Delhi High Court
Indian Oil Corporation Limited vs Kiran Construction Co. And Anr. on 27 September, 2002
Equivalent citations: 102(2003)DLT908
Author: O.P. Dwivedi
Bench: O.P. Dwivedi
JUDGMENT Usha Mehra, J.
1. By this order, we propose to dispose of Civil Writ Petition Nos. 1710/2002 and 1719/2002. These Writ Petitions raise common questions of fact and law. The facts lie in a narrow compass.
2. The short point involved in these petitions is; whether the Chief Justice or his nominee can remove the named arbitrator and appoint an independent arbitrator, secondly whether when one party has appointed an arbitrator-though beyond the period stipulated in the Act, the Chief Justice or his nominee could, when approached by the other party, appoint another (sole) arbitrator?
3. In order to answer the same we may have quick glance to the of this case. Respondent No. 1 M/s Kiran Construction Company was awarded construction of civil and structural works by the petitioner for its plant building and pump foundation for Indian Oil Corporation, Bhatinda Oil Terminal. The said agreement contained an arbitration clause with clear stipulation that in case of dispute the named arbitrator or his nominee will adjudicate the dispute between the parties. Dispute arose between the parties. Accordingly respondent No. 1 approached the named Arbitrator on 6th July, 1998 for entering upon reference in terms of the arbitration clause. The petitioner vide its letter dated 20th October, 1999 requested the respondent herein to specify the points of dispute. The respondent No. 1 enumerated the dispute vide its letter dated 4th December, 1999. However, when the named arbitrator did not enter upon the reference nor nominated any Arbitrator, the respondent No. 1 filed a petition under Sub-section (6) of Section 11 the Arbitration and Conciliation Act, 1996 (in short the Act). While the proceedings were pending before the learned single Judge, the named Arbitrator nominated Shri C. Ramachandran, Dy. General Manager (HR) of Indian Oil Corporation on 4th April, 2000 as the sole Arbitrator to adjudicate upon the disputes raised by the respondent No. 1. The said Shri C. Ramachandran, the sole arbitrator entered upon the reference on 28th April, 2000. He issued notices to the parties and directed the respondent No. 1 to file its statement of claim. The fact of appointment of Shri C. Ramachandran, as the sole Arbitrator, was brought to the notice of the learned single judge. however, the learned single judge by the impugned order dated 28th September, 2001 held that since the appointment of Shri C. Ramachandran was made after the expiry of 30 days, hence, the petitioner lost its right to appoint an Arbitrator. Accordingly the learned single judge vide the impugned order appointed a former Judge of this High Court as the sole arbitrator. The Arbitrator so appointed by the learned single judge entered upon the reference on 9th November, 2001. He also issued notices to the parties. Aggrieved by the impugned order dated 28th September, 2001 this writ petition has been preferred.
4. Mr. V.P. Chaudhary, Senior Advocate appearing for the has challenged the impugned order primarily on the grounds that (i) per the arbitration agreement clause No. 18 the power to nominate the arbitrator solely vested with the Managing Director, Marketing Division. That in term of Clause 18 of the agreement no person other than the Managing Director or his nominee could act as arbitrator. It is in pursuance to this Clause 18 that the respondent asked for the named arbitrator to enter upon the reference vide its letter dated 6th July, 1998. Since the disputes were not specified in the letter, therefore, the named arbitrator called for the same vide his letter dated 20th October, 1999 to which the respondent No. 1 responded only on 4th December, 1999. Mr. V.P. Chaudhary, Senior Advocate, therefore, contended that in view of the fact that matter was subjudice with the named arbitrator i.e. Managing Director, Marketing Division and there being no agreement between the parties that the named Arbitrator would enter upon reference by a specified date, hence, the respondent No. 1 without giving time to the named Arbitrator to enter upon the reference rushed to the court by way of a petition under Section 11(6) of the Act. Secondly once the Managing Director (Marketing Division) i.e. the named Arbitrator nominated Shri C. Ramachandran, Dy. General Manager (HR) who entered upon the reference on 28th April, 2001 i.e. much before the appointment of an Arbitrator by the learned single judge, the learned Single Judge ought not to have appointed an independent Arbitrator. It amounted to removing the named Arbitrator which power does not vest either with the Chief Justice or his nominee under Sub-section (6) of Section 11 of the Act.
