Kerala High Court
Bel House Associates (P) Ltd. vs General Manager, Southern Railway on 23 January, 2001
Equivalent citations: AIR 2001 KERALA 163, (2001) ILR(KER) 1 KER 548, 2001 (2) ARBI LR 215, (2001) 1 KER LJ 374, (2001) 1 KER LT 579, (2001) 2 ARBILR 215
ORDER R. Rajendra Babu, J.
1. M/s. Bel House Associates Pvt. Ltd. under liquidation through the Official Liquidator filed these petitions under Ss. 11(5) and (6) of the Arbitration and Conciliation Act, 1996 for appointing an arbitrator for adjudicating the disputes between the petitioner and the respondents, the Southern Railway. The averments in both these petitions are similar. A.R. 13/99 was on the basis of an agreement between the parties No. TCR/GUY/CN/12/90 dated 24.7.90 relating to the construction of the Station Building at Guruvayoor. A.R.No.15/99 was based on the agreement between the parties bearing No. 54/CN 88 dated 18.10.88 relating to the construction of new BG line from Trichur to Guruvayoor and other construction works. The relief prayed for in both these petitions are for appointing a sole arbitrator to adjudicate upon the disputes between the parties. It was alleged in both petitions that the entire work had been executed and completed in all respects and handed over to the Railway and the petitioner had to execute some extra items of work at the instance of the railway officials including minor items as well as the major items of work and before commencement of the execution of these extra items, the petitioner had duly intimated the Railway about the fixation of these extra rates and submitted their rate analysis for the same. But the Railway had neglected to arrive at a rate by themselves. As there arose disputes, the petitioner issued notice to the General Manager, Southern Railway, Madras to appoint a sole arbitrator in accordance with Clause 63 of the General Conditions of Contract forming part of the agreement. The Railway did not comply with the above terms, a reminder also was sent and even then the Railway had not complied with the above demand. Hence the petitioner was compelled to approach this court for appointing an arbitrator to resolve the disputes between the parties.
2. Counter affidavit was filed by the respondents wherein the agreement between the parties had been admitted and also the existence of the arbitration clause. It was contended that there was no proper notice as the petitioner company was under liquidation and while so notices were issued by incompetent persons. It was further contended that there was no dispute for arbitration and when a procedure for arbitration had been mentioned in the agreement, the court cannot appoint an arbitrator, but it can only enforce the procedure contemplated in the agreement for arbitration.
3. Heard the learned counsel for the applicant and the standing counsel for the respondents.
4. The agreement between the parties was admitted. Existence of arbitration clause also was admitted. The applicant company was under liquidation and the petition was filed by the Official Liquidator. A notice also had been issued at the instance of the arbitrator demanding the initiation of arbitration proceedings. There are disputes between the parties for settlement Hence the contention that there was no notice cannot be accepted.
5. The main contention put forward by the respondents, the Southern Railway was that when the agreement provides an arbitration clause and the procedure for arbitration, this court cannot appoint an independent arbitrator, but can only direct the implementation of the procedure contemplated in the agreement. Clause 63 of the General Conditions of Contract speaks about the arbitration clause. It says that disputes and difference of any kind whatsoever arising out of or in connection with the contract shall be decided by arbitration. Clause 64 of the General Conditions of Contract prescribes the procedure for appointing an arbitrator. Clause 64 reads:
(1) 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 in any such case, but except in any of the "Excepted Matters" referred to in Clause 63 of these conditions the Contractor, after 90 days of his presenting his final claim on disputed matters, may demand in writing that the dispute or difference be referred to arbitration, such demand for arbitration shall specify the matters which are in question, dispute or difference, and only such dispute or difference of which the demand has been made and no other, shall be referred to arbitration.
(2) 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 riot such work should continue during arbitration proceedings.
(3) (a) Matters in question, dispute or difference to be arbitrated upon shall be referred for decision to:
(i) A sole Arbitrator who shall be the General Manager or a gazetted Railway Officer nominated by him on that behalf incases where the claim in question is below Rs.5,00,000/-(five lakhs) and in cases where the issue involved are not of a complicated nature. The General Manager, shall be the sole Judge to decide whether or not the issue involved are of a complicated nature.
(ii) Two Arbitrators, who shall be Gazetted Railway Officers of equal status to be appointed in the manner laid down in clause 64(3)(b) for all claims of Rs. 5,00,000/- (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 are of a complicated nature, or not. In the event of the two arbitrators being divided in their opinion 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.
(iii) It is a term of this contract that no person other than a gazetted Rail way Officer should ad as an Arbitrator/Umpire 2nd if for any reason, that is not possible the matter is not to be referred to Arbitration at all. (Other sub-clauses omitted)
6. The learned counsel for the respondents argued that when the parties had agreed upon the procedure for appointing an arbitrator or arbitrators, an independent arbitrator cannot be appointed by this court and this court has only to enforce the procedure laid down in the agreement unless the agreement provides for any other means for securing the appointment. It would be relevant to consider sub-ss. 1 to 6 to S. 11 which deal with the appointment of arbitrators. S. 11 reads:
"Appointment of arbitrators.-(J)A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
(2) Subject to sub-s. (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
(3) Failing any agreement referred to in sub-s. (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall ad as the presiding arbitrator.
(4) If the appointment procedure in sub-s. (3) applies and-
(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or
(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment.
The appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.
(5) Failing any agreement referred to in sub-s. (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitration within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the .Chief Justice Or any person or institution designated by him.
