w w w . L a w y e r S e r v i c e s . i n



ACC Pipeline Contracts Pvt. Ltd. v/s Bharat Petroleum Corporation Ltd.


Company & Directors' Information:- ACC LIMITED [Active] CIN = L26940MH1936PLC002515

Company & Directors' Information:- ACC INDIA PRIVATE LIMITED [Active] CIN = U45400DL2012PTC241533

Company & Directors' Information:- S K CONTRACTS PRIVATE LIMITED [Active] CIN = U45400DL1986PTC025351

Company & Directors' Information:- S. S. E. CONTRACTS PRIVATE LIMITED [Active] CIN = U74900WB2013PTC192042

Company & Directors' Information:- A B CONTRACTS PRIVATE LIMITED [Strike Off] CIN = U74899DL2000PTC105814

Company & Directors' Information:- R S CONTRACTS PRIVATE LIMITED [Strike Off] CIN = U45202WB1997PTC084794

Company & Directors' Information:- J D CONTRACTS PRIVATE LIMITED [Active] CIN = U45400DL2011PTC214287

Company & Directors' Information:- D H CONTRACTS PRIVATE LIMITED [Active] CIN = U45400DL2010PTC198200

Company & Directors' Information:- N J CONTRACTS PRIVATE LIMITED [Strike Off] CIN = U74210HR2011PTC042559

Company & Directors' Information:- J P S CONTRACTS PRIVATE LIMITED [Strike Off] CIN = U45201DL2000PTC107170

    ARB. P. No. 181/2005

    Decided On, 18 January 2006

    At, High Court of Delhi

    By, THE HONOURABLE MR. JUSTICE BADAR DURREZ AHMED

    For the Petitioner: R.P. Bhatt, Sr. Advocate with C.M. Shroff, Advocate. For the Respondent: Snehasish Mukherjee, Advocate.



Judgment Text

Badar Durrez Ahmed, J. (Oral)


1. This application is styled as one under Section 11(5) of the Arbitration and Conciliation Action, 1996 (hereinafter referred to as the `said Act'), however, Mr. Bhatt, the learned senior counsel appearing for the petitioner, submits and rightly so that this application be treated as one having been filed under Section 11(6) of the said Act. It is so being treated.


2. The relief sought in this application is for the appointment of a Retired Judge of the Supreme Court to adjudicate the claims and disputes between the petitioner and the respondent arising out of the contract between the parties dated 10.06.2002. This contract pertains to the laying of a pipeline and associated facilities for Section-I (Manmad in Maharashtra to M.P. Border near Shirpur) for the Mumbai? Manmad Pipeline Extension Project of the respondent. I am not here concerned with the merits of the disputes between the parties. The main issue herein is with regard to the interpretation of Clause 91 of the contract. This clause contains the arbitration agreement. The relevant portion of the said clause is extracted herein below:-


“91. ARBITRATION


“All disputes or difference whatsoever which shall at any time arise between the parties hereto touching or concerning the works or the execution or maintenance thereof under this Contract or the right touching or concerning the works or the execution or maintenance thereof under this Contract or the execution or the maintenance effect thereof or to the rights or liabilities of the parties or arising out of or in relation thereto whether during or after completion of the contract or whether before or after determination foreclosure or breach of the Contract (other than those in respect of which the decision of any person is by the Contract expressed to be final and binding) shall after written notice by either party to the Contract to the other of them and to the Appointing Authority be referred for adjudication, to a sole Arbitrator to be appointed as hereinafter provided.


