Andhra HC (Pre-Telangana)
Y. Parthasarathy, A Registered ... vs General Manager, Railway ... on 18 March, 1997
Equivalent citations: 1997(2)ALT307
JUDGMENT M.N. Rao, J.
1. By this application filed under Section 11(5) of the Arbitration and Conciliation Act, 1996 (for short "the New Act"), the petitioner, a registered partnership firm represented by its Managing Director, is praying for appointment of a sole arbitrator by the Hon'ble the Chief Justice or any other person or institution designated by the Hon'ble the Chief Justice. In compliance with the direction issued by the Hon'ble the Chief Justice, the matter was listed before me.
2. The claims in respect of which arbitration is sought are of the value of Rs. 1,16,18,336/-.
3. By an agreement dated 7-10-1991 concluded between the General Manager, Railway Electrification Central Organisation, Allahabad and the petitioner, construction of Electric Loco Shed and its ancillary works in Lalaguda, Secunderabad, was entrusted to the petitioner and the work was required to be completed within two years - from 3-6-1991 to 2-6-1993. The estimated value of the contract was Rs. 2,45,11,415-45. It is stated that subsequently, from time to time, certain additional works also were entrusted to the petitioner and the total value of the works entrusted to the petitioner was Rs. 3,45,11,415-45. The petitioner made certain claims on 6-4-1993 seeking compensation for the loss allegedly sustained because of certain lapses on the part of the Railway administration and enhancement of rates was also sought. From the Railways' side, the response was unilateral termination of the contract on 23-7-1993. The petitioner claimed to have executed works of the value of Rs. 76.98 lakhs by 2-8-1993 and by a letter dated 27-1-1994, the petitioner sought settlement of the claims. Since the claim was not acceded to, a legal notice was got issued on 10-6-1994 by the petitioner for which a reply was given on 20-6-1994 by the Central Organisation, Railway Electrification, Allahabad, informing the petitioner:
"The claims preferred under your letter referred above have been examined by the competent authority and it is found that in view of GCC and other conditions of contract agreement, none of the claims is fit for reference to Arbitrator."
By a legal notice dated 12-10-1994, the petitioner called upon the General Manager, Central Organisation, Railway Electrification, Allahabad (the first respondent) to refer the dispute to arbitration. A reply notice was sent on 20th October, 1994/2nd November, 1994 informing the petitioner that a reply in this behalf was already communicated on 20-6-1994.
4. A suit - O.S. No. 44 of 1995 - was laid on 27-12-1994 by the petitioner in the Court of the III Additional Judge, City Civil Court, Hyderabad under Sub-sections (3) & (5) of Section 20 of the Arbitration Act, 1940 for appointment of an arbitrator and reference of the matter to such arbitrator. Notice was issued to the respondent. Although the notice was received by the respondents, no written statement was filed by 18-12-1996 on which date, the suit was withdrawn by the petitioner.
5. This application was resisted by the respondents contending that since the arbitral proceedings had already commenced under the Arbitration Act, 1940 (for short "the old Act"), the present application is not maintainable.
6. Section 85 of the New Act deals with repeal and savings. By Sub-section (1) of Section 85 of the New Act, the old Act of 1940 and two other enactments have been repealed. Sub-section (2) says:
"(2) Notwithstanding such repeal
(a) The provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force;
(b) ............"
From a reading of the above provision, it is clear that if the arbitral proceedings had not commenced under the old Act, there is no bar for invoking the provisions under the New Act. The question for consideration, therefore, is: Whether arbitral proceedings under the Old Act had commenced?
7. The suit O.S. No. 44 of 1995 filed under Sub-secs.(3) and (5) of Section 20 of the old Act, as already stated, was withdrawn on 18-12-1996 by the petitioner. By the date of the withdrawal, no written statement was filed although the respondents had received notice. The Kerala High Court in Baby Paul v. Hindustan Paper Corporation, dealing with a similar aspect has expressed the view:
"........for arbitration begins and arbitration proceedings commence only on the arbitrator getting authority to act. An arbitrator's authority to act arises by actual submission of particular dispute or disputes to the authority of a particular arbitrator by the parties, or by one of the parties to an arbitration agreement requesting the arbitrator appointed by the arbitration agreement itself or subsequent thereto to enter upon the reference in respect of particular dispute or disputes, or by the Court making an order of reference to the arbitrator as contemplated by Section 20 of the Act or where the Court by order refers the matter or matters in difference to the arbitrator as provided for in Chap.IV of the Act."
After examining the scope of Section 37(3) of the old Act, the Court held:
"The provision in Section 37(3) for the purposes of limitation, by a fiction pushes back the date of commencement of arbitration to a date anterior to when the arbitrator derives his authority to act, namely, when one of the parties to the arbitration agreement serves on the other or others a notice requiring the appointment of an arbitrator, or where an arbitrator has already been nominated, requiring that the dispute be submitted to that person."
8. The Supreme Court in Secretary, Govt. of Orissa v. Sarbeswar Rout, dealing with the aspect as to when it could be said that arbitral proceedings had commenced, laid down the rule:
"As soon as the arbitrator indicates his willingness to act as such, the proceeding must be held to have commenced."
In view of the categorical pronouncement of the legal position by the Supreme Court in the aforesaid case, I am unable to agree with the contention advanced by Sri T. Ramakrishna Rao, for the respondents, that the date of service of notice requesting for appointment of an arbitrator shall be deemed to be the point at which the arbitral proceedings have commenced.
9. Section 21 of the New Act lays down that unless and otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. This provision must be interpreted, in my view, with reference to the actions that may arise under the New Act. As to the stage when the arbitral proceedings under the old Act had commenced, no support could be derived from the provisions of Section 21 of the New Act. I, therefore, hold that the arbitral proceedings under the old Act in the present case had not commenced since even before the written statement was filed in the suit, the same was withdrawn.
10. One other objection raised for the respondents is that the petitioner has not asked for appointment of an arbitrator under Sub-section (2) of Section 11 of the New Act and, therefore, the present application filed under Sub-section (5) of Section 11 is not sustainable. I do not agree. The request for appointment of an arbitrator was already rejected by the respondents as far back as 20-6-1994, as already stated supra. It is, therefore, futile on the part of the petitioner to make yet another request under Sub-section (2) of Section 11 of the New Act seeking appointment of an arbitrator.
11. A third objection sought to be pressed into service for the respondents is that certain matters under Clause 63 of the Standard General Conditions of Contract are outside the purview of arbitration and, therefore, it is not open to the petitioner to seek arbitration in respect of the excluded matters. This contention, in my opinion, is misconceived. What are the nature of the claims put forward and whether really they are covered by the excluded matters adverted to in Clause 63 of the Standard General Conditions of Contract are matters for consideration and decision by the arbitrator. This Court at this stage cannot embark upon an enquiry into these aspects.
12. For the foregoing reasons, this application is allowed. Hon'ble Sri Justice Koka Ramachander Rao, former Chief Justice of this Court is appointed as the arbitrator, and his remuneration is fixed at Rs. 1 lakh tentatively. The arbitration shall be confined to the claims made by the petitioner in Letter dated 27-1-1994 in No.YP/RE/ECS/174/94. No costs.