M/S Khubi Construction Co vs M/S Arss Infrastructureprojects Ltd ... on 21 April, 2017

[Cites 12, Cited by 0]

Rajasthan High Court - Jaipur

M/S Khubi Construction Co vs M/S Arss Infrastructureprojects Ltd ... on 21 April, 2017

----Respondents _____________________________________________________ For Petitioner(s) : Mr. Narendra Singh Yadav For Respondent(s) : Mr. V.B. Srivastava _____________________________________________________ HON'BLE MR. JUSTICE MOHAMMAD RAFIQ Order //Reportable// 21/04/2017 This application under Section 11(6) of the Arbitration & Conciliation Act, 1996, has been filed by applicant - M/s. Khubi Construction Company, praying for appointment of an independent arbitrator for resolving its dispute with respondent no.1 M/s. ARSS Infrastructure Projects Limited, in regard to construction of BRTS Corridor and Development of Road (package IB-C Zone Bye Pas to Panipech via Sikar Road) under Jaipur Development Authority, Jaipur. The sub contract agreement was executed between the (2 of 15) [ARBAP-35/2011] parties on 25.11.2007, which was modified on 04.08.2008 and thereafter supplementary agreement was executed on 19.02.2009, with regard to settlement of account between the parties till that date regarding the work performed in BRTS-I Phase. In the modified sub contract agreement dated 04.08.2008, Clause 11 was inserted, which deals with the procedure for resolving the dispute for further works and provides that any dispute arising out of the sub contract agreement between either of the parties thereto shall be referred to sole arbitrator to be decided by the Chairman of ARSS Infrastructure Projects Limited, "who will be mutually agreed by both parties", and that no civil court can entertain any dispute, so arising as per provisions of the Arbitration and Conciliation Act, 1996, and further that the decision of the sole arbitrator shall be final and binding on both the parties. As noted above, final settlement was arrived at between the two parties on 19.02.2009 at Jaipur and supplementary agreement was executed between them at Jaipur, whereby all accounts between them were settled till that date regarding the work performed in BRTS-I Phase. However, it was agreed that a part work of Road/Bituminous work of BRTS-II will be given to the applicant to enable them to make payment of costs of Bitumen supplied to them and yet to be recovered.

Service on respondents no.1 and 2 having been affected, they have filed reply to the application through their counsel. Service on respondent no.3 has been substituted by publication of notice in daily newspaper 'Times of India' (Bhubneshwar edition) dated 23.11.2016.

(3 of 15) [ARBAP-35/2011] Mr. Narendra Singh Yadav, learned counsel for applicant, submitted that the respondents no.1 and 2 agreed to return the Cheque No.069068, which was kept with them as security, vide agreement dated 04.08.2008, but for no valid reasons and for their ulterior motive only to harass the applicant, they did not return the Cheque and unauthorizedly submitted the same with their banker and on its return unpaid, they initiated the proceedings under Section 138 of the Negotiable Instruments Act against the applicant. The respondents issued a notice to the applicant on 04.11.2010 for payment of amount arising out of sub contract, which is totally without any basis. The applicant sent a reply to the said notice to them on 04.12.2010. Even though the respondent by their notice dated 04.11.2010 expressed the intention to appoint arbitrator as per Clause 11, supra, of the modified sub contract agreement dated 04.08.2008, but the applicant in their reply not only denied the facts alleged in the notice dated 04.11.2010 but also suggested the name of three retired Judges of this Court and required the respondent to accept name of anyone of them for appointment, as arbitrator to conduct the arbitral proceedings at Jaipur. Respondents failed to consent any one of the three names proposed by the applicant and failed to suggest any alternative name to solicit consent of the appointment. In view of Section 11(4) and (6) of the Arbitration and Conciliation Act, 1996, the respondent forfeited the right to appoint the arbitrator. The respondent no.1, however, in contravention of the provisions of arbitration clause and the Arbitration and Conciliation Act, 1996, forwarded the matter to (4 of 15) [ARBAP-35/2011] respondent no.2 vide letter dated 03.12.2010. The applicant sent a letter on 21.12.2010 to the respondent claiming Rs.2,80,87,007.97 and suggested to appoint a committee of arbitrators, with each party nominating one member. It was suggested that the arbitrator nominated by the respondent and arbitrator nominated by the applicant can jointly decide the dispute. The respondent did not pay any heed to the aforesaid letter. Respondent no.2 without seeking consent of the applicant, straightaway appointed respondent no.3 Justice B. Panigrihi (former Judge), as sole arbitrator to function at Cuttack in the State of Orissa. The letter of appointment of arbitrator dated 09.03.2011 has been placed on record of the application. The applicant then sent his objections regarding appointment of respondent no.3 as sole arbitrator by letter dated 21.03.2011.