a. Any dispute or difference of any nature whatsoever any claim, cross-claim, counter-claim or set off of the Corporation against the Vendor or regarding any right, liability, act, omission or account of any of the parties hereto arising out of or in relation to this agreement shall be referred to the Sole Arbitration of the Director (Marketing) of the Corporation or of some officer of the Corporation who may be nominated by the Director (Marketing). The Vendor will not be entitled to raise any objection to any such Arbitrator on the ground that the Arbitrator is an Officer of the Corporation or that he has dealt with the matters to which the contract relates or that in course of his duties as an Officer of the Corporation he had expressed views on all or any other matters in dispute or difference. In the event of the Arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason, the Director (Marketing) as aforesaid at the time of such transfer, vacation of office or inability to act may in the discretion of the Director (Marketing) designate another person to act as Arbitrator in accordance with the terms of the agreement to the end and intent that the original Arbitrator shall be entitled to continue the arbitration proceedings notwithstanding his transfer or vacation of office as an Officer of the Corporation if the Director (Marketing) does not designate another person to act as arbitrator on such transfer, vacation of office or inability of original arbitrator. Such persons shall be entitled to proceed with the reference from the point at which it was left by his predecessor. It is also a term of this contract that no person other than the Director (Marketing) or a person nominated by such Director (Marketing) of the Corporation as aforesaid shall act as Arbitrator hereunder. The award of the Arbitrator so appointed shall be final conclusive and binding on all parties to the agreement subject to the provisions of the Conciliation and Arbitration Act, 1996 or any statutory modification or re-enactment thereof and the rules made there under for the time being in force shall apply to the arbitration proceedings under this clause.....” (underlining added)


3. A reading of clause 91 would show that upon the disputes or differences arising between the parties the same were to be resolved through arbitration. The said procedure was to be set rolling by a written notice by either party to the contract to the other and to the appointing authority for a reference to a sole arbitrator to be appointed as provided above. The appointing authority was the Director (Marketing) of the respondent. The clause also indicates that the said appointing authority could act as the Sole Arbitrator himself. He could also appoint any other officer of the respondent corporation to act as the Sole Arbitrator.


4. In this scheme, disputes and differences having arisen between the parties, the petitioner sent a letter dated 21.07.2005 to the said Director (Marketing) of the respondent Corporation wherein the petitioner invoked the provisions of the said clause 91 and requested the said appointing authority to refer the disputes and differences to be resolved through the process of arbitration under the provisions of the said Act. However, in this letter itself the petitioner pointed out that in the light of certain correspondence enumerated therein the appointing authority had apparently applied his mind and had taken a decision negating the claim of the petitioner and, therefore, it was requested that the appointing authority be kind enough to accede to the request of the petitioner for adjudication of the dispute by a former Judge of the Supreme Court of India, so as to remove any justifiable doubts to the independence or impartiality of the said Arbitrator. It was further indicated in the letter that on receiving a line of confirmation on the request, the petitioner would be in a position to suggest the names of former Judges of the Supreme Court of India available at New Delhi for the purposes of arbitration.


5. Initially, when Mr. Bhatt, the learned senior counsel opened his case, he submitted that after having sent this letter of 21.07.2005 nobody was appointed as the Arbitrator till 22.08.2005 and, therefore, the petitioner was compelled to file the present application for appointment of an Arbitrator by this Court in exercise of its power under Section 11(6) of the said Act. He submitted that subsequent to the filing of this petition i.e., on 26.08.2005, the petitioner received a letter issued by the said Director (Marketing) of the respondent corporation on 22.08.2005. By this letter dated 22.08.2005 the said appointing authority i.e., Director (Marketing) of the respondent corporation indicated his personal inability to act as the Sole Arbitrator and, therefore, appointed and nominated one Shri P.S. Bhargava, Executive Director , BPCL to act as the Sole Arbitrator to adjudicate the disputes between the parties. It is Mr. Bhatt's contention that this communication of appointment of the said Mr. Bhargava as the Sole Arbitrator was received by the petitioner subsequent to the filing of the petition and, therefore, in view of the decision of the Supreme Court in the case of Datar Switchgears Ltd. v. Tata Finance Ltd. and another: 2000 (3) Arb. LR 447 (SC), the appointing authority had lost his right to nominate / appoint an Arbitrator. Thus, it was now only left to the Court under Section 11(6) of the Act to appoint an Arbitrator to adjudicate upon the disputes and differences between the petitioner and the respondent. He also referred to the decision in the case of D.S. Khurana v. Municipal Corporation of Delhi: 2005 (1) Arb. LR 75 (Delhi) for the same proposition as also the decision of this Court in the case of Khub Chand Tyagi v. DJB: 2005 (1) Arb. LR 90 (Delhi) and the view taken by a Division Bench of this Court in Delkon (India) Pvt. Ltd. v. The General Manager, Bharat Heavy Electricals Ltd.: 2005 (2) Arb. LR 272 (Delhi) (DB). The sum and substance of Mr. Bhat's argument is that although there is nothing sacrosanct about the 30 days' period provided in Section 11(5) of the Act insofar as its applicability to situations arising in cases such as the present case where Section 11(5) is not applicable, yet, the thirty days rule can be taken as a reasonable period during which the other party is expected to act. He submitted that if the party does not act upon the written notice within the said thirty days then it would be open to the party giving the notice to approach the Court under Section 11(6) of the said Act for appointment of an Arbitrator and the other party would have lost his right to appoint an Arbitrator under the clause.


