1. The present arbitration application has been filed by the applicant seeking appointment of an independent Arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the said Act").
2. The short facts necessary for the purpose of deciding the present application are that the applicant was awarded the contract pursuant to the tender invited by the respondent in respect of the residual composite work for the construction of 36 units type IV and 36 units type V quarters in multi-storied towers for North Western Railway Officers Colony, in connection with setting up of the North Western Railway, at Jaipur. The said contract was awarded for the total cost of Rs. 27,25,46,971.55/- on 08.05.2012. It appears that after the submission of performance bank guarantee and completion of other formalities, the petitioner had started work at the site, however the petitioner was informed to stop the work by the respondent, vide the letter dated 13.08.2012, on account of some order passed by the Apex Court in the petition filed by the land owners challenging the acquisition of the lands in question. The said order was vacated subsequently by the Apex Court and the work was restarted. However, certain disputes arose between the petitioner and the respondent. The respondent thereafter had issued the notice dated 09.04.2013 calling upon the petitioner to show cause as to why the contract of the petitioner should not be terminated. The petitioner therefore had filed the petition under Section 9 of the said Act in the Court of Additional District Judge, Jaipur. The petitioner also invoked the arbitration clause as contained in the agreement in question vide the letter dated 14.04.2014 (Annexure-P/16). The said letter was replied by the respondent vide the letter dated 13.06.2014 (Annexure-P/17) requesting the petitioner to give item wise claim for all the items as per GCC Clause 64 (1) (ii). Since the petitioner did not respond to the said letter, the respondent again wrote the letter dated 03.07.2014 (Annexure-P/18) requesting the petitioner to submit the requisite information. The petitioner thereafter vide the letter dated 15.07.2014 (Annexure-P/19) furnished the details of claims and requested the respondent to provide list of Arbitrators as per Clause 64 of the contract agreement. In response thereto, the respondent informed the petitioner vide the letter dated 20.08.2014 (Annexure-P/20) inter alia that the total amount of claims submitted by the petitioner was more than 20% of the contract value and therefore the provision of Clauses 63, 64 and other Clauses of GCC would not be applicable for settlement of such disputes in view of Clause 38.3 and 81 of the special condition/specification of the contract (part-I) non technical. The petitioner in response to the said letter therefore submitted the revised claims confining them to the extent of 20% of the contract value, as per the letter dated 05.09.2014 (Annexure-P/21). However, the respondent did not appoint the Arbitrator and therefore the petitioner has filed the present application.
3. The application has been resisted by the respondents by filing the reply contending inter alia that the demand for appointment of Arbitrator was pre-matured, as the petitioner had not waited for the period as contained in Clause 64 (1) (i) of the GCC. It is further contended that after the submission of the revised claims, the respondent had proceeded with the appointment of Arbitral Tribunal on 04.02.2015 and informed the petitioner vide the letter dated 24.12.2014 to suggest the two names, however the petitioner had not responded, and therefore the competent authority of the respondent had constituted the Arbitral Tribunal. The respondent has also submitted that no outsider could be appointed as the Arbitrator in violation of the agreed conditions of the GCC and therefore the application deserves to be dismissed. The applicant has filed the rejoinder to the reply filed by the respondent by submitting that the respondent had failed to appoint the Arbitrator within the prescribed time limit, and therefore the application for appointment of independent Arbitrator under Section 11 (6) of the said Act was filed. It is also contended that the respondent could not have appointed or nominated the Arbitrator when the matter was sub-judice before the Court.
4. Before appreciating the submissions made by the learned counsels for the parties, it would be apposite to reproduce the relevant clauses of the General Conditions of the Contract:-
"64.(1) Demand For Arbitration :
64.(1) (i)- In the event of any dispute or difference between the parties hereto as to the construction or operation of this contract, or the respective rights and liabilities of the parties on any matter in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the contractor may claim to be entitled to, or if the Railway fails to make a decision within 120 days, then and in any such case, but except in any of the "excepted matters" referred to in Clause 63 of these Conditions, the contractor, after 120 days but within 180 days of his presenting his final claim on disputed matters shall demand in writing that the dispute or difference be referred to arbitration.
64.(1) (ii)- The demand for arbitration shall specify the matters which are in question, or subject of the dispute or difference as also the amount of claim item-wise. Only such dispute(s) or difference(s) in respect of which the demand has been made, together with counter claims or set off, given by the Railway, shall be referred to arbitration and other matters shall not be included in the reference.
64.(1) (iii)- (a) The Arbitration Proceedings shall be assumed to have commenced from the day, a written and valid demand for arbitration is received by the Railway.
64.(3) Appointment of Arbitrator :
64.(3) (a) (i)- In cases where the total value of all claims in question added together does not exceed Rs. 10,00,000 (Rupees ten lakh only), the Arbitral Tribunal shall consist of a Sole Arbitrator who shall be a Gazetted Officer of Railway not below JA Grade, nominated by the General Manager. The sole arbitrator shall be appointed within 60 days from the day when a written and valid demand for arbitration is received by GM.
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 Railway 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 Railway Officers of one or more departments of the Railway 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."