Mr. Narendra Singh Yadav, learned counsel argued that the territorial jurisdiction for adjudication of any dispute arising out of the said agreement lies exclusively within jurisdiction of this court as the entire work was executed at Jaipur and all the agreements were also executed at Jaipur alone. No part of the cause of action has arisen elsewhere, either at Bhubneshwar or Cuttak. Appointment of respondent no.3 as sole arbitrator is therefore non-est and is to be treated failure of respondent to appoint the arbitrator as per the agreed procedure within the stipulated time. The respondent no.3 issued a notice to the applicant for proceedings to be held on 16.04.2011 at Cuttack. The applicant sent his objections to the notice to respondent no.3 vide letter dated 01.04.2011. As per Sections 8 and 11 of the Arbitration and (5 of 15) [ARBAP-35/2011] Conciliation Act, 1996, read with the Clause 11 of the agreement as also Sections 20 and 21 of the Civil Procedure Code, entire act of the respondents is illegal. Appointment of arbitrator having been made contrary to the provisions of law should be treated illegal. It is argued that as per Clause 11 of the agreement, the consent of the applicant is very essence of the clause. Since the respondent, while appointing respondent no.3 as arbitrator at Cuttack, did not seek the consent of the applicant, the appointment of respondent no.3 is liable to be ignored.

Per contra, Mr. V.B. Srivastava, learned counsel for respondents no.1 and 2, opposed the application and submitted that the respondents served notice dated 04.11.2010 on the petitioner calling upon them to make payment of Rs.4,79,82,991/- within reasonable time, failing which the said notice was to be treated notice for referring the matter for arbitration. The applicant instead of either making payment or consenting to send the matter for arbitration, sent reply to the said notice on 04.12.2010 proposing names of three retired Judges of this court, and requiring the respondent to select anyone of them for appointment of sole arbitrator. It was in these circumstances that the respondent company had no option except to invoke Clause 11 of the modified sub contract agreement, and appointed respondent no.3 as sole arbitrator. It is submitted that the sole arbitrator has already entered into reference and sent a letter to both the parties for their appearance and for further consideration of notice dated 22.03.2011. The applicant without entering the matter, sent a reply dated 01.04.2011 objecting to the (6 of 15) [ARBAP-35/2011] proceedings of the sole arbitrator on the premise that they have never consented to his appointment and also raised objection with regard to jurisdiction and averred that since the cause of action has arisen in the State of Rajasthan, the jurisdiction would lie only with the courts at Jaipur.

Learned counsel referred to the detailed order passed by the sole arbitrator dated 16.04.2011 and submitted that the learned arbitrator, relying on the judgment of the Supreme Court in Datar Switch Gears Ltd. Vs. TATA Finance Limited - (2000) 8 SCC 151, observed that since the applicant, despite notice of the respondent dated 04.11.2010, failed to consent for appointment of sole arbitrator and rather sent a counter reply dated 04.12.2010 proposing name of three retired Judges of this court and requiring the respondent to agree to appointment of anyone of them as the sole arbitrator. As per the law laid down by the Supreme Court therein, if the applicant failed to act on the notice dated 03.11.2010 within 30 days, the respondents no.1 and 2 would be fully justified in appointing respondent no.3 as sole arbitrator by order dated 09.03.2011 issued by the Chairman of respondent no.1. The respondents no.1 and 2 would have forfeited the right to appoint the arbitrator only if they failed to act within 30 days of the notice received from the applicant with the only exception that forfeiture would not come into effect if the appointment of arbitrator was made before the applicant filed the application under Section 11 of the Arbitration and Conciliation Act. Since the sole arbitrator was appointed on 09.03.2011 by the respondent and the present application was filed on 20.04.2011, (7 of 15) [ARBAP-35/2011] the right of the applicant either to make appointment of arbitrator or to file present application under Section 11 of the Arbitration and Conciliation Act, 1996, stood forfeited. Even then, the learned counsel submitted that this question and the question of territorial jurisdiction could be agitated by the applicant before the sole arbitrator with reference to Section 16 of the Arbitration and Conciliation Act, 1996. Learned counsel in this connection has produced the proceedings drawn by the sole arbitrator dated 16.04.2011 in which it has been observed that the applicant could appear before the arbitrator and raise such argument by filing objection under Section 16 of the Arbitration and Conciliation Act, 1996, or any other provision as deemed proper. As regards the objection of territorial jurisdiction, learned arbitrator observed that the parties are free to choose the sitting of arbitrator. After appearance of both the parties, they can choose the place of sitting. In absence of any particular place by agreement, it would be open to the arbitrator to fix the place of sitting looking to the convenience of the parties.