6. It was also argued by Mr. Bhatt that there is a likelihood of bias in this case inasmuch as in the very letter dated 21.07.2005, the petitioner had indicated that the appointing authority as well as other senior officers including the person who has been nominated as the sole Arbitrator had dealt with the case. Therefore, there was a likelihood and a reasonable apprehension that the proceedings would not be impartial. He submitted that such an apprehension would in itself amount to a disqualification for appointment. In support of this proposition he referred to the decision of the Supreme Court in the case of Bihar State Mineral Development Corporation And Another v. Encon Builders (I) (P) Ltd.: 2003 (7) SCC 418, in particular to paragraph 19 thereof. Mr. Bhatt also referred to the decision of this Court in the case of R.S. Avtar Singh Co. v. India Tourism Development Corporation Ltd.: 2003 (2) Arb. LR 503 (Delhi), particularly to paragraph 6 thereof. He submitted that in the facts of the present case the letter dated 22.08.2005 sent by the Director (Marketing) of the respondent was received by the petitioner on 26.08.2005 and, therefore, it is the latter date which is the relevant date and that was subsequent to the filing of the petition. Therefore, he submitted, in view of the decision in Datar Switchgears Ltd. (supra) the respondent would have lost its right to nominate an Arbitrator. Mr. Bhatt also referred to this decision in support of the contention that by virtue of the said clause 91 there is no automatic appointment of a Sole Arbitrator because the appointing authority could act as a Sole Arbitrator himself or he could nominate some other officer of the corporation. Therefore, a communication was necessary from the respondent to the petitioner and particularly from the said appointing authority to indicate as to who the Sole Arbitrator would be, whether it would be himself or some other officer of the respondent company. According to Mr. Bhatt, it is not one of those cases where there is a named Sole Arbitrator in the arbitration clause and no further appointment or nomination is required. In those cases communication of the name of the Sole Arbitrator is not needed because it is already there in the clause. Consequently, he submitted, communication of the name of the Sole Arbitrator was necessary and since that was received only after the present petition had been filed, the appointing authority had lost his right to nominate or appoint a Sole Arbitrator.


7. The learned counsel for the respondent submitted that the position is not so simple. He submitted that the impression that is sought to be given is that the letter dated 21.07.2005 issued by the petitioner to the Director (Marketing) was responded to by the said Director (Marketing) for the first time on 22.08.2005. This is not correct. In point of fact, the learned counsel for the respondent submitted, the Director (Marketing) had responded earlier by his letter of 12.08.2005 wherein he had clearly mentioned that although he had been asked to appoint the Sole Arbitrator for the purposes of arbitration in terms of the said clause 91 of the agreement mentioned in the letter, no copy of the agreement or the said clause 91 was sent to him. So as to see the manner in which the appointment is to be made, he requested the petitioner to send a copy of the agreement and/or the said clause 91 so as to reach him on or before 17.08.2005 to enable him to take further action in the matter. He also requested the petitioner to send, by 17.08.2005, copies of the letters mentioned in the notice dated 21.07.2005 whereby the petitioner had indicated that he had dealt with the case of the petitioner. This letter dated 12.08.2005 was replied to by the petitioner by its letter dated 16.08.2005 which was received by the Director (Marketing) of the respondent corporation on 17.08.2005. By virtue of this letter, the petitioner enclosed a copy of the said clause 91 which was the arbitration clause as also the letters that were mentioned in the correspondence. At the end of the letter the petitioner, significantly, stated as under:-


