Madhya Pradesh High Court
M/S Ganga Construction Company vs Union Of India on 27 April, 2015
Equivalent citations: AIR 2016 (NOC) 149 (M.P.) (GWALIOR BENCH)
1 AC No. 24/2013
HIGH COURT OF MADHYA PRADESH,
BENCH AT GWALIOR.
SB : Hon'ble Shri Justice Sujoy Paul
Arbitration Case No. 24/2013
M/s Ganga Construction Company
Vs.
Union of India & others
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Shri Prashant Sharma, Advocate for the petitioner.
Shri Anand V. Bharadwaj, Advocate for the respondent No.3.
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ORDER
(27/04/2015) Applicant has filed this application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for brevity, the 'Act') for appointment of arbitrator for settlement of dispute between the parties.
2. The facts narrated in the application are that the applicant is a partnership firm and entered into an agreement (Annexure 'D') with the respondents. As per clause 64 of the agreement, a redressal mechanism through arbitration is prescribed. The respondents abruptly and arbitrarily terminated the contract of the applicant. On the one hand, the respondents provided extension to the applicant to complete the work and on the other hand suddenly terminated the contract and forfeited the security deposit and performance guarantee deposit. On 20.9.2013 (Annexure 'C'), a notice was served upon the General Manager, North Central Railway by the applicant.
3. Shri Prashant Sharma, learned counsel for the applicant submits that in the said notice, it was prayed that the General Manager must appoint the arbitrator. By taking this Court to clause 64 of general conditions of contract, it is contended that if arbitrator is not appointed within a period of thirty days from the date of demand by the applicant, section 11(6) of the Act 2 AC No. 24/2013 can be invoked. The notice aforesaid was served upon the respondents by registered post. However, they did not appoint the arbitrator within thirty days and, therefore, this application is filed. Reliance is placed on (2006) 2 SCC 638 (Punj Lloyd Ltd. vs. Petronet MHB Ltd.). He also relied on (2000) 8 SCC 151 (Datar Switchgears Ltd. vs. Tata Finance Ltd.). He further submits that the communication (Annexure R-1) dated 8.11.2013 is not issued by the competent authority. It is only General Manager, who can appoint the arbitrator.
4. Per Contra, Shri Anand V. Bharadwaj, learned counsel for the respondents, took a preliminary objection. It is contended that the letter dated 13.11.2013 (Annexure R-2), sent by the applicant himself, shows that on 13.11.2013 it is stated that an application under section 11(6) of the Act has already been filed. The said statement is apparently wrong and amounts to suppression of fact. The present application under section 11(6) is actually filed on 14.11.2013. It is also submitted that the applicant has deliberately suppressed the documents dated 8.11.2013 (Annexure R/1) and 13.11.2013 (Annexure R/2).
5. Shri Anand V. Bharadwaj urged that after receiving notice of the applicant, the letter dated 8.11.2013 (Annexure R/1) was issued and applicant was intimated regarding nomination of panel of officers, out of which, as per agreement, the applicant was required to select two names. Out of the said two names, selected by the applicant, the General Manager was required to select one name as applicant's nominee to constitute a panel of three arbitrators. The applicant on receiving the letter dated 8.11.2013 misrepresented before the respondents by contending that he has already approached this Court under section 11(6) of the Act. It is stated that the applicant has not approached the Court with clean hands, clean mind and clean objective. By placing reliance on letter dated 12.6.2013, it is 3 AC No. 24/2013 contended that the applicant was again requested to select two names from the panel of four arbitrators proposed by Annexure R-1. He submits that as per the agreement, Annexure R-1, is passed by the competent authority.
6. No other point is pressed by the parties.
7. I have heard the parties at length and perused the record.
8. Clause 64 (1)(i) provides the method of "demand for arbitration". Section 64(3) (a) (ii) provides the methodology of proposal and selection of arbitrator. It reads as under:-
"Clause 64(3) (a) (ii) - In cases not covered by the clause 64(3)(a)(i), the Arbitral Tribunal shall consist of a Panel of three Gazetted Rly. Officers not below JA grade or 2 Railway Gazetted Officers not below JA Grade and a retired Railway Officer, retired not below the rank of SAG Officer, as the arbitrators. For this purpose, the Railway will send a panel of more than 3 names of Gazetted Fly. Officers of one or more departments of the Rly. Which may also include the name(s) of retired Railway Officer(s) empanelled to work as Railway Arbitrator to the contractor within 60 days from the day when a written and valid demand for arbitration is received by the GM. Contractor will be asked to suggest to General manager at least 2 names out of the panel for appointment as contractor's nominee within 30 days from the date of dispatch of the request by Railway. The General manager shall appoint at least one out of them as the contractor's nominee and will, also simultaneously appoint the balance number of arbitrators either from the panel or from outside the panel,. Duly indicating the 'presiding arbitrator' from amongst the 3 arbitrators so appointed. GM shall complete this exercise of appointing the Arbitral Tribunal within 30 days from the receipt of the names of contractor's nominees. While nominating the arbitrators it will be necessary to ensure that one of them is from the Accounts department. An officer of Selection Grade of the Accounts Department shall be considered of equal status to the officers in SA grade of other departments of the Railway for the purpose of appointment of arbitrator."