On consideration of rival submissions and perusal of the material on record, it is noted that Clause 11 of the sub contract agreement dated 04.08.2008, is the arbitration clause between the parties, which provides for reference of dispute arising between the parties to the sole arbitrator to be decided by the Chairman of respondent no.1, but this has been further qualified by the terms that such arbitrator shall be mutually agreed by both the parties. Indisputably, the applicant never consented for appointment of respondent no.3 as the sole arbitrator and in fact (8 of 15) [ARBAP-35/2011] his name was never proposed by the respondent to the applicant in their initial notice dated 04.11.2010 or at any point of time thereafter, before nominating him as such. All that what was stated in the notice was that the aforesaid sub-contract agreement at Clause 11 provides the dispute resolution mechanism through arbitration and that in the event the applicant did not make the payment of the demanded sum within the stipulated time, the respondent would be constrained to hold that applicant are disputing its entitlement to receive the demanded sum and in that event the applicant should treat the letter dated 04.11.2010 as notice under Section 21 of the Arbitration and Conciliation Act, 1996 and on the failure of the applicant, the respondent would reserve its right to take necessary step for realization of the demanded sum along-with interest.

In order to best appreciate the relevant arbitration clause and the notice dated 04.11.2010, it is deemed appropriate to reproduce Clause 11 or the sub contract agreement, and last para of the notice, which respectively read as follow:-

"11. Resolution of Disputes Any dispute arising out of this "Sub Contract Agreement"

or between either of the parties of this "Sub Contract Agreement" shall be referred to sole Arbitrator to be decided by Chairman of ARSS Infrastructure Projects Ltd who will be mutually agreed by both Parties. NO Civil Court can entertain any dispute so arising as per provisions of Arbitration and Conciliation Act, 1996. The decision of the sole Arbitrator so nominated shall be final and binding on both the parties."

Last para of notice/letter dated 04.11.2010:-

"That please take note that the aforesaid sub-contract agreement at Clause 11 provides the dispute resolution mechanism through arbitration. In the event you did not make the payment of the aforesaid sum within the (9 of 15) [ARBAP-35/2011] stipulated time, we will be constrained to hold that you are disputing the entitlement of our company to receive the aforesaid sum as such the same will be a dispute arising out of the sub-contract agreement and in that even you are requested to treat this notice U/s.21 of the Arbitration and Conciliation Act, 1996 and on your failure our company reserves its right to take necessary step for realization of the aforesaid sum along with interest at market rate from the day the amount due till the date of actual amount."

A bare reading of the aforenoted extract of the notice clearly shows that the respondent neither directly offered to appoint anyone as arbitrator, nor suggested the name of respondent no.3 or any other person, for being appointed as sole arbitrator, to solicit the consent of the applicant for his appointment as such. The said letter can be therefore taken as the notice for proposing to appoint anyone as sole arbitrator and seeking consent of the applicant thereabout to satisfy the requirement of Clause 11, supra, viz. sole Arbitrator to be decided by the Chairman of ARSS Infrastructure Projects Limited, who will be mutually agreed by both the parties. It is in this context that the applicant sent a specific notice under Clause 11 of the Agreement to the President & CEO of the respondent company on 04.12.2010, refuting claim of the respondent and proposing names of three retired Judges of this court and soliciting the consent of the respondent for anyone of them within 15 days thereof, failing which, the notice stated, the applicant would be free to avail the remedy as per law. However, despite receiving said notice dated 04.12.2010, the respondent failed to appoint arbitrator within 30 days of the notice in accordance with the stipulation contained in the arbitration clause and therefore on expiry of 30 days, as per Section 11(6) of (10 of 15) [ARBAP-35/2011] the Arbitration and Conciliation Act, 1996, the right of the respondent to appoint sole arbitrator stood forfeited. The respondent however straightway appointed respondent no.3 Justice B. Panigrihi, as the sole arbitrator by order dated 09.10.2011 more than two months after the demand/notice by the applicant. Admittedly his appointment was made without either proposing the name to the applicant or soliciting their consent.

