Full Judgment Text
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CASE NO.:
Appeal (civil) 4251 of 2006
PETITIONER:
National Highways Authority of India & Anr
RESPONDENT:
Bumihiway DDB Ltd. (JV) & Ors
DATE OF JUDGMENT: 25/09/2006
BENCH:
Dr. AR. Lakshmanan & Tarun Chatterjee
JUDGMENT:
J U D G M E N T
(Arising out of SLP (C) No. 8924/2006)
Dr. AR. Lakshmanan, J.
Leave granted.
The appellant \026 National Highways Authority of India has
filed the present appeal against the judgment and order of the
High Court of Orissa at Cuttack dated 06.01.2006 in
Arbitration Petition No. 23 of 2005 whereby the High Court in
modification of its order dated 01.07.2005 substituted Mr.
Justice P. Chenna Keshav Reddy, former Chief Justice of
Andhra Pradesh and Gauhati High Court as the Presiding
Arbitrator in place of Mr. Justice Y. Bhaskar Rao.
FACTS:
The appellant \026 National Highways Authority of India (in
short "the NHAI") issued letter of acceptance to respondent
No.1, Bumihiway DDB Limited (JV), New Delhi for award of
the contract for widening to 4/6 lanes and strengthening of
existing 2-Lane carriage of National Highway\0265 from Km
233.000 to Km 284.000 between Ichapuram to Ganjam in the
State of Orissa, which was a part of the Chennai-Kolkata
Corridor of the Golden Quadrilateral connecting Delhi,
Mumbai, Chennai and Kolkata.
On 11.06.2001, the appellants entered into an agreement
with respondent No.1 for the aforesaid contract. The contract
agreement contained a mechanism for resolution of disputes
between the parties as contained in Sub-Clause 67.3
Sub-Clause 67.3 reads as follows:
"Any dispute in respect of which the Recommendation(s), if
any, of the Board has not become final and binding pursuant
to Sub-Clause 67.1 shall be finally settled by arbitration as
set forth below. The arbitral tribunal shall have full power to
open-up, review and revise any decision, opinion,
instruction, determination, certificate or valuation of the
Engineer and any Recommendation(s) of the Board related to
the dispute.
(i) A dispute with an Indian Contractor shall be finally
settled by arbitration in accordance with the
Arbitration & Conciliation Act, 1996, or any statutory
amendment thereof. The arbitral tribunal shall consist
of 3 arbitrators, one each to be appointed by the
Employer and the Contractor. The third Arbitrator
shall be chosen by the two Arbitrators so appointed by
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the Parties and shall act as Presiding arbitrator. In
case of failure of the two arbitrators, appointed by the
parties to reach upon a consensus within a period of
30 days from the appointment of the arbitrator
appointed subsequently, the Presiding arbitrator shall
be appointed by the President, Indian Roads Congress.
For the purposes of this Sub-Clause, the term "Indian
Contractor" means a contractor who is registered in
India and is a juridic person created under Indian law
as well as a joint venture between such a contractor
and a Foreign Contractor.
(ii) \005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005
\005\005\005.
(iii) \005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005
\005\005\005
(iv) \005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005
\005\005\005.
(v) If one of the parties fail to appoint its arbitrator in
pursuance of sub-clause (i) and (ii) above, within 30
days after receipt of the notice of the appointment of
its arbitrator by the other party, then the President of
Indian Road Congress both in cases of foreign
contractors as well as Indian Contractors, shall
appoint the arbitrator. A certified copy of the order of
the President of Indian Road Congress making such an
appointment shall be furnished to each of the parties.
(vi) Arbitration proceedings shall be held at Delhi in India,
and the language of the arbitration proceedings and
that of all documents and communications between
the parties shall be English.
(vii) The decision of the majority of arbitrators shall be final
and binding upon both parties. The cost and expenses
of Arbitration proceedings will be paid as determined
by the arbitral tribunal. However, the expenses
incurred by each party in connection with the
preparation, presentation, etc. of its proceedings as
also the fees and expenses paid to the arbitrator
appointed by such party or on its behalf shall be borne
by each party itself."
During the pendency of the contract period, the appellant
noticed some defaults on the part of respondent No.1 who had
neglected the execution of the contract due to which the
project of national interest had been delayed by more than 5
years. Thus action in terms of clause 63.1(d) of the conditions
of contract was taken by the appellants and respondent No.1
was evicted from the site on 14.01.2004.
The contractor, respondent No.1, initiated proceedings
under Section 9 of the Arbitration and Conciliation Act, 1996
and filed Arbitration Application No. 2 of 2004 in the Court of
District Judge, Ganjam who, vide order dated 02.04.2004,
restrained the appellants from expelling respondent No.1 from
the work site till dispute between the parties are adjudicated
as per the contract agreement. The Court further refused to
pass any orders restraining the appellants from encashing the
Bank Guarantees.
