Punjab-Haryana High Court
Kurali Toll Bridge Co.Pvt. Ltd vs State Of Punjab And Others on 12 August, 2009
Author: T.S.Thakur
Bench: T.S.Thakur
IN THE HIGH COURT OF PUNJAB & HARYANA AT
CHANDIGARH
Date of decision: August 12, 2009
Arbitration Case No.51 of 2008
Kurali Toll Bridge Co.Pvt. Ltd. ...Petitioner
Versus
State of Punjab and others ...Respondents
*-*-* CORAM: HON'BLE MR. JUSTICE T.S.THAKUR, CHIEF JUSTICE Present: Mr. P.S.Rana, Advocate, for the petitioner.
Mr. Rupinder Khosla, Additional Advocate General, Punjab Mr.Ashwinie Kumar Bansal, Standing Counsel for Union of India T.S.THAKUR, CHIEF JUSTICE Construction of a Railway Over Bridge at level crossing No.32-B Kurali on Sirhind Nangal Dam Section of Northern Railway Crossing, Chandigarh Ropar Road (National Highway-21) was advertised for inviting tenders from eligible Contractors way back in the year 1998. The petitioner-Company also responded and emerged as the lowest bidder resulting in the issue of a letter of allotment in its favour on 19.11.2003. It is not in dispute that a formal agreement was executed between the parties, which inter alia provided for settlement of disputes and differences between the parties by way of Arbitration. Condition No.8 of the general Arbitration Case No.51 of 2008 2 conditions of the contract insofar as it is relevant for our purposes may be extracted at this stage:-
"8.1 In case of any dispute arising at anytime between any of the parties to the contract, the same shall be settled under the provisions of Arbitration and Conciliation Act, 1996. Such dispute shall be referred to arbitration consisting a panel of 3 arbitrators out of which one will be appointed by GOP, one by the Entrepreneur and the third by GOI who will act as Presiding Officer of the Arbitral Tribunal. Majority decision shall prevail. The award given by the Arbitral Tribunal shall be final and binding on the parties. The place of arbitration shall be Chandigarh. The arbitration proceedings shall be held at Chandigarh and any dispute arising out of this agreement shall be subject to Chandigarh Court's jurisdiction."
Several disputes in due course arose between the parties in connection with the contract aforementioned. The petitioner- Company enumerated those disputes in a notice dated 12.12.2007 and made claims in connection therewith. The notice inter alia called upon the respondents to extend the construction period by 684 days beyond 18.10.2012 and pay the amounts claimed in the notice, failing which adjudication of the claims by arbitration under the Arbitration and Conciliation Act, 1996 was indicated. Since the petitioner- Company does not appear to have received a favourable response to the notice, another notice dated 29.2.2008, was sent by which Company appointed Hon'ble Mr. Justice G.C.Mital, former Chief Arbitration Case No.51 of 2008 3 Justice of High Court of Rajasthan as its nominee Arbitrator and called upon the respondents to nominate their Arbitrator within a period of thirty days from the date of receipt of the notice. The petitioner's case is that despite the receipt of the said notice and expiry of the stipulated period of thirty days, the respondents have not nominated their Arbitrator leaving no option for the petitioner but to file the present petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 ( for short `the Act').
In response to the notice issued by this Court, the State of Punjab has filed a reply on the affidavit of Shri J.S.Sandhu, Chief Engineer (National Highway), Punjab, inter alia stating that the Government of Punjab have by an order dated 23.4.2008 nominated Shri Amrit Inder Singh, Chief Engineer (NH) Punjab Public Works Department, Patiala as the State's nominee Arbitrator. In para 5 of the said affidavit, it is further stated that there is some delay in the appointment of the Arbitrator but the same was unintentional having been caused due to lengthy office procedures.
As regards the Government of India, who had to appoint the Presiding Arbitrator in terms of Arbitration Clause extracted above, a nomination has been made by an order dated 28.4.2008 whereunder Shri V.Velayutham, DG (RD) retired has been appointed as the Presiding Arbitrator on behalf of the Ministry of Shipping Road Transport and Highways.