5. So far as the facts of the present case are concerned, neither the afore-stated arbitration clause in the agreement nor the correspondence that ensued between the parties have been disputed by the respondent authority. The main bone of contention raised by the learned counsel Mr. P.C. Sharma for the respondent is that the petitioner having not followed the procedure for appointment of Arbitrator as contained in the afore-stated clause, was not entitled to the appointment of Arbitrator under Section 11 (6) of the said Act. Mr. Sharma has relied upon the decision of the Supreme Court in case ofThe Iron and Steel Company Ltd. v. M/s. Tiwari Road Lines, AIR 2007 Supreme Court (2064), to submit that when the parties agree on particular procedure for appointment of the Arbitrator for settling their disputes, the provisions contained in sub-sections 3, 4 and 5 of Section 11 would not applicable. According to him, the stage for invoking sub-section 6 of Section 11 had not arrived in the instant case, as the petitioner had filed the petition before the expiry of the time limit fixed in the afore-stated clause 64 of the GCC.
6. There cannot be any disagreement with the ratio of afore-stated judgment relied upon by the learned counsel Mr. Sharma, in which it has been held inter alia that as per the legislative scheme of Section 11, if the parties have agreed on procedure for appointing the Arbitrator or Arbitrators as contemplated by sub-section 2 thereof, then the dispute between the parties has to be decided in accordance with the said procedure and recourse to the Chief Justice or his Designate cannot be taken straightway. A party can approach the Chief Justice or his Designate, when the parties have not agreed on a procedure for appointing the Arbitrator as contemplated by subsection 2 of Section 11 of the Act, or when various contingencies provided in sub-section 6 have arisen.
7. It can not be gainsaid that in the instant case, since the parties had agreed on a procedure for appointing the Arbitrators for settling their disputes by Arbitration as contemplated by subsection 2, they were required to follow the said procedure before approaching this Court seeking appointment of Arbitrator under sub-section 6 of Section 11. The undisputed facts as stated herein above are that the petitioner before approaching this Court had invoked the arbitration clause as contained in the agreement in question vide the letter dated 14.04.2014 and the same was replied by the respondent vide the letter dated 13.06.2014 requesting the petitioner to give details of item-wise claims. The petitioner thereafter furnished the said details of claims and requested to provide list of Arbitrators vide the letter dated 15.07.2014, however the total amount of claim submitted by the petitioner was more than 20% of the contract value, the respondent informed the petitioner vide the letter dated 20.08.2014 that the said Arbitration Clause containing Section 63 and 64 would not be applicable in view of the Clause 38.3 and 81 of the special condition of the contract. In response to the said letter, the petitioner revised its claims and restricted the same to the extent of 20% of the contract value vide the letter dated 05.09.2014, however since the respondent did not appoint the Arbitrator, the petitioner filed the present petition on 15.10.2014. Subsequently pending the present petition, it appears that the respondent vide the letter dated 24.12.2014 informed the petitioner to suggest the two names of the Arbitrators out of the panel suggested in the said letter, which letter was not responded to by the petitioner, and therefore the competent authority of the respondent constituted the Arbitration Tribunal, as per the said letter dated 04.02.2015. In view of the said development which took place pending the petition, the question that falls for consideration before this Court would be, whether the petitioner was entitled to approach this Court seeking appointment of Arbitrator under Section 11 (6) of the said Act ?
8. It is very pertinent to note that the Apex Court in case ofNorth Eastern Railway v. Tripple Engineering Works, 2014 (9) SCC 288, while dealing with the said Arbitration Clause 64 (3) of the GCC, had considered the various earlier decisions of the Supreme Court with regard to the powers of the High Court under Section 11 of the said Act, and held that:-
6. The "classical notion" that the High Court while exercising its power Under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter for short 'the Act') must appoint the arbitrator as per the contract between the parties saw a significant erosion inAce Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corporation Ltd.wherein this Court had taken the view that though the contract between the parties must be adhered to, deviations therefrom in exceptional circumstances would be permissible. A more significant development had come in a decision that followed soon thereafter inUnion of India v. Bharat Battery Manufacturing Co. (P) Ltd.wherein following a three-Judge Bench decision inPunj Lloyd Ltd. v. Petronet MHB Ltd.it was held that once an aggrieved party files an application Under Section 11(6) of the Act to the High Court, the opposite party would lose its right of appointment of the arbitrator(s) as per the terms of the contract. The implication that the Court would be free to deviate from the terms of the contract is obvious.
7. The apparent dichotomy in ACE Pipeline and Bharat Battery Mfg. Co. (P) Ltd. was reconciled by a three-Judge Bench of this Court inNorthern Railway Admn. v. Patel Engg. Co. Ltd.wherein the jurisdiction of the High Court Under Section 11(6) of the Act was sought to be emphasised by taking into account the expression "to take the necessary measure" appearing in sub-section (6) of Section 11 and by further laying down that the said expression has to be read along with the requirement of sub-section (8) of Section 11 of the Act. The position was further clarified inIndian Oil Corporation Limited and Ors. v. Raja Transport Pvt. Ltd.Para 48 of the Report wherein the scope of Section 11 of the Act was summarised may be quoted by reproducing sub-paras (vi) and (vii) herein below.
