Calcutta High Court
Ramjee Power Construction Ltd vs Damodar Valley Corporation on 5 February, 2009
Author: Indira Banerjee
Bench: Indira Banerjee
AP No. 606 of 2008
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
Ramjee Power Construction Ltd.
Versus
Damodar Valley Corporation
BEFORE :-
THE HON'BLE JUSTICE
Indira Banerjee
Dated, the 5th February, 2009.
Appearance:
Mr. Samrat Sen, Adv.
for the petitioner
Mr. I.P. Mukherjee,Adv.
for the respondent
The Court:- This is an application under Section 11(6) of the Arbitration and Conciliation Act, hereafter referred to as the "1996 Act"
for appointment of an Arbitrator in place of the erstwhile Arbitrator, a retired Judge.
The short question involved in this application is, whether, upon the death, resignation or termination of mandate of an Arbitrator appointed by the Chief Justice under Section 11 Sub-section 6 of the 1996 Act , the substitute Arbitrator is to be appointed by the Chief Justice and/or his designate or in accordance with the arbitration agreement.2
Disputes appear to have arisen in connection with a contract which, inter alia, contained an arbitration clause which is set out herein below for convenience:
"ARBITRATION Except where otherwise provided in the contract all question and disputes relating to the meaning of specifications, designs, drawings and instructions herein contained and as to the quality of the workmanship or materials used on the work or as to any other question claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment therefore shall be referred to the sole arbitration of a person appointed by the DVC who may or may not be a DVC Officer.
Such appointment shall not be objected on the ground that the arbitrator so appointed is a DVC Official or that he had to deal with matters to which the agreement rules and in the course of his duties as DVC official he had expressed views on all or any of the matter in disputes or difference. The award of the arbitrator so appointed shall be final, conclusive and binding on all parties to the contract."
In terms of the arbitration agreement, disputes were to be referred to an arbitrator appointed by the respondent who might or might not be an officer of the respondent. The petitioner apparently sought reference of the disputes to arbitration. No action was, however, taken by the respondent.
In the circumstances, the petitioner made a request to the Hon'ble Chief Justice and/or his designate for appointment of an 3 Arbitrator by filing an application being AP No.144 of 2006, under Section 11(6) of the 1996 Act.
In this Court, a request to the Chief Justice under Section 11 Sub-section 6 of the 1996 Act, for appointment of an arbitrator, is made by way of an application, in the same manner as other applications to Court, and is considered by the Single Judge having determination. If the application succeeds, the Single Judge refers the application to the Hon'ble Chief Justice and/or His designate for naming the Arbitrator.
After the said application under the 1996 Act, being A.P.No.144 of 2006, was filed in this Court, the respondent appointed an Arbitrator. However, by an order dated November 23, 2007 this Court ( Pinaki Chandra Ghose, J ) allowed the said application, being A.P.No.144 of 2006, inter alia, holding that it was settled law that once an application was filed in Court for appointment of an Arbitrator by the Chief Justice and/or His designate, the respondent lost its right to appoint an Arbitrator in accordance with the agreement.
The Hon'ble Chief Justice and/or His designate named a retired Judge of this Court, Shri Sohan Lal Saraf, as Arbitrator. The learned Arbitrator entered into reference. While the reference was in progress the respondent brought out an application being AP No.557 of 2008, praying for termination of the mandate of the learned Arbitrator on the ground of his ill health and consequential inability to properly perform his function as arbitrator.
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After the application being A.P.No.557 of 2008 was entertained by this Court, the learned Arbitrator, through Counsel, submitted that he did not wish to continue as Arbitrator in view of the nature of the allegations made in the petition, even though the allegations were, not admitted.
This Court, by an order dated November 19, 2008, allowed the application being A.P.No.557 of 2008 and passed an order in terms of prayer (b) thereof, terminating the mandate of the learned Arbitrator.
This application has been moved under Section 11(6) of the 1996 Act, for appointment of a substitute Arbitrator in place of the erstwhile arbitrator, Shri Sohan Lal Saraf, whose mandate had been terminated in the circumstances mentioned above.
Opposing the application on behalf of the respondent, Mr. I. P. Mukherjee submitted, that the substitute Arbitrator was to be appointed in accordance with the arbitration agreement, in view of Section 15(2) of the 1996 Act.
Section 15(2) of the 1996 Act is set out herein below for convenience:
"15(2) - Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced."5
The language and tenor of Section 15(2) is significant. Legislature has, in its wisdom, very carefully used the expression "the substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced" instead of using the expression "the substitute arbitrator shall be appointed in accordance with the procedure for appointment laid down in the arbitration agreement executed between the parties."
If it were the legislative intention that a substitute arbitrator should always be appointed in accordance with the procedure agreed upon by the parties, irrespective of whether the arbitrator being replaced was appointed by the Chief Justice or His designate, the legislature would, perhaps, have not used the expression in accordance with the rules that were applicable to the appointment of the arbitrator being replaced.
In this case, the erstwhile arbitrator was appointed in accordance with Section 11(6) of the 1996 Act, read with the Rules framed by the Court and the Rules that have evolved with practice.
In Datar Switchgears Ltd. Vs. Tata Finance Ltd. & Anr, reported in (2002) 8 SCC 151, cited by Mr. Samrat Sen appearing on behalf of the petitioner, the Supreme Court 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 6 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."