9. In the present case, this is an established fact that the applicant has informed the department on 13.11.2013 that he has already filed the application under section 11(6) of the Act.
4 AC No. 24/2013This statement is apparently wrong. The bone of contention of Shri Prashant Sharma is based on Datar Switchgears Ltd. and Punj Lloyd (supra). To elaborate, it is contended that as per the scheme of section 11 of the Act, the applicant was required to demand arbitration and then after waiting for a reasonable period approach this Court. Once an application under section 11(6) is filed, the opposite party has no right to make appointment. It is apt to quote para 19 of Datar Switchgears Ltd. (supra), which reads as under:-
"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 of the opposite party ceases."
In Punj Lloyd (supra), the Apex Court followed Datar Switchgears Ltd. (supra).
10. However, the said judgments were again considered by Supreme Court in catena of judgments. In (2006) 10 SCC 763 (National Highways Authority of India & another vs. Bumihiway DDB Ltd. (JV) & others), the Apex Court opined that section 11(6) of the Act has an application only when a party had failed to act in terms of arbitration agreement. In the light of the legal position, it was argued in the said case that the impugned order is bad in law. After considering Datar Switchgears Ltd. and Punj Lloyd (supra), the Apex Court opined that the question arises for consideration here is who had defaulted and on what basis of default has the court entered jurisdiction under section 11(6). The High Court failed to deal with this aspect despite 5 AC No. 24/2013 objection being raised by the respondents. The Apex Court opined that assumption of jurisdiction and adjudication by the High Court was erroneous/ vitiated. It is apt to remember here that the presence of a dispute is sine qua non of filing an application under section 11(6). A party can invoke this provision only when the conditions of the agreement are fulfilled. In the same judgment, the Apex Court opined that the respondent No.1 has wrongly invoked the jurisdiction of this Court without first following the procedure agreed to between the parties. Thus, no cause of action had arisen in the facts of the case to seek the appointment from the High Court under section 11(6) of the Act. The petition before High Court was held to be premature. It is further opined that the parties have entered into a contract after fully understanding the import of the terms so agreed to from which there cannot be any deviation. The courts have held that the parties are required to comply with the procedure of appointment as agreed to and the defaulting party cannot be allowed to take advantage of its own wrong. In the present case, as per clause 63(3), it is clear that the respondents have proposed the name of four arbitrators. Thereafter, it was responsibility of the applicant to suggest the General Manager at least two names out of the panel for appointment as contractor's nominee. The applicant has completely failed to fulfill the requirement on his part. I do not see any merit in the argument of Shri Prashant Sharma that the communication (Annexure R-1) dated 8.11.2013 should have been made by the General Manager. This letter itself shows that it is a communication by Dy. Chief Engineer, but the names of arbitrators were proposed by General Manager. This is clearly mentioned in Annexure R-1. Annexure R-3 also makes it clear that decision will be taken by the General Manager only.
11. In (2009) 8 SCC 520 (Indian Oil Corporation Ltd. & Ors. Vs. Raja 6 AC No. 24/2013 Transport (P) Ltd.), the Apex Court opined as under :-
"21. In the light of the above discussion, the scope of section 11 of the Act containing the scheme of appointment of arbitrators may be summarised thus:
(i) Where the agreement provides for arbitration with three arbitrators (each party to appoint one arbitrator and the two appointed arbitrators to appoint a third arbitrator), in the event of a party failing to appoint an Arbitrator within 30 days from the receipt of a request from the other party (or the two nominated arbitrators failing to agree on the third arbitrator within 30 days from the date of the appointment), the Chief Justice or his designate will exercise power under sub-section (4) of section 11 of the Act.
(ii) Where the agreement provides for arbitration by a sole arbitrator and the parties have not agreed upon any appointment procedure, the Chief Justice or his designate will exercise power under sub-section (5) of section 11, if the parties fail to agree on the arbitration within thirty days from the receipt of a request by a party from the other party.
(iii) Where the arbitration agreement specifies the appointment procedure, then irrespective of whether the arbitration is by a sole arbitrator or by a three-member Tribunal, the Chief Justice or his designate will exercise power under sub-section (6) of section 11, if a party fails to act as required under the agreed procedure (or the parties or the two appointed arbitrators fail to reach an agreement expected to them under the agreed procedure or any person/institution fails to perform any function entrusted to him/it under that procedure).
