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Rajindra Electric Works,New Delhi v/s Delhi State Industrial Development Corporation

    Suit Appeal No.120-A of 1979

    Decided On, 19 December 1980

    At, High Court of Delhi

    By, THE HONOURABLE MR. JUSTICE J.D. JAIN

    For the Appearing Parties: Rajesh Lakhanpal, Usha Mehra, Advocates.



Judgment Text

J. D. Jain, J.


(1) THIS is an application under Section 20 Arbitration Act (hereinafter referred to as the Act) for filing of agreement of arbitration and appointment of arbitrator,


(2) AS per averments made by the petitioner, which is a partnership firm they entered into four contracts with Delhi State Industrial Development Corporation Ltd. respondent No. 1 under agreements Nos. DSIDC/ce/acctts/76-77/112 and DSIDC/ce/ Acctts/77-78/10-OKH-Scheme II, for electrification of certain sheds. However, some disputes arose between the petitioner and the respondent. The contracts stipulated that all disputes arising out of the work would be adjudicated upon by an arbitrator to be appointed by the Managing Director of respondent No. 1. So, in terms of the reference clause, the petitioner called upon respondent No. 2 viz. the Managing Director of respondent No. 1 to make appointment of arbitrator for adjudication of disputes which had arisen in relation to the aforesaid works vide four separate letters of even date viz. 10th May, 1978 (Annexuies 'c' 'd', *e' and 'f' to the petition ). However, respondent No. 2 did not appoint any arbitrator and simply replied vide letter dated 1st June, 1978 that the accounts of the petitioner were being, looked into and dues, if any, would be paid to them after finalisation of the accounts. The petitioner again called upon respondent No. 2 vide letters, D/- 20th June, 1978 and 22nd Nov. , 1978 requiring him to appoint an arbitrator for adjudication of disputes arising out of each of the four contracts within 15 days. However, there was no response from respondent No. 2. Hence, the petitioner has prayed that the respondents be directed to file the arbitration agreement for all the four works and respondent No. 2 be directed to make appointment of arbitrators for adjudication of the disputes relating to each of these contracts.


(3) THE respondents have put in contest primarily on the ground that this application under Section 20 of the Act is not maintainable and the jurisdiction of the Court is barred by the arbitration clause contained in the agreements in question which clearly provides that if for any reason it is not possible for persona designata to appoint an arbitrator then the matter is not to be referred to arbitration at all. It is averred that the persona designata being of the view that it was not possible to appoint an arbitrator rejected the request of the petitioner and as such the matter cannot be referred to arbitration at all and no arbitrator can be appointed. The respondents further contend that:


(1) there does not exist any dispute which could fall under the arbitration clause or could be referred to arbitration; (2) that the petitioner did not execute the work as per agreement, the time being essence of the contracts; (3) that the suit/application is barred under See. 69 of the Partnership Act as the petitioner-firm is not a duly registered firm and Shri Jasbir Singh, who has filed this application on its behalf, is not competent to sign and institute the suit; and (4) that this application has not been made in the prescribed form as no details of the claim have been furnished therein.


(4) IN the replication filed by the petitioner, the averments made in the petition have been reaffirmed while those contained in the written statement have been controverted. In particular, they have pointed out that no reason/cause has. been shown as to why it is not possible for the persona designata to appoint the arbitrator. The following issues were accordingly framed:


(i) Whether the present application under Section 20, Arbitration Act is not maintainable? (ii) Whether there exist disputes which are required to be referred to the arbitrator? If so what are those disputes ? (iii) Whether an arbitrator can be appointed in case the respondents do not appoint an arbitrator in terms of the Arbitration Clause No. 25 of the agreement? (iv) Relief.