5. The court could only exercise its jurisdiction in appointing an Arbitrator if the procedure had not been prescribed in the arbitration agreement itself. The provision of Sub-sections 3, 4 and 5 of Section 11 of the Act prescribes that on failure of the party after notice to appoint Arbitrator or Arbitrators, the appointment is to be made by the Chief Justice. Whereas in a case where an agreed procedure for appointment of Arbitrator is not followed, then under Sub-section (6) of Section 11 on a request by one party the Chief Justice has merely to take "necessary measure" for securing the appointment. In this case the procedure for appointing the arbitral tribunal has been agreed to by the parties which is apparent from the reading of Clause 18 of the agreement. Therefore, the provisions of Sub-sections (3), (4) or of (5) are not attracted in the facts of this case. Since the procedure for appointing an arbitral tribunal is prescribed in the agreement, the Chief Justice or his designate could only secure the appointment of the person so named. As the arbitral tribunal appointed by the named arbitrator had entered upon the reference, the pendency of the proceedings under Section 11(6) of the Act became infructuous and Chief Justice or his nominee was not required to do anything more except to uphold his appointments. Even if the arbitral tribunal had not been appointed by the named arbitrator in term of Clause 18, still the Chief Justice was not vested with any power to appoint an independent arbitrator because that would be in violation of the procedure agreed to by the parties. Clause 18 which prescribes the procedure specifically provided that no person other than the named arbitrator would act as the arbitral tribunal. It is only when the named arbitrator refuses to appoint an arbitrator that the Chief Justice can appoint an independent arbitral tribunal. But in the case in hand, the named arbitrator has already nominated the arbitrator much before the order was passed by learned single Judge. For this reason alone the impugned order cannot be sustained. To support his contention he placed reliance on the following decisions, Union of India v. Decon India (P) Ltd. Civil appeal No. 2362-2363 of 1999 arising out of SLP (Civil) No. 12101 & 12103/1998; Chief Engineer, Western Zone-II, Central Public Works Department, Nagpur and Ors. v. Pandit Shankararao Kulkarni, 2001 (2) Arb.LR 257 (Bombay) (DB); Avtar Singh Chadha v. Municipal Corporation of Delhi and Anr. , 1998(1) Arb.LR 397; Subhash Projects and Marketing Ltd. v. South Eastern Coalfields Limited, ; Pushpa Devi and Anr. v. Smt. Sarti Devi and Ors. 2002 (II) AD (Delhi) 16; Essel Shyam Communication Ltd. v. Union of India and Ors. , 86 (2000) Delhi Law Times 117; S.K. Gupta v. Delhi Development Authority and Ors. , ; Kamala Solvent v.
Manipal Finance Corporation Ltd., Manipal and Ors. , ; J.L. Prasad v. The General Manager, Southern Railway, Chennai 2002 (1) Arb. LR 584 (Karnataka).