Adverting now to the question of territorial jurisdiction, the sub contract agreement in the present case was executed between the parties at Jaipur on 25.11.2007 and thereafter modified sub- contract agreement, in continuation thereof, was also executed on 04.08.2008 at Jaipur. Clause 11 with regard to resolution of disputes by arbitration was inserted therein. Both the agreements were notarized at Jaipur. The work pertaining to execution of construction of BRTS Corridor and development of Road (Package IB-C Zone Byepass to Panipech via Sikar Road) under the Jaipur Development Authority, Jaipur, Rajasthan, was also executed at Jaipur. This work was virtually awarded to the respondent, who executed the sub-contract agreement in favour of the applicant. There is no clause in the sub-contract agreement or the modified agreement, conferring exclusive jurisdiction upon the court at Cuttack or Bhubneshwar.

The contention that the appointment of arbitrator made by the respondent prior to filing of application under Section 11 of the Arbitration and Conciliation Act, 1996, is liable to be saved in view of what has been held by the Supreme Court in Datar Switchgears Limited, supra, cannot be accepted because what this court is (11 of 15) [ARBAP-35/2011] called upon to decide is whether the unilateral appointment of respondent no.3, as sole arbitrator, made by the respondent no.1 is in accordance with the agreed procedure agreed upon between the parties. This question came up for consideration before the Supreme Court in Water Bau AG Vs. Municipal Corporation of Greater Mumbai & Another - (2015) 3 SCC 800, wherein appointment of arbitrator was made by one party contrary to procedure agreed upon in the arbitration agreement. The contract agreement provided for appointment of one arbitrator by each party and further provided that on failure of one of the parties to do so within 30 days, the International Centre for Alternative Dispute Resolution in India, shall appoint arbitrator, on failure by the respondent to appoint its arbitrator or choose one from amongst panel of three arbitrators. Pursuant to said communication, the respondent appointed its arbitrator. It was held by the Supreme Court that option given to respondent to go beyond panel submitted by the ICADR and to appoint any person of its choice was not the procedure agreed upon between the parties, which contemplated appointment of arbitrator by second party within 30 days from receipt of notice from the first party and on failure to do so, appointment of arbitrator by ICADR. However, the Rules of ICADR also did not contemplate any alternative procedure giving respondent liberty to appoint arbitrator of its choice. Once it has failed to appoint its arbitrator within agreed upon the period of 30 days, the appointment of arbitrator of its choice made by respondent was held contrary to the provisions of the Rules governed by the Rules for appointment of arbitrator by (12 of 15) [ARBAP-35/2011] ICADR, which the parties had agreed to abide by. Intention that as arbitrator was already appointed prior to filing of the application, the said appointment is not liable to be interfered with in view of the decision of the Supreme Court in Datar Switchgears Ltd. Vs. Tata Finance Ltd. and Another - (2000) 8 SCC 151, was rejected since that decision only gives flexibility in time agreed upon by both the parties, but does not save such appointment of arbitrator. Appointment of arbitrator by respondent was held invalid and therefore would not debar the appointment of arbitrator on behalf of the respondent in exercise of powers under Section 11(6) of the Arbitration and Conciliation Act, 1996.