(5) ISSUES 1 and 3 Both these issues can be conveniently clubbed together because they are closely linked and their decision rests on almost the same material. Clause 25 of the contract in each case provides for arbitration. It is reproduced below for ready reference:


"except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned and as to the quality of workmanship or materials used on the work of as to any other questions, claim, right, matter of things whatsoever, in any way arising out of or relating to the contract design, drawings, specifications, estimates, instructions, orders or those conditions or otherwise concerning the works, or the execution of failure to execute the same whether arising during the progress of the work, or after the completion or abandonment thereof shall be referred to the sole arbitration of the persons appointed by Managing Director or Administrative Head at the time of such dispute. It will be no objection to any such appointment that arbitrator so appointed is a Government servant, that he had to deal with the matters to which the contract relates and that in the course of his duties as Government servant he had expressed views on all or any of the matters in disputes of difference. The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reasons, such Managing Director or administrative head as aforesaid at the time of such transfer, vacating of office or act or arbitrator in accordance with the terms of the contract. Such person shall be entitled to proceed with the reference from the stage of which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed by Such Managing Director or administrative head of the DSTDC as aforesaid should act as Arbitrator and if for any reason, that is not possible, the matter is not to be referred to arbitration at all. Subject aforesaid the provisions of the Arbitration Act, 1940 or any statutory modification or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration upon proceeding under this clause. It is a term of the contract that the party invoking arbitration shall specify the dispute or disputes to be referred to arbitration under this clause together with the amount or amounts claimed in respect of each such dispute.

(Emphasis supplied.)


(6) THE words underlined by me above are indeed crucial for the decision of these issues which rests on a proper construction thereof. Evidently, power to appoint an arbitrator was conferred exclusively on the Managing Director/administrative Head of respondent No. 1 at the time of the dispute and only an arbitrator appointed by him can act as such. So far so, there ii no controversy between the parties. However, the real bone of contention is as to whether it is open to the petitioner to enforce agreement of arbitration through Court even when the persona designata i. e. respondent No. 2 does not choose to or refuses to appoint an arbitrator, the submission made by counsel for the respondents being that in such a contingency/event the arbitration agreement itself is negated and comes to an end. In other words, the arbitration clause. as such cannot be invoked by any party to the contract.


(7) THIS question precisely came up for consideration before a Division Bench of this Court in Kishan Chand v. Union of India and B. L. Kapoor v. Union of India, 1974 Rajdhani LR 553. In both the said cases the arbitration clause was couched in identical terms with that in the instant case and the reference clause categorically stated, as in the instant case that:


"it is also a term of this contract that no person other than a person appointed by such Chief Engineer or administrative head of the CPWD as aforesaid should act as Arbitrator and if for any reason, that is not possible, the matter is not to be, referred to arbitration at all. "

Their Lordships examined a large number of authorities on this subject and came to the conclusion that the appointment of an arbitrator in such a case must be had from the persona designata in the arbitration clause and Court would be unable to deal with a situation in which the persona designata failed or refused to appoint. Adverting to the aforesaid arbitration clause T. P. S. Chawla, J. : who spoke for the Court observed: "obviously, the purposes of (his stipulation was to negate the power of the Court to appoint an arbitrator under the Arbitration Act. Conceivably no other authority or person could have or obtain the power to appoint an arbitrator to determine disputes arising out of the agreement. So absolute is the stipulation made, that 'if for any reason' it is not possible that an arbitrator be appointed by the Chief Engineer or the administrative head of the C. P. W. D. , the arbitration agreement itself is destroyed. Such a stipulation is not invalid. "


(8) IN view of this authoritative pronouncement of legal position, it would be futile for me to embark upon any detailed discussion of other authorities on the subject. However, it may be pertinent to reproduce below the following excerpt from Union of India v. S. V. Krishna Rao, AIR 1970 Madh Pra 49, which was quoted by their Lordships with approval (at p. 53):


"when the agreement is being enforced, it cannot be logically said that the agreement to refer the dispute to arbitration is to be enforced and not the other part of the agreement, namely, the arbitration by the named person or the persons to be, selected by following the previously agreed procedure Thus, there can be no shadow of doubt that the procedure laid down in the arbitration agreement will prevail and will have to be followed. In other words, if for any reason, it is not possible for the Managing Director of respondent No. 1 to appoint an Arbitrator in the instant case, the disputes between the parties cannot be referred to arbitration at all.