The petitioner-Company has filed a rejoinder to the objections filed by the respondents inter alia asserting that since the Government of Punjab had failed to appoint an Arbitrator within the stipulated period of thirty days and till the filing of the present petition Arbitration Case No.51 of 2008 4 in which notice was issued and accepted by the respondents on 7.4.2008 itself, the right to nominate an Arbitrator stood forfeited. The appointment made by the Government of Punjab is in that view without any legal effect. The assertion that the Arbitral Tribunal stands duly constituted to settle the disputes that have arisen between the parties has also been denied. It is alleged that the appointment of a Presiding Arbitrator can in terms of Section 11 of the Act be made only by two nominee Arbitrators and not by any third agency. Any agreement providing for any such nomination by anyone other than the two nominee Arbitrators would be contrary to the provisions of the Act and unenforceable in law.
When the petition came up for hearing before me on 13.2.2009, learned counsel for the petitioner-Company submitted that the petitioner-Company was ready and willing to a reference being made to a former Chief Justice of India as a sole Arbitrator instead of the matter being referred to an Arbitral Tribunal comprising three Arbitrators. This would, according to the learned counsel for the petitioner, avoid not only delay in the disposal of the matter and constituting an Arbitral Tribunal but would also save expense. M/s Amol Rattan Singh and Ashwinie Kumar Bansal had, however, sought time to take instructions whether the respondents were also agreeable to a reference being made to a sole Arbitrator.
On 17.7.2009 when the matter came up again, Mr.Rupinder Khosla, learned counsel appearing for the State of Punjab, submitted that since the Government had already made a nomination, no matter beyond the period permitted for the same and after the filing of the present petition, the Arbitral Tribunal so Arbitration Case No.51 of 2008 5 constituted could be allowed to proceed with the adjudication of the disputes.
Mr.Bansal, appearing for the Government of India, however, placed on record a letter addressed to him by the Superintending Engineer, Ministry of Shipping, Road Transport and Highways, enclosing therewith a list of empanelled DRE/DRB Member/Arbitrator for consideration of this Court. He submitted that the Government of India had no objection in case a Presiding Arbitrator was appointed by this Court from out of the Arbitrators empanelled in the said list. It is thus evident that both M/s Khosla and Bansal were not willing to make any statement whether the respondents were agreeable to a reference being made to a sole Arbitrator of eminence and impeccable integrity not only for speedy disposal of the disputes but also to cut expense involved in the arbitration proceedings. In the circumstances, therefore, I have no option but to examine on merits the issue whether the Arbitral Tribunal as nominated by the parties is validly constituted and if it is not whether a reference can be made to a sole Arbitrator for adjudication of the disputes that have arisen between the parties.
The legal position regarding the right of a party to nominate an Arbitrator beyond the period of thirty days envisaged in Section 11 of the Act, stands settled by a decision of the Supreme Court in Datar Switchgears Ltd. Vs. Tata Finance Ltd., 2000(8) SCC 151. Their Lordships have in that decision authoritatively held that if the one party demands the opposite party to appoint an Arbitrator and the opposite party does not make an appointment within thirty days of the demand, the right to appointment does not Arbitration Case No.51 of 2008 6 get automatically forfeited after the expiry of thirty days. If the opposite party makes an appointment even after thirty days of the demand but before the first party has moved the Court that would be sufficient. This implies that an appointment after the party demanding such appointment has already moved the Court under Section 11 of the Act is no appointment in the eyes of law as the party making the appointment of an Arbitrator has forfeited its right to do so. The following passage from the decision in this regard is apposite:-
"So far as cases falling under Section 11(6) are concerned-such as the one before us-no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. 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 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 Arbitration Case No.51 of 2008 7 of the opposite party ceases. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11 (6) is forfeited."