6. Countering the above arguments of the petitioner, Mr. P.C. Markanda, Senior Advocate appearing for respondent contended that the writ against the impugned order passed under Section 11(6) of the Act, is not maintainable, secondly since the named arbitrator did not enter upon reference nor nominated any other person as arbitrator within the period of 30 days, hence after the expiry of the period of 30 days other party lost its power to appoint an arbitrator and finally the question regarding jurisdiction and validity of the appointment of an arbitrator by the Chief Justice can be challenged before the Arbitral Tribunal under Section 16 of the Act. The contentious issues cannot be decided by the Chief Justice or his nominee while deciding petition under Section 11(6) of the Act of 1996. To support his contention he placed reliance on the following decisions; Datar Switchgears Ltd. v. Tata Finance Ltd. and Anr. , JT 2000 (Suppl. 2) SC 226; Konkan Railways Corporation Ltd. v. Mehul Construction Co. , ; Rail India Technical and Economic Services Ltd. v. Vidya Wati Construction Co. AIR 20001 Allahabad 259; Union of India v. The Chief Justice of Judicature at Allahabad and Ors. AIR 2001 Allahabad 267; Union of India v. Vijayalakshmi Enterprises 2002 (1) RAJ 375 (DB of Andhra Pradesh High Court); Union of India v. Vengamamba Engineering Co., Juputi, Krishna Distt and Anr. 2001 (3) ALD 776 (DB); Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd. .
7. So far as the facts are concerned they are not in dispute. Admittedly agreement in question contains an arbitration clause namely Clause 18 which is relevant for determination of the issue raised, hence reproduced as under:-
" Except in respect of "Excepted matter "referred to in Clause 18 hereof, issues, disputes and differences between the Corporation and the Contractors (whether relating to the contractor's claim against the Corporation or vice versa relating to any clause or provision of this contract including those relating to general Conditions and special conditions as provided in work order) or any interpretation thereof or the right or liability of any part or as to any act or omission etc., of either party whether arising during the course of the work or after the completion or abandonment thereof, its termination, expiry or otherwise howsoever relating to the said work order and this contract, shall be referred by any aggrieved party to the contract which term will include the corporation to the sole arbitration of the Managing Director, Marketing Division of the Corporation. If such Managing Director is unable or unwilling to act as the sole arbitrator, the matter shall be referred to the sole arbitration of some other person designated by such Managing director in his place, who is willing to act as such sole arbitrator. It will be no objection to any such appointment that the arbitrator so appointed is a Government servant on deputation with the Corporation or the employee or the officer of the Corporation of that in the course of his duties as employees or officer of the Corporation he had to deal with the matters to which the contract relates or that he had expressed his views on all any of the matters in dispute or difference. The arbitrator to whom the matter is originally referred whether the Managing Director, the employee or officer or Government servant on deputation, as the case may be, on his being transferred or vacating his office or being unable to act, for any reason the Managing director shall designate any other person to act as arbitrator in accordance with the terms of the contract and such person shall be entitled to proceed with the reference from the stage at which it was left by the predecessor. It is also the term of this contract that no person other than the Managing Director as aforesaid should act as arbitrator. The award of the arbitrator so appointed shall be final, conclusive and binding on all the parties to the contract and provisions of the Arbitration Act, 1940 or any statutory modification or re/enactment thereof and the Rules made there under and for the time being in force shall apply to the arbitration proceeding under this clause.
The award shall be made in writing and published by the Arbitrator within six months after entering upon the reference or within such extended time not exceeding time further four months as the sole arbitrator shall be a writing under his own hands appoint.
The arbitrator shall have power to order and direct either of the parties to abide by, observe and perform all such directions as the arbitrator may think fit having regard to the matter in difference i.e. Dispute before him.
The arbitrator shall have all summary power and may take such evidence, oral and/or documentary, as the arbitrator in his absolute discretion thinks fit and shall be entitled to exercise all powers under the Indian Arbitration Act, 1940 including admission of any affidavit as evidence or the matter in difference i.e. Dispute before him.
The arbitrator shall be at liberty to appoint, if necessary any accountant or engineer or other technical person to assist him, and to act by the opinion so taken.
The arbitrator shall be entitled to direct anyone of the parties to pay the costs of the other party in such manner and to such extent as the arbitrator may in his discretion determine and shall also be entitled to require one or both the parties to deposit funds in such proportion to meet the arbitrators expenses whenever called upon to do so.