The said order was challenged by both the parties before
the High Court of Orissa. The High Court, vide common order
dated 02.11.2004, disposed off both the appeals directing
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appellant No.1 to constitute Dispute Review Board within a
period of 6 weeks. The order of restraint passed by the
District Judge was set aside and liberty was granted to
appellant No.1 to go for re-tendering process with liberty to
respondent No.1 to participate. The aforesaid order was again
challenged by both the parties by filing separate special leave
petitions, namely:
a) SLP (C) No. 24813-24814 of 2004
b) SLP (C) No. 25890-25891 of 2004
This Court, vide order dated 13.01.2005, directed both
the parties to maintain status quo in the meanwhile.
The Dispute Review Board gave its recommendations on
26.02.2005 against which respondent No.1 vide letter dated
03.03.2005 referred the disputes arising thereof to arbitration
under Clause 67 of the Conditions of Particular Application of
the contract. Respondent No.1 nominated its arbitrator as
respondent No.3 herein. In reply to a letter dated 03.03.2005,
the appellants also invoked arbitration clause vide letter dated
10.03.2005. Thereafter, the appellant on 31.03.2005
nominated Mr. D.P.Gupta respondent No.5 herein as their
arbitrator.
Vide letter dated 09.04.2005, respondent No.3 requested
Mr.D.P.Gupta to concur with the name of the Presiding
Arbitrator as proposed by him. This Court, vide order dated
15.04.2005, passed the following order in the aforesaid special
leave petitions:
"Leave granted. Heard Parties.
The Portion of the impugned order whereby Applicant in Civil
Appeals arising out of S.L.P. (Civil) Nos. 24813-24814 is
permitted to participate in the re-tender process is stayed.
We clarify that the observations made by the High Court will
not be taken into account in other proceedings including the
Arbitration which may be invoked by the parties."
Mr.D.P.Gupta, vide letter dated 15.04.2005, disagreed
with the names proposed by respondent No.3. Thereafter, in
view of the disagreement between the two nominated
arbitrators, respondent No.1 sought clarification from
respondent No.2 herein vide its letter dated 29.04.2005.
Respondent No.1 requested respondent No.2 if any judicial
arbitrator is available with them for the purpose of nomination
as Presiding Arbitrator. It was pointed out that respondent
No.1 never sought any intervention of respondent No.2 for
appointment of the Presiding Arbitrator rather it only sought
clarification in this regard. Vide letter dated 03.05.2005,
respondent No.2 - Indian Road Congress (IRC) informed
respondent No.1 that there does not exist any judicial
arbitrator in its panel. Thereafter, respondent No.1 filed
Arbitration Petition No. 23 of 2005 before the High Court
under Section 11(6) of the Arbitration & Conciliation Act,1996
(hereinafter referred to as "the Act") requesting for the
appointment of the Presiding Arbitrator. The said petition,
according to the appellants, was in gross violation of the
statutory provisions of Section 11(6) as also against the
contractual terms agreed to between the parties without
making any reference to respondent No.2 for the appointment
of the Presiding Arbitrator.
On 11.05.2005, the appellants requested respondent
No.2 to appoint the Presiding Arbitrator in view of the
disagreement between two nominated arbitrators as stipulated
in the contractual terms. In the meanwhile, respondent No.2,
by a letter dated 31.05.2005, requested the appellants for
submission of 50% of the processing fee to enable them to
make the appointment as requested. Respondent No.1, vide
letter dated 02.06.2005, informed respondent No.2 regarding
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the filing of the petition before the High Court for appointment
of the Presiding Arbitrator and asked them to wait for the
outcome of the judgment since the matters were subjudiced
before the Court. On 01.07.2005, Arbitration Petition No. 23
of 2005 was listed for hearing before the High Court and the
High Court ordered to appoint Mr. Justice Y. Bhaskar Rao as
the Presiding Arbitrator. Respondent No.1, vide letter dated
06.07.2005, further clarified that the said appointment was
made since IRC had failed to appoint the Presiding Arbitrator
within the stipulated time of 30 days of the request made by
the parties.
On 11.07.2005, Mr. D.P.Gupta submitted his resignation
which was accepted by the appellants and one Mr. L.R. Gupta
was appointed as their arbitrator who, in turn, refused to
accept the appointment as made by the appellants. On
26.07.2005, Mr. Justice Y. Bhaskar Rao informed the co-
arbitrators that he has decided not to proceed with the
arbitration. Thereafter, the appellants appointed one Mr.
Surjeet Singh as their arbitrator. After resumption of the
proceeding in arbitration on the resignation of the Presiding
Arbitrator, appellant No.1 filed its counter affidavit in the
arbitration petition. On 30.08.2005, since the two arbitrators
had failed to agree on the name of the Presiding Arbitrator,
appellant No.1 requested respondent No.2 for the appointment
of the Presiding Arbitrator. In reply to the aforesaid letter,
respondent No.2 vide letter dated 06.09.2005, informed that
the meeting of the Executive Committee will be held on
09.09.2005 for the appointment of the Presiding Arbitrator.
