerations. The expression "due regard" was explained by their Lordships to mean that proper attention to several circumstances were focused. The expression "necessary" was explained, by their Lordships, as a general rule could be broadly stated to be those things which were reasonably required to be done and legally ancillary to the accomplishment of the intended act. Necessary measures was stated to be the reasonable steps required to be taken.
In view of the interpretation given to the expression "due regard"
by their lordships in Northern Railway Administration (Supra) we need not detain ourselves on State of Karnataka v. Ranganatha Reddy & Anr. (Supra) which was cited by Mr. Deb and Dipak Basu for interpretation of the expression "due regard". The State of Karnataka case related to Karnataka Contract Carriage Acquisition Act. The facts of such case were completely different to those obtaining in the present appeals. Therefore, in accordance with the dicta of Northern Railway Administration (Supra) the Chief Justice or his designate exercising powers under Section 11(6) of the Arbitration and Conciliation Act, 1996 was required to
(i) adhere to and /or give effect as closely as possible to the existing arbitration agreement and the agreed procedure;
(ii) may ask the parties to do what was not done;
(iii) must first ensure that the remedies provided for in the arbitration agreement were exhausted
(iv) Have due regard to the qualifications required by the agreement and other considerations in appointing the arbitrator.
At the same time, their Lordships cautioned that it was not mandatory for the Chief Justice or his designate to appoint the named arbitrator or arbitrators.
DECISION ON MERITS OF A.P.O No. 329 OF 2013:-
In view of the law laid down as aforesaid we find that the arbitral tribunal was not constituted in accordance with Clause 63(3)(a)(iii) of the general conditions of contract. We do not find any reason to interfere with the impugned judgment and order. DECISION ON MERITS OF A.P.O. NO. 203 OF 2013 AND A.P.O. NO.207 OF 2013:-
In these appeals several additional questions arose that we would allude to hereafter. According to Mr. Deb, the consent given by the Railways as recorded in the Order dated March 27, 1998 was binding on the Railways. Mr. Deb relied on B.S.N.L. & Ors. (Supra) and Khurana Constructions (Supra). The Order dated March 27, 1998 records the consent of the Railways in the appointment of the arbitrator. However, the procedure laid down under Order XXIII Rule 3 of the Code of Civil Procedure, 1908 was not followed in recording such consent. In view of the mandatory requirement of Order XXIII Rule 3 not being followed which culminated to the Order dated March 27, 1998 and more particularly when the Railways were claiming that the arbitral tribunal was not properly constituted we do not find any reason to hold that the recording of consent given by the Railways was valid. It is unfortunate that the Railways chose to take this stand at this stage. However, we are bound by the law understood by us and as discussed above. In B.S.N.L. & Ors. (Supra) the consent recorded in the order was assailed which their Lordships refused to allow BSNL to resile from. In the appeals at hand the clause of the arbitration agreement was different to that what was noted in B.S.N.L. & Ors. (Supra) case.
In Khurana Constructions (Supra) a Single Bench of the Bombay High Court appointed an independent arbitrator on the failure of the appointing authority to constitute the arbitral tribunal. The arbitration agreement set out in the judgment of the Bombay High Court was different to that obtaining in the present appeals.
The Single Judge of the Bombay High Court in Atul Shah (Supra) was concerned with a challenge to the award on the ground that the arbitral tribunal was not properly constituted.
On facts the High Court sustained the challenge that the arbitral tribunal was not properly constituted.
On the score that without a written application the Railways could not be allowed to agitate the point of improper constitution of the arbitral tribunal we find that such point was taken in the counter statement and urged before the arbitrator. The Railways also addressed a letter dated May 11, 1999 stating that the arbitrator does not possess the necessary qualification. This objection was considered by the arbitrator in the 1st meeting held on May 12, 1999. The arbitrator negated such plea on the ground that his appointment was made by an order of the Chief Justice who was the appropriate authority under the Act to appoint an arbitrator. Therefore, the Railway took the plea with all vigour and in writing. No other written application was required of them to be made. The objections of the Railways was in writing, under stood by the parties and the arbitrator that the objections related to constitution of arbitral tribunal. In terms of S.B.P & Company (Supra) objections under Section 16 of the Arbitration and Conciliation Act, 1996 was required to be taken before the arbitrator which the Railways did at the first available opportunity.
On the question that the plea under sections 12(3) and 13(2) of the Arbitration and Conciliation Act, 1996 was not taken within the 15 days after becoming aware of the constitution of the arbitral tribunal we do not think that the Railways lost the opportunity to question the jurisdiction of the arbitration under Section 16 particularly when in the facts of these appeals the Railways did object under Sections 12(3) and 13(2) as well as under Section 16. A write to question the constitution of the arbitral tribunal in a Konkan Railway (Supra) situation was not lost till its lost is triggered as specified under Section 16. The contention that by the circular dated August 6, 1997 Clause 63 as it stood was revised with immediate effect could not be accepted by us. The Railways could not alter a contract unilaterally. It is not the case of the parties that the circular dated August 6, 1997 was expressly incorporated into the subject contract or was accepted by the contractor contemporaneously. Mr. Deb had relied upon Regulation 1 (iii) of the Regulations for tender and contracts. The modifications stated therein must appear with the Tender Forms. The contract once entered upon could not be unilaterally modified at the instance of any of the parties. Accepting the argument of Mr. Deb in this regard would allow the railways amongst other to downgrade the rates under the contract without a corresponding of challenge to the contractor.
In view of the law as understood by us as above, we set aside the judgment and order impugned in these two appeals. Since we are of the view that the arbitral tribunal was not properly constituted, we set aside the award published by the arbitrator. CONCLUSION:-
As a result of the discussions above A.P.O. No. 329 of 2013 is dismissed. A.P.O. No. 203 of 2013 is dismissed. A.P.O. No. 207 of 2013 is allowed.
Ashim Kumar Banerjee, J:
I agree.
[ASHIM KUMAR BANERJEE, J.] [DEBANGSU BASAK, J.]