“We again request you to send a line of confirmation to the request contained in our letter of 21.07.2005”


8. Therefore, according to the learned counsel for the respondent, it is not as if the notice dated 21.07.2005 was not responded to by the respondent till 22.08.2005 when it issued the letter nominating the said Mr. Bhargava as the Sole Arbitrator. In fact, it had responded much prior to that date and within thirty days (if there is anything sacrosanct about the thirty days). In view of this, according to the learned counsel for the respondent, nothing has happened, so as to entitle the petitioner to invoke the provisions of Section 11 and in particular Section 11(6) of the said Act so as to give jurisdiction to this Court to appoint an Arbitrator other than the one specified under the said Arbitration Clause 91.


9. At this juncture, an examination of the statutory provisions would be appropriate. By virtue of Section 11(1) of the said Act a person of any nationality may be an Arbitrator unless otherwise agreed to by the parties. It is provided in sub-section (2) of Section 11 that subject to sub-section (6), the parties are free to agree on a process for appointing the Arbitrator or Arbitrators. It is to be noted that sub-section (5) would come into operation only if there is no agreement as referred to in sub-section (2) of Section 11 and if the parties fail to appoint an Arbitrator within thirty days from receipt of the request by one party to the other. In such an eventuality, the appointment is to be made by the Chief Justice or any person or institution designated by him. So, it is straightaway clear that sub-section (5) of Section 11 does not apply in the present case inasmuch as the parties were agreed on a procedure for appointing the Arbitrator which is apparent from a reading of the said clause 91. Section 11(6) requires consideration and, therefore, it would be proper to set it out in its entirety as follows:-


“(6) Where, under an appointment procedure agreed upon by the parties, __


(a) a party fails to act as required under that procedure; or


(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or


(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,


a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.”


A plain reading of Section 11(6) would show that it can be invoked in a situation where, after the parties have agreed upon an appointment procedure, (a) one of the parties fails to act as required under that procedure; or (b) the parties, or the two appointed arbitrators fail to reach an agreement expected of them under that procedure; or (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure. It is only in such eventualities that a party may request the Chief Justice or any person or institution designated by him to take the necessary measure of appointing an Arbitrator or an Arbitral Tribunal unless, of course, the agreement on the appointing procedure itself provides other means for securing the appointment. In the present case, the arbitration was to be by a sole arbitrator as agreed upon by the parties. Therefore, there was no question of one party failing to act as required under the procedure inasmuch as the respondent as a party was not required to nominate or appoint any Arbitrator by itself. Therefore, Section 11(6)(a) would not apply. Nor would Section 11(6)(b). Accordingly, in my view, if at all, it would be the provisions of Section 11(6)(c) which would be relevant in the present case inasmuch as the allegation is that the appointing authority failed to perform a function entrusted to him under the agreed procedure i.e., to appoint a sole Arbitrator within a reasonable period of time. Mr. Bhatt, the learned senior counsel appearing on behalf of the petitioner, submitted that the appointing authority, despite receipt of notice dated 21.07.2005, failed to appoint the Arbitrator prior to the filing of the petition and, therefore, a petition under Section 11(6) would be maintainable and the event triggering an action under the said provision had taken place. In view of the facts of the present case, I am unable to agree with this submission of Mr. Bhatt. The reason being that before this court could assume jurisdiction under Section 11 (6) of the said Act, it would have to be held conclusively that the appointing authority, that is the Director (Marketing), had failed to perform the function entrusted to him under clause 91. In view of the fact that the said appointing authority had written a letter on 12.08.2005 requesting the petitioner to supply a copy of the arbitration agreement/clause, it becomes clear that at least on 12.08.2005 the appointing authority was not aware of what the procedure was and what function he was required to perform. He became aware only when the petitioner replied to the same by its letter dated 16.08.2005 which was received by him on 17.08.2005. The petition was filed on 22.08.2005, just five days later. And, it is on 22.08.2005 itself that the appointing authority, oblivious of the filing of the present petition, issued the letter recusing himself to act as the Sole Arbitrator on personal grounds and appointing the said Mr. Bhargava as the Sole Arbitrator. In the context of computing the reaction time given to the appointing authority after the petitioner's letter of 16.08.2005 was received by the appointing authority on 17.08.2005, it would also be relevant to note, as was submitted by the learned counsel for the respondent, that 19.07.2005 was a holiday on account of Raksha Bandhan and 20.07.2005 and 21.07.2005 were also holidays being Saturday and Sunday respectively. The appointing authority had just the day of 17.07.2005 and 18.07.2005 to respond. And, he did on the very next working day, i.e., on Monday (22.07.2005). Therefore, in the context of these facts, it would be difficult for me to find that the appointing authority had failed to perform any function entrusted to him under the procedure.