Respondent No.3, vide letter dated 31.08.2005 to both the
parties, stated that in view of the failure of both the arbitrators
to appoint the Presiding Arbitrator, appropriate steps should
be taken in this regard. Respondent No.1 filed its rejoinder
affidavit before the High Court. The High Court, vide interim
order dated 09.09.2005 directed to list the matter on
23.09.2005 and directed respondent No.2 not to appoint any
arbitrator in the meantime till the next date of hearing. The
High Court, vide final judgment dated 06.01.2006, appointed
Mr. P. Chenna Keshava Reddy, former Chief Justice of Andhra
Pradesh and Gauhati High Court as the Presiding Arbitrator,
which according to the appellants, is in clear and express
violation of the contract agreement entered into between the
parties. Being aggrieved by the impugned order, the above
civil appeal was filed.
We heard Mr. G.E. Vahanvati, learned Solicitor General
of India, appearing on behalf of appellants and Mr. Altaf
Ahmad, learned senior counsel appearing on behalf of the
respondents and carefully perused the pleadings, the order
impugned in this appeal and other records.
Mr. G.E. Vahanvati, learned Solicitor General made the
following submissions:
a) The High Court was not justified in making the
appointment under Section 11(6) of the Act ignoring
the statutory provisions as read under Sections
15(2), 11(6), 11(3) and 11(4) of the Act conferring
jurisdiction on the Court to make the appointment
only on failure of the persons/institutions
designated to perform the functions entrusted to it
and the agreed procedure;
b) When the arbitration agreement clearly envisages
the appointment of the Presiding Arbitrator by the
IRC and there is no specification that the arbitrator
has to be different persons depending on the nature
of this dispute. It is not open to ignore it and
invoke the exercise of powers under Section 11(6) of
the Act.
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c) The High Court was not justified in referring to the
principles of hierarchy and ignoring the express
contractual provisions for appointment of the
Presiding Arbitrator against the well settled law as laid
down by this Court. The order in effect amounts to re-
writing the contract against the text, spirit, fabric and
intent of the agreed terms.
Mr. Altaf Ahmed, learned senior counsel appearing for
the respondents, per contra, submitted that since the
arbitrators nominated by the respondent, namely, Mr. Justice
Ashok A. Desai and Mr. Justice K. Jayachandra Reddy had
rejected the proposal regarding appointment, the respondent
on 29.04.2005 wrote a letter to Indian Roads Congress and
sought information from the IRC as to whether any judicial
arbitrator preferably former Chief Justice of the High Court or
above positions was available in the IRC panel of the
arbitrators for the purpose of nomination of the Presiding
Arbitrator. By communication dated 03.03.2005, IRC
intimated that they do not have any judicial arbitrator in their
panel. Since the IRC failed to appoint the Presiding Arbitrator
in terms of the Act, the respondent on 05.05.2005 filed
arbitration application under Section 11 of the Act in the High
Court. The High Court after taking into consideration of the
facts and by consent of both the parties by its order dated
01.07.2005 appointed Mr. Justice Y. Bhaskar Rao as the
Presiding Arbitrator. Mr. Altaf Ahmed further submitted that
the appellants have never challenged the order dated
01.07.2005 appointing the Presiding Arbitrator till date.
However, Mr. Justice Bhaskar Rao, Presiding Arbitrator
expressed his inability to act as the Presiding Arbitrator and
accordingly intimated directly to the High Court of Orissa
regarding his inability to act as the Presiding Arbitrator.
Thereafter, when the matter was listed on 05.08.2005, the
High Court directed the counsel for the appellants to obtain
instruction from the appellants. In the meantime, Mr. Ashok
Desai, arbitrator appointed by the respondents and Mr.
Surjeet Singh, arbitrator appointed by the appellants carried
out discussions regarding the appointment of the Presiding
Arbitrator. On 06.01.2006, learned counsel for the appellants,
under annexure-9, had suggested the names of five retired
Judges of the various High Courts including the name of the
retired Chief Justice/retired Judge of the Supreme Court of
India for appointing one of them as the Presiding Arbitrator.
Learned counsel for the appellants herein also submitted that
anyone from the said list may be appointed as the Presiding
Arbitrator. Learned counsel further fairly submitted that he
does not like to suggest any particular name from the said list
though the Court may appoint any one of them as the
Presiding Arbitrator and appointed Justice P. Chenna Keshava
Reddy as the Presiding Arbitrator in place of Justice Y.