(iv) While failure of the other party to act within 30 days will furnish a cause of action to the party seeking arbitration to approach the Chief Justice or his designate in cases falling under sub-sections (4) & (5), such a time bound requirement is not found in sub-section (6) of section 11. The failure to act as per the agreed procedure within the time limit prescribed by the arbitration agreement, or in the absence of any prescribed time limit, within a reasonable time, will enable the aggrieved party to file a petition under Section 11(6) of the Act.
(v) Where the appointment procedure has been agreed between the parties, but the cause of action for invoking the jurisdiction of the Chief Justice or his designate under clauses (a), (b) or ? of sub-section (6) has not arisen, then the question of Chief Justice or his designate exercising power under sub-section (6) does not arise.
The condition precedent for approaching the Chief Justice or his designate for taking necessary measures under sub-section (6) is that (i) a party failing to act as 7 AC No. 24/2013 required under the agreed appointment procedure; or (ii) the parties (or the two appointed arbitrators), failing to reach an agreement expected of them under the agreed appointment procedure; or (iii) a person/institution who has been entrusted with any function under the agreed appointment procedure, failing to perform such function.
(vi) The Chief Justice or his designate while exercising power under sub-section 96) of section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause.
(vii) If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore the designate arbitrator and appoint someone else."
12. This Court has considered the said judgments in 2010 Arb. WLJ 108 (M/s. Vidhyawati Construction Co. vs. Union of India and others). It is apt to mention that in the said case, the arbitration clause was pari materia to the present arbitration clause. The same was reproduced by this Court in para 7 of the said judgment. This Court after taking stock of all the relevant judgments of the Supreme Court opined as under :-
"19. From the aforesaid principle laid down by the Supreme Court, it is clear that if the procedure agreed to by the parties is available, then normally the Chief Justice or his designate exercising power under Section 11(6) should not appoint an independent Arbitral Tribunal, but should direct the parties to take recourse to the procedure contemplated in the agreement itself, as referring the dispute to the arbitrators named in the agreement is the general rule and ignoring the same and appointing an independent arbitrator is an exception to be resorted to for valid reasons. In the present case, no valid and justifiable reason for deviating from the general rule is pointed out. In the case in hand, non-applicants have adhered to the procedure, which was accepted by the parties, and had given a proposal indicating a panel of arbitrators to be nominated by the applicant, on his behalf, as per the requirement of Clause 64. Instead of accepting the offer made and adhering to the process accepted by the applicant, as per the agreement for appointment of arbitrator, for the reasons best known and without any just cause reason, applicant has approached this Court.8 AC No. 24/2013
20. Considering the totality of the circumstances and the principles laid down by the Supreme Court, in the case of Indian Oil Corporation Limited (Supra), as detailed hereinabove, this Court is of the considered view that in the present application, it is not proper to appoint an independent arbitrator, as the same would be contrary to the well settled principle laid by the Supreme Court, as indicated hereinabove. Instead, applicant and the non- applicants should be directed to proceed further in the matter in accordance to Clause 64 of the Agreement and resolve the dispute by adhering to the said process.
21. Accordingly, finding no merit in the prayer made in this application for appointment of an arbitrator, exercising jurisdiction in these proceedings under Section 11, this application is disposed of granting liberty to the parties to proceed further in the matter for resolution of the dispute in accordance to the provisions of Clause 64, of the agreement.
22. Application stands disposed of with the aforesaid without any order as to costs."
13. In the light of aforesaid judgments, it is crystal clear that if a procedure is agreed to by the parties and the same is not followed then normally the power under section 11(6) should not be exercised. Indeed, the parties should be directed to take recourse to the procedure contemplated in the agreement itself because reference of dispute to arbitrators mentioned in the agreement is the general rule and ignoring the same and appointment through this Court is an exception.
14. As analyzed above, in the instant case, there is no valid and justifiable reason for deviating from the aforesaid general rule. The respondents have adhered to the procedure but the applicant has failed to undertake the exercise on his part. In view of this, I find no merit in the prayer made by the applicant for appointment of arbitrator.
15. It is apt to mention here that during the course of argument, Shri A.V.Bharadwaj contended that it is still open to the applicant to respond to Annexure R-1 and if he does so, the mechanism under the agreement will start from that stage.
16. Resultantly, I find no reason to exercise the jurisdiction in this proceeding under section 11(6) of the Act. The application 9 AC No. 24/2013 is disposed of by reserving liberty to the parties to proceed further in the matter for resolution of their dispute in accordance with the provision of the agreement.
17. Application is disposed of. No cost.
(Sujoy Paul)
Yog/ Judge