The parties hereby agree that the courts in city of Delhi shall have jurisdiction to entertain any application or other proceeding in respect of anything arising under the agreement and any award or awards made by the sole arbitrator hereunder shall be filed in the concerned courts in the city of Delhi only.'
8. Pursuant to this clause the respondent No. 1 approached the named arbitrator to enter upon the reference. The said named arbitrator neither himself entered upon reference nor appointed an arbitral tribunal till 4th April, 2000. In the meantime respondent No. 1 requested on 19th January, 2000 the Chief Justice under Section 11(6) of the Act to appoint an independent arbitrator. This petition was decided by the impugned order dated 28th September, 2001 thereby appointing an independent arbitral tribunal. Regarding the objection pertaining to maintainability of the petition against the impugned order, Mr. Markanda placed reliance on the decision of Supreme Court in the case of Konkan Railway Corporation Ltd. and Ors. v. Mehul Construction Co. JT 2000 (9) 362. In that case the Apex Court held that the order passed by the Chief Justice or his nominee is only administrative in nature and, therefore, Special Leave Petition would not lie. Relying on the above observation Mr. Markanda contended that since SLP was dismissed, therefore, writ petition would also be not maintainable.
9. The question about the nature and functions performed by the Chief Justice under Section 11 of the Act came up for consideration before the Supreme Court in the following cases; Konkan Railways Corporation Ltd. v. Mehul Construction Co. , ; Konkan Railway Corporation v. Rani Construction Ltd. (2000) 8 (SCC 159); Ador Samia (P) Ltd. v. Peekay Holdings Ltd. 1999 AIR SCW 3220; Associated Cement Companies Ltd. v. P.N. Sharma ; Jaswant Sugar Mills Ltd., Meerut v.
Lakshmichand, ; Engineering Mazdoor Sabha v. Hind Cycles AIR 1933 SC 874.
10. In all these cases the Apex Court observed that Chief Justice or any person or institution designated by him, acting under Section 11 of the Act, acted in an administrative capacity and that the order of the Chief Justice or his designate in exercise of the power under Section 11 of the Act was an administrative order. Two Judges Bench of the Apex Court in the case of Konkan Railway Corporation v. Rani Construction Ltd. (Supra) referred the matter to a Larger Bench, the decision of the three Judges Bench in Konkan Railways Corporation Ltd. v. Mehul Construction Co.(Supra) wherein it was held that no writ would lie against the order passed by the Chief Justice directing appointment of an arbitrator under Section 11 of the Act in as much as such orders are administrative in nature, even if they contain reasons and decision on certain preliminary issues raised by the party at the stage of appointment. Reference by the two Judges Bench has now been answered by the Constitution Bench of the Apex Court wherein in a way the decision of M/s. Mehul Construction Co.(Supra) has been approved by the Construction Bench.
11. Two Judges Bench in Rani Construction Ltd. (Supra) after analysing various decisions and UNCITRAL Model Law and Rules as well as the Law and Practice of International Commercial Arbitration and taking into consideration the practical approach to the Arbitration Law considered the arguments of the parties that the order passed by the Chief Justice under Section 11 of the Act does not relate to the administrative functions of the Chief Justice. In fact it was contended by the counsel that the order of the Chief Justice judicially decides preliminary issues raised by two contracting litigating parties. Such an order cannot be said to be administrative in nature. Therefore, Solicitor General contended that the order by the learned Chief Justice of the Bombay High Court was a judicial order on the preliminary issue raised and it could be raised at the stage anterior to the appointment of the arbitrator. These issues had to be decided. The Solicitor General placed reliance on the decision of Apex Court in the case of Wellington Associates Ltd. v. Kirit Mehta. . The Court opined that if the order of the Chief Justice is to be treated as an administrative order it would be challenged before a Single Judge of the High Court and then before a Division Bench and then before the Apex Court under Article 136 of the Constitution and such a procedure would delay the arbitration proceedings more than if the order was accepted as a judicial order and is permitted to be challenged directly under Article 136 of the Constitution. In the light of the above observation the matter was referred to the Larger Bench of the Supreme Court for reconsideration of the case of M/s. Mehul Construction Company (Supra).