Bhaskar Rao with the consent of both the parties. Learned
senior counsel for the respondents invited our attention to the
proceedings of the Court dated 23.06.2006 in Misc. Case No. 6
filed by the appellants in ARB Application No. 23 of 2005
which came up for hearing before the Chief Justice of the High
Court of Orissa. By order dated 23.06.2006 on the
Miscellaneous Application filed by the appellants, it was
clarified as under:
"By order dated 6-1-2006, I appointed Justice P. Chenna
Keshava Reddy, Former Chief Justice of Guwahati High
Court as the Presiding Arbitrator on a Fee of Rs. 10,000/-
per sitting which should be equally shared by both Parties.
It was further stipulated in the said order that the learned
Arbitrator shall be entitled to Rs.10,000/- per sitting
towards clerkage etc. Justice P. Chenna Keshava Reddy’s
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name was picked up from a list of various names under
Annexure-9 supplied by the petitioner. In that order it was
inter alia, recorded that learned counsel for Opposite Party
nos. 1 and 2 fairly submitted that any one from the said list
may be appointed as the Presiding Arbitrator. Now, learned
counsel for Opposite Party nos. 1 and 2 submits that it was
not submitted by him that any one from the said list may be
appointed as Presiding Arbitrator. What learned counsel for
Opposite Party nos. 1 and 2 submitted is that he left the
question of appointing the Presiding Arbitrator to the
discretion of this Court. May be what learned counsel for
Opposite Party nos. 1 and 2 submits is correct. However,
that discretion having left with me to appoint any one as the
Presiding Arbitrator, I acted within my jurisdiction in
appointing Justice P. Chenna Keshava Reddy as the
Presiding Arbitrator. This misc. case is accordingly disposed
of."
It was submitted by Mr. Altaf Ahmed that in view of the
clarification issued by the Chief Justice of the High Court
nothing survives in the present appeal and that the appellants
having not challenged the main order of the Presiding
Arbitrator cannot assail the order of mere substitute of name
of the Presiding Arbitrator more so, in view of the clarification
issued by the High Court of Orissa. Learned senior counsel
further submitted that the appellants having accepted the
order of the High Court dated 01.07.2005 is thus
precluded/estopped from challenging the order dated
06.01.2006 as the subsequent order is nothing but
continuation of the proceedings dated 01.07.2005 wherein Mr.
Justice Y. Bhaskar Rao was appointed and he had expressed
his inability to accept the office. Learned senior counsel
submitted that the appeal is devoid of any merit as the
impugned order is in accordance with law and is just and
proper in the facts and circumstances of the case.
We shall now consider the rival submissions made by
both the parties in extenso in paragraphs infra.
In the facts of the present appeal, the following questions
of law have arisen for consideration and determination by this
Court from the arguments of both the sides:-
a) What is the scope of jurisdiction of the Court on the
resignation of an arbitrator considering a specific
mandate and mechanism under Section 15(2) of the
Arbitration and Conciliation Act, 1996 and Clause
67.3 of the Contract?
b) Whether on resignation of one of the arbitrators, the
statutory provision that comes into play is Section
15(2) or Section 11(6) of the Arbitration and
Conciliation Act, 1996?
c) Whether an Arbitration Clause, which is a
sacrosanct Clause, can be rewritten by appointment
of a judicial arbitrator when no qualification thereof
is provided in the agreement?
d) Whether the consent given by one of the parties (if
treated to be so on assumption) is enough for the
clause to be re-written?
The present appeal involves the issue relating to
appointment of the Presiding Arbitrator in accordance with the
agreed contractual terms between the parties. As per Clause
67 of the contract agreement, a dispute resolution mechanism
has been agreed to wherein the parties agreed that any
dispute arising between them shall, in the first instance, be
referred to a Dispute Review Board (DRB).
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Clause 67.3 further stipulates that for the purpose of
constitution of the Arbitral Tribunal in respect of challenge to
the recommendation of DRB, in case of failure of the two
arbitrators appointed by the respective parties to arrive at a
consensus within a period of 30 days from the appointment of
the arbitrator appointed subsequently, the Presiding Arbitrator
shall be appointed by the President, Indian Road Congress.
In the present case, for the purpose of appointment of
Presiding Arbitrator, the respondent unilaterally approached
the High Court of Orissa at Cuttack under Section 11(6) of the
Arbitration and Conciliation Act, 1996, in express violation of
the contract agreement without first requesting the Indian
Road Congress being the designated authority for appointment
of the Presiding Arbitrator.
It is evident from the record that after the appointment of
the Presiding Arbitrator on 1st July 2005, the arbitrator
appointed by the appellants Mr. D.P. Gupta resigned on 11th
July 2005. The new arbitrator nominated by the appellants
did not accept the appointment on 20th July,2005. Thereafter,
Mr. Justice Y. Bhaskar Rao resigned on 26th July, 2005. On
the vacancy created by the resignation of Mr. Justice Y.
Bhaskara Rao, the process of appointment of the Presiding
Arbitrator started afresh in accordance with the agreed terms
of the Contract. The appellant appointed its arbitrator Mr.