In Dakshin Shelters Private Limited Vs. Geeta S. Johari

- (2012) 5 SCC 152, the Supreme Court held that once the respondent fails to appoint arbitrator within 30 days or time stipulated under agreement, the right of party to appoint arbitrator under arbitration agreement stood extinguished. In that case, Clause 25 providing for appointment of arbitrator by each party and third arbitrator was to abide by both the arbitrators so appointed. While the respondent appointed arbitrator from its side issuing notice to the petitioner to appoint arbitrator on its behalf. The petitioner declining to appoint arbitrator on the ground that there was no question of appointment of arbitrator by either of the parties and there being no arbitral dispute, there was no occasion for resolution of dispute as provided in development agreement. The respondent moved the High Court for appointment of arbitrator. It was held that the petitioner declined to appoint its arbitrator as provided in the arbitration agreement tantamount to (13 of 15) [ARBAP-35/2011] failure on its part to appoint arbitrator on receipt of notice. Plea that the Designate Judge ought to have provided an opportunity to the petitioner to nominate its arbitrator, is devoid of merit since once the application for appointment of arbitrator before the Chief Justice or his designate is filed, the party looses its right to appoint arbitrator.

The contention that the applicant can appear before the sole arbitrator nominated by the respondents no.1 and 2 and raise the objection with regard to his jurisdiction in view of Section 16 of the Arbitration and Conciliation Act, 1996, is noted to be rejected for the simple reason that giving such a liberty to the applicant cannot in any manner validate the appointment of respondent no.3 as a sole arbitrator. The communication dated 03.12.2010 sent by the respondent to the applicant cannot be taken as complete invocation of Clause 11 of the modified sub contract agreement. Even though the respondent stated therein that if the applicant fails to pay the demanded sum, it should treat communication as notice under Section 21 of the Arbitration and Conciliation Act, 1996, for referring the dispute for arbitration but the respondent did not simultaneously propose the name of any of the arbitrator therein so as to require the applicant to give his consent for his appointment or offer any other alternative mean. The notice served by the respondent on the applicant thus cannot be taken as complete notice in the spirit of Clause 11 of the said modified sub-contract agreement as the respondent failed to propose, as was the requirement thereof, that the sole Arbitrator to be decided by the Chairman of ARSS Infrastructure Projects (14 of 15) [ARBAP-35/2011] Limited, "who will be mutually agreed by both the parties." On the contrary, the applicant, in its reply to the notice dated 04.12.2010, categorically refuted the claim of the respondent and invoked the arbitration clause aforesaid calling upon the respondent to agree for anyone of three retired Judges, whose names were mentioned therein and also stated that not only the contract was executed at Jaipur but entire work was executed at Jaipur and therefore the adjudication of arbitrator has to also take place at Jaipur. In these facts, the applicant cannot be compelled to submit to the jurisdiction of respondent no.3 unilaterally nominated by the respondents no.1 and 2 without its consent. The respondents no.1 and 2 neither gave response to notice consenting to anyone of the three names proposed by the applicant or suggested any alternative name including that of respondent no.3. The respondent rather unilaterally appointed respondent no.3 by letter dated 09.03.2011. In these circumstances, the applicant was left with no choice but to file the present application before this court under Section 11(6) of the Arbitration and Conciliation Act, 1996 on 20.04.2011. This application remained pending for quite sometime for service on the respondents, which was taken as complete on 01.12.2016, when the copy of daily newspaper 'Times of India' (Bhubneshwar edition), was produced showing publication of notice for service on respondent no.3 on 23.11.2016.

In view of the above, present application deserves to succeed and the same is allowed. Hon'ble Mr. Justice N.L. Tibrewal (Retired), R/o Plot No.1, Scheme No.8, (Near Mahadeo (15 of 15) [ARBAP-35/2011] Nagar), Gandhi Path, Queens Road, Jaipur (Cell Number 9414056192), is hereby appointed as an independent sole arbitrator to resolve the disputes between the parties. Payment of the costs of arbitration proceedings and the arbitration fees shall be made as per the Fourth Schedule of the Arbitration and Conciliation (Amendment) Act, 2015 read with Manual of Procedure for Alternative Dispute Resolution, 2009 of this Court, as amended from time to time.

A copy of this order be sent to Hon'ble Mr. Justice N.L. Tibrewal (Retired), R/o Plot No.1, Scheme No.8, (Near Mahadeo Nagar), Gandhi Path, Queens Road, Jaipur (Cell Number 9414056192).

(MOHAMMAD RAFIQ) J.

//Jaiman//

Unlock Advanced Research with PRISMAI

Rajasthan High Court - Jaipur