(9) THIS judgment has been followed recently in another case viz. M/s. Rai Bahadur Basakha Singh and Sons (Contractors) Pvt. Ltd. v. M/s. Indian Drugs and Pharmaceutical Ltd. , AIR 1979 Delhi 220, wherein too the arbitration clause was identically worded.


(10) THE learned counsel for the petitioner has, however, canvassed with all emphasis at his command that both the above-mentioned cases are distinguishable on facts in as much as in the instant case there is nothing on the record to suggest that the persona designata has applied his mind to the disputes which have arisen between the parties and has come to the conclusion that it is not possible to appoint an arbitrator for adjudication of the same. Moreover, it is contended that even though the decision of the persona designata in this respect is administrative in nature, he is supposed to act fairly and impartially. In other words, he must assign some reason as to why it is not possible to appoint an arbitrator in this case. The words 'that is not possible' appearing in the arbitration clause evidently postulate some kind of hurdle or impediment in the way of Managing Director appointing an arbitrator. In other words, there must be some valid ground or compelling reason on account of which it is considered not possible to appoint an arbitrator. However, the persona designata in this case has not at all expressed his mind and there is no shred of evidence on the record to suggest that respondent No. 2 considered the request of the petitioner to appoint an arbitrator and he was of the view that it was not possible to do so for some reason. No such decision of the persona designata has been placed on the record. He has not even filed an affidavit to that effect although he is party to the present proceedings. In other words, the condition precedent for negating the arbitration agreement itself does not exist and the Court can well call upon the persona designata to appoint an arbitrator in terms of the reference clause for adjudication of disputes between the parties.


(11) ON a consideration of the matter, I find considerable merit in this submission. A perusal of the two cases before a Division Bench (1974 Rajdhani LR 553) would show that a scrutiny of the two cases before the Division Bench revealed that in Kishan Chand's case (supra) the Chief Engineer, who was the persona designata had taken the stand that he was already taking steps to appoint an arbitrator after completing the necessary administrative formalities and that the petitioner had rushed to the Court unnecessarily. Thus, the agreement of arbitration was still subsisting and it was held that the appointment of the arbitrator must be had from the person designated in the arbitration clause. As for B. L. Kapoor's case (supra), an arbitrator had been actually appointed by the persona designata after the disputes had arisen between the parties and some proceedings were held by him. However, he resigned. The Chief Engineer, who was the persona designata, then appointed another arbitrator. There were some proceedings before him also but he too resigned. Thereupon, the claimant-petitioner in the said case requested the Chief Engineer to appoint a technical person, but before any action could be taken on it, the petitioner moved an application under S. 8 (1) (b) for appointment of an arbitrator by the Court. However, while the petition was still pending, the Chief Engineer appointed an arbitrator and, therefore, the question for consideration was whether the Court was competent to appoint an arbitrator under Section 8 (1) (b) of the Act. Even the case of M/s. Rai Bahadur Basakha Singh and Sons (AIR 1979 Delhi 220) (supra) is distinguishable on facts inasmuch as the persona designata in that case had informed the petitioner, who had requested for appointment of an arbitrator to adjudicate upon the disputes that no arbitrator could be appointed in this regard. However, nothing of the kind has happened in the instant case. At least, there is no iota of evidence on the record to this effect. The least that respondents could do in the instant case was to place on record the decision, if any, of the persona designata that it was not possible to appoint an arbitrator in the instant case. In the absence of such a decision by the persona designata the plea of respondents that no arbitrator can be appointed at all falls to the ground. Indeed, the stand taken by the respondents in the written statement is self contradictory; while in para 6 of the written statement, it is contended that the persona designata was of the view that it is not possible to appoint an arbitrator and, therefore, rejected the request of the petitioner-claimant, in paras 8 and 10, it is simply stated that the persona designate not having appointed arbitrator, no arbitrator can be appointed by the Court. Certainly, mere ipse dixit of the respondents in this respect cannot be accepted as sufficient compliance with the requirement of arbitration clause.