Surjeet Singh on 28th July,2005. Hence, the process of
discussion between the two nominated arbitrators was
reinitiated as per the agreed contractual terms and in
accordance with Section 15(2) of the Arbitration & Conciliation
Act, 1996. The two arbitrators failed to arrive at a consensus
and, therefore, after 30 days, the appellants referred the issue
of appointment of Presiding Arbitrator to IRC on 30th August,
2005.
It is seen from the aforesaid facts that the situation
which existed prior to the resignation of Mr. Justice Y.
Bhaskara Rao and those which came about subsequent
thereto only affirm that the vacancy created by the resignation
of Mr. Justice Y. Bhaskara Rao was accepted by the parties to
be filled up in accordance with the original rules of
appointment, which is wholly in consonance with Section
15(2) of the Arbitration & Conciliation Act, 1996.
Reliance was placed on the case of Yashwith
Construction P. Ltd. Vs Simplex Concrete Piles India Ltd
& Anr., 2006 (7) Scale 48 (at para 4) wherein this Court had
held that "The withdrawal of an arbitrator from the office for
any reason is within the purview of Section 15(1) (a) of the Act
and therefore, Section 15(2) would be attracted and a
substitute arbitrator has to be appointed according to the
rules that are applicable for the appointment of the arbitrator
to be replaced." However, the process which had been
reinitiated by the two nominated arbitrators was restrained by
the High Court vide order dated 9-9-2005. It is pertinent to
mention that the re-initiation of the process of appointment
was accepted by the Respondents as is evident from the
rejoinder filed by them before the High Court.
It was submitted that the resignation and death of an
arbitrator mandates application of Section 15(1) and 15(2) of
the Arbitration Act. Section 15(1) and 15(2) are complete and
wholesome and contra distinct to Section 11(6). Mr. Justice Y.
Bhaskar Rao’s resignation brought the matter back from
vestiges of Section 11(6) though in the first place in law there
were none and brought the matter squarely within Section
15(2). Any decision given under Section 11(6) is wholly
miscarriage in law and would tantamount to putting the Act
upside down. It was also submitted that the matter on
Section 15(2) is no longer res integra as per the dictum in
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Yashwith Construction.
It may be further seen that the impugned order is not an
order merely to fill up the vacancy created by the resignation
but is a judicial order which takes into account all the facts
and circumstances before giving the judicial determination for
the appointment. The said judicial order has, ipso facto,
replaced the earlier administrative order of 1.7.2005. In this
regard, reliance was placed on the judgment of this Court in
the case of SBP & Co. vs. Patel Engineering Ltd. & Anr.
(2005) 8 SCC 618. In paragraph 47 of this judgment, this
Court held as under:
"47. We, therefore, sum up our conclusions as follows:
(i) The power exercised by the Chief Justice of the
High court or the Chief Justice of India under
Section 11(6) of the Act is not an administrative
power. It is a judicial power.
(ii) The power under Section 11(6) of the Act, in its
entirety, could be delegated, by the Chief Justice
of the High Court only to another Judge of that
Court and by the Chief Justice of India to
another Judge of the Supreme Court.
(iii) In case of designation of a Judge of the High
Court or of the Supreme Court, the power that is
exercised by the designated Judge would be that
of the Chief Justice as conferred by the statute.
(iv) The Chief Justice or the designated Judge will
have the right to decide the preliminary aspects
as indicated in the earlier part of this judgment.
These will be his own jurisdiction to entertain
the request, the existence of a valid arbitration
agreement, the existence or otherwise of a live
claim, the existence of the condition for the
exercise of his power and on the qualifications of
the arbitrator or arbitrators. The Chief Justice
or the designated Judge would be entitled to
seek the opinion of an institution in the matter
of nominating an arbitrator qualified in terms of
Section 11(8) of the Act if the need arises but the
order appointing the arbitrator could only be
that of the Chief Justice or the designated
Judge.
(v) Designation of a District Judge as the authority
under Section 11(6) of the Act by the Chief
Justice of the High Court is not warranted on
the scheme of the Act.
(vi) Once the matter reaches the Arbitral Tribunal or
the sole arbitrator, the High Court would not
interfere with the orders passed by the arbitrator
or the Arbitral Tribunal during the course of the
arbitration proceedings and the parties could
approach the Court only in terms of Section 37
of the Act or in terms of Section 34 of the Act.
(vii) Since an order passed by the Chief Justice of the
High Court or by the designated Judge of that
Court is a judicial order, an appeal will lie
against that order only under Article 136 of the
Constitution to the Supreme Court.
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(viii) There can be no appeal against an order of the
Chief Justice of India or a Judge of the Supreme
Court designated by him while entertaining an
application under Section 11(6) of the Act.
(ix) In a case where an Arbitral Tribunal has been
constituted by the parties without having
recourse to Section 11(6) of the Act, the Arbitral
Tribunal will have the jurisdiction to decide all
matters as contemplated by Section 16 of the
Act.