In Yashwith Construction P. Ltd. Vs.
Simplex Concrete Piles India Ltd. and Anr.
reported in AIR 2006 SC 2798 the Supreme Court held as follows:
" Obviously, Section 11(6) of the Act has application only when a party or the concerned person had failed to act in terms of the arbitration agreement. When Section 15(2) says that a substitute arbitrator can be appointed according to the rules that were applicable for the appointment of the arbitrator originally, it is not confined to an appointment under any statutory rule or rule framed under the Act or under the Scheme. It only means that the appointment of the substitute arbitrator must be done according to the original agreement or provision applicable to the appointment of the arbitrator at the initial stage."
Mr. I.P. Mukherjee emphasized on the use by the Hon'ble Supreme Court of the phrase "provision applicable to the appointment of the arbitrator at the initial stage" and specifically on the use of the words "initial stage" to argue that the Supreme Court had held that the substitute arbitrator was also to be appointed strictly in accordance with the arbitration agreement.
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A judgement is a precedent for what it decides and is to be understood in the context of the circumstances in which the judgement is rendered. A phrase from a judgment cannot be read out of context ignoring the rest of the sentence. If the sentence is read as a whole, it would be absolutely clear that the Supreme Court did not construe Section 15(2) as a mandate for appointment of the substitute arbitrator in accordance with the agreement between the parties. The Supreme Court therefore did not end the sentence with the phrase "according to the original agreement", but went on to use the words " or provision applicable to the appointment of the arbitrator at the initial stage" meaning thereby a provision other than that contained in the original agreement. The words "or provision applicable ............" were carefully chosen and not meant to be a redundant superfluity. The expression provision applicable could mean a provision of law or a provision of an agreement. The judgement was rendered in an appeal arising out of an order of the Andhra Pradesh High Court which is clearly distinguishable in facts. In 8 that case the initial appointment of arbitrator was made by the Managing Director and not by the Chief Justice or his designate. On termination of mandate, the substitute arbitrator had also promptly been appointed.
In Union of India Versus Bharat Battery Manufacturing Co. (P) Ltd. reported in (2007) 7, SCC 684 cited by Mr. Sen, the Supreme Court relying on its earlier judgements in Punj Lloyd Ltd. Versus Petronet MHB Ltd. reported in (2006) 2 SCC 638 and Datar Switchgears Ltd.(supra) held that once a party filed an application under Section 11(6) of the Act., the other party extinguished its right to appoint an arbitrator in terms of the clause of the agreement thereafter.
Mr. Sen also cited a judgement of this Court in Shankar Traders Vs. Union of India (UOI) and Ors. reported in AIR 2006 Calcutta 335 where this Court discussed various Supreme Court judgements and held that once an application had been moved for appointment of an arbitrator by the Chief Justice, the other party which had remained 9 indolent would lose its right to make an appointment in terms of the agreement.
Mr. Sen also referred to an unreported judgement of this bench dated 25th July, 2005 in AP No.93 of 2005 (Bhattacharjee Construction Co. Vs. Union of India & Ors.) whereby this Bench allowed an application under Section 11(6) of the 1996 Act for appointment of a substitute arbitrator. The judgment is distinguishable on facts, and has no application to the issues involved in this case. In Bhattacharjee Construction Co.(supra) the mandate of the arbitrator appointed in accordance with the agreement between the parties had been terminated. This Court found, on facts, that there had been failure on the part of the Chief Engineer to appoint a substitute arbitrator. This Court thus held that even assuming that a substitute arbitrator was to be appointed according to the rules that were applicable to the appointment of arbitrator whose mandate had been terminated, there had been failure on the part of the Chief Engineer to promptly appoint a substitute arbitrator and as such the application 10 under section 11(6) was liable to be allowed. The proposition that emerges from various judgements referred to above is that an arbitrator must be appointed in accordance with the procedure agreed between the parties. If however the party required, in terms of the agreement, to appoint or to agree to an arbitrator fails to do so within the time stipulated in the agreement and/or in Section 11 of the 1996 Act, the other party might request the Chief Justice or his designate to appoint an arbitrator under Section
11. Once an application under Section 11 is made, the right of the other party to appoint an arbitrator, in accordance with the agreement, gets extinguished. The right under the agreement, of a party, to appoint an arbitrator, which stands extinguished once an application under Section 11(6) is made, does not revive, if the arbitrator appointed by the Chief Justice resigns and/or his mandate is terminated.
As observed above, the expression "rules that were applicable to the appointment of the arbitrator being replaced" in Section 15, have carefully been chosen. If the arbitrator being 11 replaced was appointed by the Chief Justice and/ or his designate in accordance with Section 11 of the 1996 Act read with the applicable rules, the substitute arbitrator would also have to be appointed by the Chief Justice and/or his designate in the same manner. It is immaterial that the respondent has appointed an arbitrator in the meanwhile. The appointment of the arbitrator by the respondent, after filing of this application, is of no consequence.
The application is, thus, allowed.
Let the application be placed before the Hon'ble Chief Justice and or his designate for naming a substitute arbitrator.
Urgent certified copy of this order, if
applied for, be supplied to the parties, upon
compliance of all requisite formalities.
(INDIRA BANERJEE, J.) CS.