The above view has been reiterated in the subsequent pronouncements of the Supreme Court including in the latest decision rendered by their Lordships' in Bharat Sanchar Nigam Ltd and another Vs. Motorola India Pvt. Ltd., AIR 2009 Supreme Court 357, in which their Lordships observed:-
"The learned counsel of the appellants had submitted before this Court that it was the appellant, which had the right to appoint the arbitrator. This submission cannot be accepted. The respondent had invoked the arbitration clause on the ground that there was no delay on its part by sending a letter to this effect to the appellants on 24th of March, 2006. On 25th April, 2006, the appellants/BSNL replied stating that they had rightly recovered the Liquidated Damages and that the recovery of the damages was not arbitrable. The appointing authority in this matter i.e., CGM Kerala, did not respond to the notice requiring the appointment of arbitrator and failed to act within the time prescribed under the Arbitration and Conciliation Act, 1996. Since the appointing authority appointed no arbitrator, the respondent/Motorolla on 25th of May, 2006 filed a petition under Section 11 of the said Act before the High court at Kerala. In the case of Datar Arbitration Case No.51 of 2008 8 Switchgear Vs. Tata Finance Ltd, 2000(8) SCC 151, which was affirmed in Punj Llyod Ltd. Vs. Petronet MHB Ltd. 2006(2) SCC 638, it was held that once a minimum of 30 days is expired and a petition is filed to the court, the appointing authority loses the right to make the appointment. Therefore, the appellant/BSNL has now lost its right to appoint any arbitrator for settling the disputes under the agreement."
It is in my opinion unnecessary to refer to any other decision on this aspect of the matter especially because learned counsel for the respondents did not dispute the proposition that the failure of the respondents to nominate an Arbitrator till the date of the filing of the present petition would result in forfeiture of their right to do so. Such being the position, the appointment of Shri Amrit Inder Singh as a nominee Arbitrator cannot be recognized as valid in the eyes of law. It is noteworthy that the respondents have themselves conceded that the said appointment is delayed although, according to them the delay is on account of slow moving procedures in the Government machinery.
The next question then is whether this Court ought to simply make an appointment in place of Shri Amrit Inder Singh or direct appointment of a sole Arbitrator for adjudication of all outstanding disputes. As noticed earlier, Mr.Rana, learned counsel appearing for the petitioner-Company, has no objection to the appointment of a sole Arbitrator by this Court, no matter the petitioner-Company has already appointed Hon'ble Mr.Justice G.C.Mital, former Chief Justice, as its nominee Arbitrator. Such an Arbitration Case No.51 of 2008 9 appointment, it was argued by Mr.Rana would be more conducive to speedy settlement of the disputes and less expensive for the parties. In support of his submission that this Court can make an appointment even dehors the provisions of the Arbitration Act, Mr.Rana has placed heavy reliance on a decision of the Supreme Court in Union of India Vs. M/s Singh Builders Syndicate, 2009(2) RCR (Civil), 637. That was a case where Clause 64 of the general terms and conditions of the contract envisaged two serving Gazetted Railway Officers of equal status being appointed as Arbitrators, one by the contractor from a panel made available by the General Manager of Northern Railways and the other by the Northern Railways. The Presiding Officer was then to be appointed by the Arbitrators so nominated. The High Court of Delhi had instead appointed a retired Judge of the said Court as the sole Arbitrator to decide the disputes arising out of the contract between the parties. In an appeal against the said decision, one of the questions that fell for consideration was whether the appointment of a sole Arbitrator was justified. The Court observed that while the Arbitral Tribunal should be constituted in the manner laid down in the agreement yet there can be exceptions where the said procedure may not be followed. The chequered history of the case brought the same under one such exception. Their Lordships noted that the position of law under the old Act had undergone a change under the 1996 Act. Relying upon its decision in Northern Railway Administration, Ministry of Railway, New Delhi Vs. Patel Engineering Company Ltd, 2009(1) RCR (Civil) 306, the Court held that the appointment of an Arbitrator as per the procedure given in the contract was not mandatory but emphasis should be on Arbitration Case No.51 of 2008 10 the terms of arbitration agreement being adhered and given effect to as far as possible. One of the situations where the Court could digress from the Arbitration Clause is where the independence and impartiality of the Arbitrator was in doubt or where the Arbitral Tribunal appointed in the manner provided in the arbitration agreement was not functional and it became necessary to make a fresh appointment. Explaining the objectives of Alternative Disputes Resolution by Arbitration, their Lordships observed that expeditious and effective disposal of cases through a private forum chosen by the parties was the object underlying the legislation. The Court also noticed that the matter had been pending for 10 years from the date when the demand was first made with virtually no progress and that in case the Arbitral Tribunal was reconstituted in terms of Clause 64, there may be need to change other two members of the Tribunal.