(x) Since all were guided by the decision of this
Court in Konkan Rly. Corpn. Ltd. vs. Rani
Construction (P) Ltd. (2002) 2 SCC 388 and
orders under Section 11(6) of the Act have been
made based on the position adopted in that
decision, we clarify that appointments of
arbitrators or Arbitral Tribunals thus far made,
are to be treated as valid, all objections being left
to be decided under Section 16 of the Act. As
and from this date, the position as adopted in
this judgment will govern even pending
applications under Section 11(6) of the Act.
(xi) Where District Judges had been designated by
the Chief Justice of the High Court under
Section 11(6) of the Act, the appointment orders
thus far made by them will be treated as valid;
but applications if any pending before them as
on this date will stand transferred, to be dealt
with by the Chief Justice of the High Court
concerned or a Judge of that Court designated
by the Chief Justice.
(xii) The decision in Konkan Rly. Corpn. Ltd. vs. Rani
Construction (P) Ltd. is overruled."
Before the appellants could file an appropriate petition
against the order dated 1.7.2005, one of the arbitrators
resigned on 11.7.2005 and thereafter, the Presiding Arbitrator
also resigned on 26.7.2005. Hence, the contention raised by
the respondents that the order dated 1.7.2005 had not been
challenged and that the impugned order only modifies a part
of the said order and is only filling up the vacancy created on
resignation is wholly erroneous and unsustainable. It was
denied that the appellants have abandoned their right to
challenge the impugned order, as alleged by the respondents.
In the facts of the present case as enumerated above, the
process of appointment restarted in accordance with the
original contractual rules after the resignation of the Presiding
Arbitrator. The judicial order which replaces the
administrative order is under challenge before this Court and,
therefore, there is no need to challenge the order dated
1.7.2005. It may further be pointed out that the petition was
disposed of on 1.7.2005 after the appointment and hence, on
resignation of the Presiding Arbitrator, Mr. Justice Y. Bhaskar
Rao, the respondent again approached the High Court for
appointing the Presiding Arbitrator leading to the impugned
order.
It is pertinent to state that under Section 11(6) of the Act,
the Court has jurisdiction to make the appointment only when
the person including an institution, fails to perform any
function entrusted to it under that procedure. In the present
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case, the relief claimed by the respondents by invoking Section
11(6) is wholly erroneous as prior to the order dated 1.7.2005,
the respondents only sought a clarification from IRC and
without making a reference to them, immediately filed the
petition under Section 11(6) on the purported ground that the
Indian Road Congress had failed to make the appointment
within the stipulated time. Therefore, the reliance placed by
the respondent on the judgment of this Court in the case of
Punj Lloyd Ltd. vs. Petronet MHB Ltd., (2006) 2 SCC 638 is
wholly erroneous and is not applicable to the facts of the
present case.
It is also pertinent to notice that the order dated 1.7.2005
of the High Court is preceded by an erroneous finding that the
respondent, Bumihiway DDB Ltd. had approached the IRC
with the request and not having found a response have
approached the Court. It was submitted that the letter dated
29.4.2005 is otherwise a mischievous clarification de hors
contractual provisions which were considered otherwise. The
assumption of the Court being wrong, a consent read ejudem
generis therein is not consent in the eyes of law. In any case,
Mr. Justice Y. Bhaskar Rao’s resignation 26 days after his
appointment i.e., on 26.7.2006 forecloses the chapter of
consent.
Learned Solicitor General appearing for the appellants
argued that on the resignation of an arbitrator, the statutory
provision which steps in is only Section 15(2) and not Section
11(6). Hence, after the resignation of Mr. Justice Y. Bhaskar
Rao, the process of appointment had restarted as per Section
15(2). However, the concerned institution i.e. IRC being
restrained by the High Court from making the appointment,
there was no failure on the part of the concerned institution
i.e. IRC so as to justify invocation of Section 11(6).
Reliance was placed on the case of Yashwith
Construction P. Ltd. vs. Simplex Concrete Piles India Ltd.
& Anr. (supra) wherein this Court had reiterated the well
settled law and held that there was no failure on the part of
the concerned party as per arbitration agreement, to fulfil his
obligation in terms of Section 11 of the Act so as to attract the
jurisdiction of the Chief Justice under Section 11(6) of the Act
for appointing a substitute arbitrator. Obviously, Section
11(6) of the Act has application only when a party had failed to
act in terms of the arbitration agreement. In the light of the
legal position, it was submitted that the impugned order is
wholly erroneous and liable to be set aside.
In our view, the invocation of Section 11(6) of the
Arbitration & Conciliation Act, 1966 is squarely based on a
default of a party. The ratio laid down in the case of Datar
Switchgear Ltd. vs. Tata Finance Ltd. & Anr. (2000) 8 SCC
151 is the correct proposition and the case of Punj Lloyds
Ltd. vs. Petronet MHB Ltd. (supra) followed Datar
Switchgear. The question arises for consideration here is
who had defaulted and on what basis of default has the Court
entered jurisdiction under Section 11(6). This question
though raised by the appellant in the counter affidavit before
the High Court has not been answered at all. Hence, the
assumption of jurisdiction and adjudication by the High
Court, in our opinion, is vitiated.