(6) Where, under an appointment procedure agreed upon by the parties,-
(a) a party fails to ad as required under that procedure; or
(b) the parties, or the two appointed arbitrators fail to reach an agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment."
The above sub-sections of S.11 would show that several contingencies in the matter of appointment of arbitrator had been contemplated. Under sub-s. 2 of S.11, the parties are free to agree on a procedure for appointing an arbitrator or arbitrators. It is sub-s. (6) which applies to cases where an agreed procedure is contemplated in the agreement whereas sub-ss. 3, 4 and 5 would apply in the case where a procedure had not been agreed upon between the parties regarding arbitration. Sub-s. 3 and 4 of S. 11 would cover contingencies where there are more than one arbitrators to be appointed whereas sub-s. 5 covers the appointment of a sole arbitrator and on a notice being given by one of the parties and the other party failing to make appointments. In such cases, the appointments have to be made by the Chief Justice or by any person designated by him. But in the case where the procedure for appointing an arbitrator had been agreed upon by the parties, the Chief Justice has to take "necessary measure" for "securing the appointment" in accordance with the terms of the arbitration agreement. The learned counsel for the respondents placed reliance on a decision of the Madhya Pradesh High Court in Subhash Projects and Marketing Ltd. v. Southern Coalfield Ltd. (1998 (Suppl.) Arb.L.R. 357) : There it was held:
"As has been noticed above, under sub-s. (6) where the agreement lays down a procedure for appointment of arbitrator referable to sub-s. (2), the Chief Justice has merely to take necessary measures for enforcing the procedure laid down in the agreement for arbitration. Under sub-s. (6), the Chief Justice or his designate has not to make any appointment but to enforce or compel the party to make the appointment in accordance with the agreed procedure."
The learned counsel for the petitioner placed reliance on decisions of the Andhra Pradesh, Bombay and Delhi High Courts, wherein a contrary view had been taken by the above Courts. The Andhra Pradesh High Court in Deepak Galvanising & Engg. Industries P. Ltd. v. Government of India (1997 (Suppl.) Arb. LR 635), Delhi High Court in Continental Construction Ltd. v. N.H.P.C. Ltd. (1998 (1) Arb. LR 534) and Bombay High Court in R.P. Souza & Co. by its partners v. The Chief Engineer, P. W.D. (1999 (3) Arb. LR 495 (Bombay) took a contrary view. There it was held that this Court has to appoint an independent arbitrator when the opposite party has failed to appoint the named arbitrator in accordance with the agreement between the parties, as the opposite party should be deemed to have abdicated their authority and forfeited their right to appoint the arbitrator as per the arbitration clause and thereby the Court was entitled to appoint an independent Arbitrator of its choice to decide the disputes between the parties. I respectively disagree with the above approach taken by the above High Courts and I am included to accept the approach made by the learned Judge of the Madhya Pradesh High Court. Sub-ss. (4) and (5) authorises the Chief Justice to appoint an arbitrator whereas the wording in sub-s. (6) is different where the Chief Justice has to take necessary measures for securing the appointment. The difference in the language used in the above sub-section would reveal the difference in the approach to be made by the Chief Justice in the appointment of the arbitrator. The Supreme Court in Konkan Railway Corpn. Ltd. v. Mehul Construction Co. (2000) 7 Supreme Court Cases 201) had considered the nature of the order passed by the Chief Justice regarding appointment of an arbitrator and held that the appointment is of administrative nature. While considering the above aspect, the Supreme Court in para 5 of this judgment held:
".....While sub-ss. (4) and (5) deal with removal of obstacles arising in the absence of agreement between the parties on a procedure for appointing the arbitrator or arbitrators, sub-s. (6) seeks to remove obstacles arising when there is an agreement appointment procedure. These obstacles are identified in clauses (a), (b) and (c) of sub-s. (6). Sub-s. (6) provides a cure to these problems by permitting the aggrieved party to request the Chief Justice or any person or institution designated by him to take the necessary measure i.e., to make the appointment, unless the agreement on the appointment procedure provides other means for securing the appointment. Sub-s. (6), therefore, aims at removing any deadlock or undue delay in the appointment process. This being the position, it is reasonable to hold that while discharging the functions under sub-s. (6), the Chief Justice or his nominee will be acting in his administrative capacity and such an construction would subserve the very object of the new arbitration law."
The above observation of the Supreme Court also would reveal the difference between the nature of appointment under sub-ss. 3, 4, 5 and 6. In fact, the nature of the order of appointment differs in the case where there is no procedure agreed upon between the parties and when the procedure had been agreed upon, between the parties for appointment of the arbitrator, this court has only to implement the above procedure and there is no scope for appointing an independent arbitrator at the first instance. Hence this court cannot appoint an independent arbitrator as prayed for; but has only to implement the procedure agreed upon between the parties regarding the arbitration. Thus a direction has to be issued to implement the procedure for appointment as contemplated under Clause 64 of the agreement. As the dispute was in respect of amounts less than 5 lakhs, a sole arbitrator has to be appointed in view of Clause 64(3)(a)(1) of the General Conditions of the Contract.
In the result the request for appointing an independent arbitrator is rejected. But there shall be a direction to the 1st respondent to appoint an arbitrator to resolve all the disputes raised by the applicant. Two months time is granted for the above purpose. If the 1st respondent fails to appoint the arbitrator within such period, it would be open to the petitioner to seek further orders from this Court for appointment of an arbitrator. The arbitrator has to complete the work and pass an award within a period of 3 months from the date of his appointment.