12. The Constitution Bench of the Supreme Court in Konkan Railway Corporation Limited v. Rani Constructions Company Limited's case (supra) while answering the reference made by the two Judges Bench judgment held that when a matter is placed before the Chief Justice or his designate under Section 11 of the Act it is imperative for the Chief Justice or his designate to bear in mind the legislative intent that the arbitral process should be set in motion without any delay and leave all contentious issues to be raised before the arbitral tribunal. At that stage it is not appropriate for the Chief Justice or his designate to entertain any contentious issues between the parties and decide the same. Accordingly the Constitution Bench held that Sections 13 & 16 of the Act make it clear that question with regard to the qualifications, independence and impartiality of the arbitrator and in respect of the jurisdiction of the arbitrator could be raised before the arbitrator, who would decide the same. The constitution bench made it clear that if a contingency arises when Chief Justice or his designate refuse to make an appointment the party seeking the appointment is not left remedy less. In that eventuality the Court will intervene as it would intervene against an administrative order of the executive because that would amount to non performance of duty by the Chief Justice or his designate and, therefore, a mandamus would lie. Further the nature and function performed by the Chief Justice or his designate being essentially to aid the constitution of the arbitral tribunal, it could not be held to be a judicial function, as otherwise the legislature would have used the expression "Court"
or "judicial authority". Thus it is apparent that the order passed under Section 11 of the Act is administrative in nature and is not amenable to the jurisdiction of the Court.
13. Relying on the provisions of Section 16 of the Act the Constitution Bench in Rani Construction Company Limited (Supra) observed that the said provision enables the arbitral tribunal to decide on the width of his jurisdiction. The mere fact that he was appointed by the Chief Justice or his designate will not make any difference for him to determine his jurisdiction. Even where the Chief Justice or his designate appoints an arbitrator, though the period of 30 days after the receipt of the request had not elapsed, still the question of the jurisdiction of the arbitrator so appointed prior to the expiry of 30 days will also be looked into by the said arbitrator, meaning thereby that the Chief Justice or his designate under Section 11 do not perform adjudicator function nor they are exercising the power of the State. The function of the Chief Justice and his designate under Section 11 is to fill the gap left to a party by the arbitration agreement. This is to enable the arbitral tribunal to be expeditiously constituted and the arbitration proceedings to commence. This function has been left to the Chief Justice or his designate with a view to ensure that the nomination of the arbitrator is made by a person occupying high judicial office. Constitution Bench in Rani Construction Company Limited's case (Supra) has gone to the extent of observing that when an application under Section 11 is filed the Chief Justice or his designate is not required to issue notice to the other party. Notices are normally issued to inform the other party that Arbitrator has been appointed. Notice is not issued with the intention to hear the contentious issues raised by the other party.