It is reiterated by the learned Solicitor General appearing
for the appellants that there did not exist any concession on
behalf of counsel for the appellants as alleged. Vide the
impugned order dated 6.1.2006, the High Court after detailed
discussions came to the conclusion that the Court was
justified in making the appointment of Presiding Arbitrator.
Only after the said judicial determination, a query was put to
the appellants about the selection of the name, which was
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categorically refused by their counsel. On an application filed
by the appellants before the High Court, the Court clarified
that "what learned counsel for opposite party Nos. 1 & 2
submitted is that he left the question of appointing the
Presiding Arbitrator to the discretion of this Court. May be
what learned counsel for Opposite Party Nos. 1 & 2 submits is
correct." Therefore, the High Court accepted the contention of
the appellants that no consent was made in the appointment
by the appellant in the impugned order.
It was argued by Mr. Altaf Ahmed, learned senior counsel
for the respondent, that there has been a judicial
determination by the High Court in the impugned order which
is based on the reasoning that hierarchically a judicial
arbitrator must sit with another judge only. This reasoning,
in our opinion, is de hors the sanction in the Contract. The
appointment made by the High Court as per the impugned
order is against the express provisions of contract as held by
this Court in the case of You One Engineering &
Construction Co. Ltd. vs. National Highway Authority of
India, (2006) 4 SCC 372 reaffirming that once the arbitration
agreement clearly envisages the appointment of the Presiding
Arbitrator by IRC, there is no qualification that the arbitrator
has to be a different person depending on the nature of the
dispute. If the parties have entered into such an agreement
with open eyes, it is not open to ignore it and invoke exercise
of powers in Section 11(6).
It is beneficial to refer to the judgment of this Court in
the case of Rite Approach Group Ltd. vs. Rosoboronexport
(2006) 1 SCC 206 wherein this Court has clearly held that "in
view of the specific provision contained in the agreement
specifying the jurisdiction of the Court to decide the matter,
this Court cannot assume the jurisdiction, and hence,
whenever there is a specific clause conferring jurisdiction on a
particular Court to decide the matter, then it automatically
ousts the jurisdiction of the other Court."
In the present case, by making reference to the High
Court under Section 11(6) and alleging that one of the
arbitrators is a retired judicial person, the respondent has
only admitted to rewrite the contract between the parties,
which is against the law of the land.
Mr. Altaf Ahmad, in reply to the arguments advanced by
the learned Solicitor General submitted that as the procedure
contemplated in the agreement between the parties had failed
to achieve the purpose, the respondents had rightly invoked
the provisions of Section 11(6) of the Act and the appellant
had given their consent and that the order being a consent
order is not amenable to challenge before this Court. He
further submitted that the said order cannot be challenged for
the reasons that
a) it is only a modification of the order dated 1.7.2005
which itself was an order based on consent given by the
appellants.
b) The order dated 1.7.2005 was never challenged by the
appellants either by way of a petition under Article
226/227 of the Constitution of India before the High
Court or under Article 136 of the Constitution of India
before this Court.
c) The counsel for the appellants had submitted before this
Court on 1.6.2006 that any one from the said list for
which time was given on 5.8.2005 for obtaining
instructions, be appointed as the Presiding Arbitrator.
d) On 23.6.2006 counsel for the appellants once again
submitted that he had left the question of appointing the
Presiding Arbitrator to the discretion of the High Court.
Mr. Altaf Ahmad further submitted that the decisions
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upon which reliance had been placed by the appellants are not
applicable to the facts of the present case for the following
reasons:-
i) You One Engineering and Construction Company
Limited and another vs. National Highways
Authority of India Limited, (supra) is a case in which
the Indian Road Congress had appointed a Presiding
Arbitrator whereas in the present case the IRC had failed
to appoint a Presiding Arbitrator. The order dated
1.7.2005 was passed by the High Court after 52days of
the appellant moving an application before the
IRC(11.5.2005).
ii) Yashwith Construction Private Ltd vs Simplex
Concrete Piles India Limited and another, (supra) is
not applicable for the reason that it was a case in which
the Managing Director had initially appointed the
arbitrator and was right in appointing/substituting
another arbitrator as the first arbitrator had resigned. It
was a case wherein the question was whether Section
11(6) would operate or not and this Court had clearly
held that Section 15(2) saves the power of the Managing
Director to appoint/substitute an arbitrator even though
the agreement does not specifically say so.
(iii)Right Approach Group Ltd vs. Rosoboron Export
(2006) 1 SCC 206 is not applicable to the facts of the
present case because that was a case in which the
arbitration agreement specifically provided to resolve the
dispute by negotiation, the dispute would be submitted
to the arbitration court under the Chamber of Commerce
and Trade of Russian Federation and the application of
Section 11(6) or 15(2) was not in question at all.