In the present case, the tender was invited as early as in the year 1998. The allotment of work, however, came only in November, 2003. The request for appointment of an Arbitrator was made in February, 2008 and the appointments made in April, 2008, no matter after the expiry of stipulated period of thirty days. There is, therefore, not much of a delay in the making of the appointment in comparison to what was the position in Singh Builder's case (supra). All the same, if the respondents had forfeited their rights to nominate Arbitrator, the Court may have to appoint an Arbitrator in place of Shri Amrit Inder Singh. In the absence of any compulsion to the contrary, the Court's nominee will be a trained Judicial mind to ensure objectivity and fairness in the process of adjudication. If that be so, there would be two former Chief Justices as Arbitrators with Arbitration Case No.51 of 2008 11 Shri V.Velayutham as a Presiding Arbitrator. That may not be a comfortable or enviable situation where the Presiding Officer is a retired Engineer with two former Chief Justices as his co-Arbitrators. Having regard to all these circumstances, therefore, I am more inclined to make an appointment of a sole Arbitrator of impeccable integrity and outstanding ability. This would, in my opinion, not only ensure that there is no further delay in the constitution of the Arbitral Tribunal but reduce expense in arbitration proceedings. Expense in arbitration proceedings have off late become a subject of debate in different Fora. Even in Singh Builders' case (supra) this aspect was noted by their Lordships in the following words:-
"There is no doubt a prevalent opinion that the cost of arbitration becomes very high in many cases where retired Judge/s are Arbitrators. The large number of sittings and charging of very high fees per sitting, with several add-ons, without any ceiling, have many a time resulted in the cost of arbitration approaching or even exceeding the amount involved in the dispute or the amount of the award. When an arbitrator is appointed by a court without indicating fees, either both parties or at least one party is at a disadvantage. Firstly, the parties feel constrained to agree to whatever fees is suggested by the Arbitrator, even if it is high or beyond their capacity. Secondly, if a high fee is claimed by the Arbitrator and one party agrees to pay such fee, the other party, who is unable to afford such fee or reluctant to pay Arbitration Case No.51 of 2008 12 such high fee, is put to an embarrassing position. He will not be in a position to express his reservation or objection to the high fee, owing to an apprehension that refusal by him to agree for the fee suggested by the arbitrator, may prejudice his case or create a bias in favour of the other party who readily agreed to pay the high fee. It is necessary to find an urgent solution for this problem to save arbitration from the arbitration cost. Institutional arbitration has provided a solution as the Arbitrators' fees is not fixed by the Arbitrators themselves on case to case basis, but is governed by a uniform rate prescribed by the institution under whose aegis the Arbitration is held. Another solution is for the court to fix the fees at the time of appointing the arbitrator, with the consent of parties, if necessary in consultation with the arbitrator concerned. Third is for the retired Judges offering to serve as Arbitrators, to indicate their fee structure to the Registry of the respective High Court so that the parties will have the choice of selecting an Arbitrator whose fees are in their 'range' having regard to the stakes involved. What is found to be objectionable is parties being forced to go to an arbitrator appointed by the court and then being forced to agree for a fee fixed by such Arbitrator. It is unfortunate that delays, high cost, frequent and sometimes unwarranted judicial interruptions at different stages are seriously hampering the growth of arbitration as an effective dispute resolution process. Arbitration Case No.51 of 2008 13 Delay and high cost are two areas where the Arbitrators by self regulation can bring about marked improvement. The observations made by their Lordships that retired Judges ought to indicate their fee structure to the Registrars of the High Courts have not so far received any response at least in this Court. In the circumstances, therefore, it would be proper to determine the fee of the sole Arbitrator on per hearing basis subject to an optimum. This will obviate any criticism that may come upon the worthy sole Arbitrator fixing his own fee.
In the result, I allow this petition and appoint Justice V.N.Khare, former Chief Justice of India as a sole Arbitrator to adjudicate upon the disputes between the parties. The sole Arbitrator shall be entitled to a fee of Rs.33,000/- per hearing subject to a maximum of Rs.20,00,000/- (Twenty lacs). Clerkage and other incidental charges shall be payable separately. The fee shall be deposited in the manner and proportion directed by the sole Arbitrator from time to time.
The parties are directed to appear before the sole Arbitrator on 1.9.2009 at 10.00 A.M. for further directions.
August 12, 2009 ( T.S.THAKUR ) `Kalra CHIEF JUSTICE