14. The appointment procedure admittedly has been agreed to by the parties in this case. That is what is provided in Clause 18 of the agreement. It is also an admitted fact on record that the respondent issued notice to the petitioner for entering upon reference or nominating an arbitrator and the named Arbitrator failed to enter upon reference within the prescribed period of 30 days. It is in this background that the respondent applied to the Chief Justice under Section 11(6) of the Act because the named arbitrator failed to perform the function entrusted to him under the procedure. Clause 18 of the agreement which has already been reproduced does not lay down any other procedure nor provides other means for appointment of an arbitrator. Therefore, there being no other alternative procedure provided nor providing any other means for the appointment of an arbitrator, the respondent as per the provision of the Act requested the Chief Justice. The decision of the Chief Justice or his designate is final. Contention of Mr. V.P. Chaudhry Advocate that Clause 18 does not prescribe any period by which named arbitrator should enter upon reference, to our mind, is without substance. Sub-section (6) of Section 11 itself prescribe the period within which the other party has to act, therefore, non-prescribing of the period in Clause 18 is of no relevance. Parties would be governed by the Act so far as period is concerned. Moreover, the learned Single Judge took note of the qualification and impartiality of the arbitrator so appointed by him i.e. a retired Judge of this court. Since under Section 11 notice is not required to be given to the other party nor it contemplates a response from the other party, therefore, once the nominee of the Chief Justice came to the conclusion that other party failed to appoint or enter upon reference within 30 days he appointed an independent arbitrator. That being so the impugned decision does not suffer from any infirmity. The Constitution Bench of the Apex Court has gone to the extent of observing that the Chief Justice on being requested has to make the nomination of an arbitrator only if the period of 30 days is over. In this case admittedly the period of 30 days was over when the application under Section 11(6) was filed by the respondent and even if the period of 30 days had not bene over still the decision to nominate an arbitrator by the Chief Justice would n to lead to the conclusion that the decision is adjudicatory or judicial. It still remain an Administrative order. If the arbitral tribunal has been improperly constituted or is without jurisdiction even then it would not be open to the aggrieved party to challenge by way of writ petition. His remedy would be to require the arbitral tribunal to rule on its jurisdiction. Section 16 provides for this. The arbitral tribunal will not only rule on the width of his jurisdiction but also goes to the very root of his jurisdiction. There would, therefore, be no impediment in contending before the arbitral tribunal that he had been wrongly constituted.
15. In view of the law laid down by the Constitution Bench of Apex Court in Rani Construction Company (Supra) it would not be justified for the petitioner to contend that the impugned order suffers from any infirmity. In fact the appropriate remedy for the petitioner would be under Section 16 of the Act to raise all these contentious issues before the arbitrator appointed by the nominee of the Chief Justice. The decisions relied by Mr. V.P. Chaudhary are of no help to him in view of the Constitution Bench Judgment of the Supreme Court quoted above. Even reliance by Mr. V.P. Chaudhary on the decision of Apex Court in the case of Union of India v. Decon India (P) Ltd. (Supra) is of no help because the said case was decided on 19.4.1999 whereas the Constitution Bench judgment which has reconsidered all the cases was delivered on 30.1.20002.
16. Contention of Mr. Markanda that the writ petition would not lie finds force in view of the Constitution Bench decision of the Supreme Court wherein the Apex Court has observed that the remedy for such a petitioner would be by way of raising such objections before the arbitrator under Section 16 of the Act. Reliance by petitioner on the decisions of Subhash Projects and Marketing Ltd. v. South Eastern Coalfields Ltd. (Supra), J.L. Prasad v. the General Manager Southern Railway, Chennai (Supra) as well as BEL House Associates Private Ltd. v. The General Manager Southern Railway, Madras AIR 2001 Kerala 163 are also of no help.
17. We are in respectful agreement with the decision of Andhra Pradesh High Court in Vijaylakshmi Enterprises' case (Supra) and of Allahabad High Court in the case of Rail India Technical and Economic Services Ltd. (Supra) wherein the Bench observed that:-
"We are, therefore, clearly of the opinion that the writ petitioner can raise all such pleas on which order of the Chief Justice has been assailed here, before the arbitral tribunal under Section 16 of the Act and can pursue the further remedies provided under the Act and this Court should not entertain a writ petition under Article 226 of the Constitution at the initial stage which may have the effect of delaying the arbitral proceedings and thereby defeat the very purpose for which the 1996 Act has been enacted."
18. Since the petitioner failed to perform the function entrusted to it the aggrieved party i.e. respondent herein approached the Chief Justice under Section 11 of the Act and the designate of the Chief Justice appointed the arbitrator keeping in view his qualification, independence and capability. We see no reason to interfere with the same. With the above observation writ petitions are dismissed but with no order as to costs.