He also invited our attention to the judgment of this
Court in the case of Datar Switch Gears, (supra) and Punj
Lloyd Ltd. vs. Petronet MHB Ltd. (supra) wherein this Court
has repeatedly held that once a notice period of 30 days in the
present case and the other party has moved the Chief Justice
under Section 11(6), party having right to appoint arbitrator
under arbitral agreement loses the right to do so.
Learned counsel for the respondents, therefore,
submitted that in the first place as the orders passed were
with the consent of the appellants, they cannot be subject to
challenge and secondly in view of Section 11(7) of the Act the
orders passed by the Chief Justice are final and binding and,
therefore, civil appeal is devoid of merit and does not call for
any interference in the exercise of powers under Article 136 of
the Constitution.
Before proceeding further, we may also consider the
salient features of the arbitration procedure as agreed to by
the parties under Clause 67.3 of the Conditions of Particular
Application (COPA) which reads as under:-
a. The dispute between the Contractor and Employer
is required to be settled under the Arbitration and
Conciliation Act, 1996 or any amendment thereof.
b. The Arbitral Tribunal shall consist of Three
Arbitrators.
c. Out of the three Arbitrators to be appointed, one
each is to be appointed by the Employer and the
Contractor;
d. If one of the parties fails to appoint its arbitrator
within 30 days after receipt of the notice of the
appointment of its arbitrator by the other party,
then the President of Indian Road Congress shall
appoint the arbitrator. A certified copy of the order
of the President of Indian Road Congress making
such an appointment shall be furnished to each of
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the parties.
e. The third Arbitrator shall be chosen by the two
Arbitrators so appointed by the Parties and shall act
as Presiding Arbitrator which is to be appointed by
consensus of the two arbitrators within a period of
30 days from the appointment of the arbitrator
appointed subsequently.
f. In case of failure of the two arbitrators, appointed
by the parties to reach upon a consensus within a
period of 30 days from the appointment of the
arbitrator appointed subsequently, the Presiding
Arbitrator shall be appointed by the President,
Indian Roads Congress.
As rightly pointed out by the appellants, the High Court
failed to appreciate that in accordance with Section 15(2) of
the Act on the termination of the mandate of the Presiding
Arbitrator, the two nominated arbitrators were first required to
reach a consensus and on their failure to arrive at a
consensus only respondent No.2 was authorized to make the
appointment. Unless respondent No.2 failed to exercise its
jurisdiction, the High Court could not assume jurisdiction
under Section 11(6) of the Act. Respondent No.1 has wrongly
invoked the jurisdiction of this Court without first following
the procedure agreed to between the parties. Thus no cause of
action had arisen in the facts of the case to seek the
appointment from the High Court under Section 11(6) of the
Act and thus the said petition was premature. The High Court
also is not correct in relying on the contention of the
respondent No.1 that in case one of the arbitrators is retired
Chief Justice, the Presiding Arbitrator should be at least a
retired Chief Justice or a retired Judge of a High Court with
considerable experience. It was submitted by learned Solicitor
General appearing for the appellants that the said finding of
the High Court is self contradictory inasmuch as if the
Presiding Arbitrator is a retired Judge of the High Court and
one of the arbitrators is a retired Chief Justice of the High
Court, the member of hierarchy is upset. Even otherwise,
there does not exist any such provision in law which requires
that if one of the arbitrators is a retired Judge the Presiding
Arbitrator also has to be a retired Judge. The parties have
entered into a contract after fully understanding the import of
the terms so agreed to from which there cannot be any
deviation. The Courts have held that the parties are required
to comply with the procedure of appointment as agreed to and
the defaulting party cannot be allowed to take advantage of its
own wrong.
If the reasoning of the High Court is accepted, then the
law laid down by this Court in the case of You One
Engineering as well as Right Approach Group will be
rendered nugatory. Further, it will set a precedent which will
vitally affect the appellant which is a Central Government
undertaking in all the future contractual agreements. Before
concluding, we clarify that the pleadings before the Arbitral
Tribunal are not complete and written statement is yet to be
filed by the appellant as the appellants have raised their
objections with respect to the appointment before the
arbitration proceedings which has been duly recorded by the
Arbitral Tribunal in the orders passed by them.
In view of the order now passed setting aside the
appointment of the Presiding Arbitrator by the High Court, the
appointment of the Presiding Arbitrator as per the procedure
contemplated under the contract agreement has to be followed
and IRC (Ministry of Shipping, Road Transport and Highways,
R.K.Puram, New Delhi should be approached. The parties are
at liberty to approach the Arbitrators for any further interim
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directions.
For the aforesaid reasons, we allow the appeal and set
aside the order passed by the High Court in ARB No. 23 of
2005. No costs.