(12) IN this view of the matter, this application can certainly be treated as a request to the persona designate to appoint an arbitrator in terms of the reference clause. In this context, the following observations of the Supreme Court in Dhanrajamal Gobindram v. Shamji Kalidas and Co. , AIR 1961 SC 1285, are very pertinent to note (at p. 1294):


"in the present case the parties by their agreement have placed the power of selecting an arbitrator or arbitrators (in which we include also the umpire) in the hands of the Chairman of the Board of Directors of the East India Cotton Association Ltd. , and the Court can certainly perform the ministerial act of sending the agreement to him to be dealt with by him. Once the agreement filed in Court is sent to the Chairman, the Bye-laws lay down the procedure for the Chairman and the appointed arbitrator or arbitrators to follow, and that procedure, if inconsistent with the Arbitration Act, prevails. In our opinion, there is no impediment to action being taken under S. 20 (4) of the Arbitration Act. "


(13) IT is, of course, to be hoped that the persona designata will act fairly, impartially and reasonably. Issue No. 2


(14) THE petitioner has listed various disputes which have allegedly arisen between them and the respondents in their notices dated 10th May, 1978 (Annexures 'c', 'd', 'e' and 'f' to the plaint/petition ). The contention of the respondents' counsel, however, is that the alleged disputes should have been mentioned in the application under Sec. 20 of the Act itself and as such it must be concluded that there are no disputes which can be referred to arbitration. However, I do not agree. A perusal of the application under Section 20 would show that all these letters have been made a part of the plaint and have been virtually incorporated therein. The prayer clause itself refers to Annexures 'c', 'd', 'e' and 'f'. No doubt, it would have been much better if the petitioner had enumerated and specified in some detail all the disputes which had arisen between them and the respondent in relation to or concerning the contracts in disputes, but omission on their part to do so cannot be held to be fatal, particularly when they have clearly alluded to their letters dated 10th May, 1978, as Annexures 'c', 'd', 'e' and 'f' in the plaint which thus become a part and parcel of the plaint.


(15) AS for the existence of disputes, it may be of some interest to note that the respondents have spoken in two voices in the written statement fil

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ed by them. In para 3 of the preliminary objections raised in the written statement they state that there does not exist any dispute which could be covered under arbitration clause or could be referred to arbitration. However, in para 2 of the written statement on merits, they contend that the petitioner did not execute the work as per the agreement and that the time was of the essence of the contract. Evidently, both these stands cannot be reconciled, being self-contradictory. Further, the affidavit sworn by Shri V. T. Gidwani, Executive Engineer (E) of respondent No. 1 reveals that the petitioners were asked to complete the remaining work and to attend to the defects repeatedly but the latter did not bother and committed breaches of the contracts. Thereupon, his contract was terminated on 29th March, 1978, with regard to agreement No. DSIDC/ce/acctts/77-78/10-OKH- Scheme 11 electrification and similarly the petitioner was unable to complete the whole of the work with regard to agreement No. DSIDC/ea/acctts/9/rr and the same was. therefore, terminated on 28th March. 1978. Thus, he has asserted that the breach having been committed by the contractor, no amount is payable to him and there is no dispute. To say the least, the stand taken is rather fantastic. The existence of disputes is, therefore, established from the assertions and contentions raised by the respondents themselves, not to speak of the claims made by the petitioner. This issue is, therefore. found for the petitioner. (16) AS a result, I direct that the agreements of arbitration in this case be filed in Court. Defendant No. 2 is further directed to appoint an arbitrator for adjudication of all the disputes which have arisen between the parties out of in relation to each of the contracts in disputes, as detailed in Annexures 'c', 'd', 'e' and 'f' to the application under Section 20 of the Act within three months from today. (17) HOWEVER, no order is made as to costs.
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