10. Mr. Bhatt then submitted that the appointing authority was the Director (Marketing) of the respondent. The contract was with the respondent. Therefore, he (the appointing authority) should have been aware of the said clause 91. And, he further submitted, the letter of 12.07.2005 was merely to buy time and would not fall within the purview of the function that was entrusted to him in the context of Section 11(6)(c) of the said Act. However, I am inclined to agree with the submission made by the learned counsel for the respondent that there are numerous such contracts entered into between the respondent and different parties and, therefore, unless and until the particular and very contract which is in question is before the person, it would not have been possible for him to know as to what was the procedure that was to be followed. Knowledge of the exact function that was entrusted to the appointing authority can only be imputed to him as on 17.07.2005, when he received a copy of the said clause 91 from the petitioner. He acted within three working days and appointed the Sole Arbitrator. Therefore, it cannot be held that the appointing authority did not act with due despatch.


11. As regards the grounds of impartiality raised by Mr. Bhatt, I would merely refer to the provisions of Sections 12 and 13 in the light of Section 5 of the said Act. By virtue of Section 12, when any person is approached in connection with his possible appointment as an arbitrator, he is required to disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. Moreover, an arbitrator is required to disclose to the parties, without any delay, in writing any such circumstances which arise at any time during the arbitral proceedings unless the parties have already been informed of them by him. Section 12(4) provides that a party may challenge an Arbitrator appointed by him, or in whose appointment he has participated, only for the reasons of which he becomes aware after the appointment has been made. In this context, Mr. Bhat submitted that although the arbitration clause named the Director (Marketing) as the appointing authority as also a person who could act a

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s the sole arbitrator, the events that have given rise to the challenge of the impartiality or independence have taken place after the parties entered into the contract and, therefore, Section 12 (4) would not come in the way of the petitioner in challenging the authority of the Arbitrator. However, even if it were so, the challenge procedure is clearly prescribed by virtue of Section 13 and it provides that the authority of the arbitrator is to be challenged before the arbitrator himself. In case, the challenge succeeds, the mandate of the arbitrator shall stand terminated and the procedure provided under Section 15 shall be followed. However, if the challenge fails, then, the party making the challenge has to participate in the rest of the arbitral proceedings upto the making of the award and he can then take up this issue as a challenge to the award under Section 16 (6) read with 34 of the said Act. It is also pertinent to note the express and mandatory provisions of Section 5 of the Act which say that notwithstanding anything contained in any other law for the time being in force, in matters governed by part I of the Act, no judicial authority shall intervene except where so provided in the said part. So, it becomes clear that even if it is assumed that the apprehensions raised by Mr. Bhatt with regard to the matter of impartiality and independence have some basis, the same cannot be raised before this court and the same, as specifically provided in Act, have to be raised before the arbitrator himself. 12. In these circumstances, I find that the decisions cited by Mr. Bhatt would not be applicable to the factual situation as obtaining in the present case. The reason being that the condition precedent for invoking jurisdiction under Section 11(6) of the Act has not been satisfied. If the condition precedent had been satisfied then all the principles which have been referred to by Mr. Bhatt would come into play and this Court would definitely have jurisdiction and power to appoint an arbitrator in place of the arbitrator nominated by the appointing authority. But, that situation has not arisen inasmuch as the condition precedent for invoking Section 11(6) has not been satisfied. The grievance of impartiality or bias also has to be raised before the arbitrator himself, as discussed above. 13. This application is dismissed. There shall be no order as to costs.
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