"48. (vi) The Chief Justice or his designate while exercising power under sub-section (6) 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 designated arbitrator and appoint someone else."
8. The above discussion will not be complete without reference to the view of this Court expressed inUnion of India v. Singh Builders Syndicatewherein the appointment of a retired Judge contrary to the agreement requiring appointment of specified officers was held to be valid on the ground that the arbitration proceedings had not been concluded for over a decade, making a mockery of the process. In fact, in para 25 of the Report in Singh Builders Syndicate this Court had suggested that the Government, statutory authorities and Government companies should consider phasing out arbitration clauses providing for appointment of serving officers and encourage professionalism in arbitration.
9. A pronouncement of late inDeep Trading Co. v. Indian Oil Corporation and Ors.followed the legal position laid down in Punj Lloyd Ltd. which in turn had followed a two-Judge Bench decision inDatar Switchgears Ltd. v. Tata Finance Ltd.The theory of forfeiture of the rights of a party under the agreement to appoint its arbitrator once the proceedings under Section 11(6) of the Act had commenced came to be even more formally embedded in Deep Trading Co. subject, of course, to the provisions of Section 11(8), which provision in any event, had been held in Northern Railway Admn. not to be mandatory, but only embodying a requirement of keeping the same in view at the time of exercise of jurisdiction Under Section 11(6) of the Act.
10. In the present case Clauses 64(3)(a)(ii) and (iii) of the general conditions of contract do not prescribe any specific qualification of the arbitrators that are to be appointed under the agreement except that they should be Railway Officers. As already noticed, even if the arbitration agreement was to specifically provide for any particular qualification(s) of an arbitrator the same would not denude the power of the Court acting Under Section 11(6), in an appropriate case to depart therefrom......."
9. The afore-stated decision has been followed by the Apex Court in the recent decision in case ofUnion of India (UOI) v. U.P. State Bridge Corporation Ltd, 2014 (10) Scale 561upholding the appointment of Arbitrator made by the High Court on its own, contrary to the arbitration clause. It was held in para 21 as under:-
"21. The appointment of arbitrator by the Court, of its own choice, departing from the arbitration clause, is therefore not unknown and has become an acceptable proposition of law which can be termed as a legal principle which has come to be established by a series of judgments of this Court. Reasons for debating such a course of action are not far to seek and already taken note of above."
10. The High Court of Kerala also in the case ofCoastal Engineering v. Southern Railway Headquarters Office, 2014 (3) KLJ 358, following decisions of the Supreme Court in case ofDatar Switchgears Ltd.'s case, (2000) 8 SCC 151,Northern Railway Administration, Ministry of Railway, New Delhi's case, (2008) 10 SCC 240,Punj Lloyd Ltd.'s case, (2006) 2 SCC 638,Bharat Sanchar Nigam Limited's case, 2010 (1) SCC 673andDeep Trading Company's case, 2013 (4) SCC 35, held as under:-
".......Therefore, it is now settled law that in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days, the right to make appointment is not forfeited but continues but an appointment has to be made before the former files an application under Section 11 seeking appointment of an arbitrator and only then the right of the opposite party ceases. The said view is binding on us. The conclusion therefore is that even though there is a waiting period covered by Clause 64(1)(i) of the General Conditions of Agreement, the right of the party to move the arbitration request is protected and if the appointment is made after the party moves the court, the
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same cannot survive." 11. The afore-stated legal position squarely applies to the facts of the present case. The petitioner had already invoked the Arbitration Clause 64 at the first instance vide the letter dated 14.04.2014, however the respondent did not respond to the said letter for about two months and then informed the petitioner to submit the item-wise claims. The petitioner having submitted item-wise claims, the respondent turned down the request for appointment of Arbitrator on the ground that the claim was more than 20% of the contract value. Though the petitioner thereafter had confined its claim to the extent of 20% of the contract value vide the letter dated 05.09.2014, the respondent did not appoint the Aribtral Tribunal and appointed the same pending the present petition, vide the letter dated 04.02.2015. As per the legal position settled by the Apex Court, the respondent having not made the appointment within 30 days of the invocation of the arbitration clause by the petitioner and had also not made the appointment till the petitioner filed the present application under Section 11 seeking appointment of the Arbitrator, the right of the respondent to appoint the Arbitrator had stood forfeited. It is required to be noted that in the instance case the petitioner had already waited for the requisite period, before approaching this court. If the appointment was made by the respondent after the petitioner had moved the Court, such appointment cannot survive. 12. In that view of the matter, the present petition deserves to be allowed, and is accordingly allowed. Hon'ble Mr. Justice A.C. Goyal (Retired), resident of D-19-B, "Seema Sadan", Meera Marg, Bani Park Jaipur, is hereby appointed as the sole Arbitrator to resolve the disputes between the parties. The cost of arbitration proceedings and the arbitration fees shall be as per the Rajasthan High Court Arbitration Manual. A copy of this order be sent to Hon'ble Mr. Justice A.C. Goyal (Retired) resident of D- 19-B, "Seema Sadan" Meera Marg, Bani Park Jaipur. Application allowed.