Full Judgment Text
NONREPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4829 OF 2022
M/s Continental India Private Limited …Appellant(s)
Versus
General Manager Northern Railway …Respondent(s)
J U D G M E N T
M.R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the impugned
judgment and order dated 15.09.2021 passed by the High
Court of Judicature at Allahabad in Arbitration Application
No. 15 of 2021, by which, while allowing the application
under Section 11(6) of the Arbitration and Conciliation Act,
1996 (hereinafter referred to as the “Act”) filed by the
appellant herein – original applicant, the High Court has
Signature Not Verified
Digitally signed by R
Natarajan
Date: 2022.07.27
17:20:01 IST
Reason:
directed respondent herein to send a fresh panel of four
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retired officers in terms of clause 64(3)(b) of the General
Conditions of Contract (hereinafter referred to as the
“GCC”) and thereafter, the appellant herein – original
applicant shall select two from the four suggested names
and thereafter the respondent shall constitute the Arbitral
Tribunal in terms of clause 64(3)(b) of the GCC, the original
applicant has preferred the present appeal.
2. That the appellant and respondent herein entered into a
contract/agreement which contains the arbitration clause.
As per clause 32 of the agreement, in the event of any
question, dispute or difference arising under or in
connection with agreement, the same shall be referred to
the sole arbitration of a person appointed to be the
arbitrator, by the General Manager of the Railway. A
request/prayer was made by the appellant herein – original
applicant to appoint an arbitrator in terms of clause 32 of
the agreement. However, the General Manager/Railway
failed to appoint an arbitrator as provided under clause 32
of the agreement. Therefore, the appellant herein – original
applicant filed the application before the High Court under
Section 11(6) of the Act and requested to appoint a sole
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arbitrator. Though, the High Court has observed that the
respondent has failed to appoint an arbitrator despite
raising the demand of appointing an arbitrator, the
application was hence liable to succeed. However,
thereafter instead of appointing the sole arbitrator in
exercise of powers under Section 11(6) of the Act, the High
Court has directed to appoint an arbitrator in terms of
clause 64(3)(b) of the GCC. Feeling aggrieved and
dissatisfied with the impugned judgment and order passed
by the High Court in not appointing the sole arbitrator and
instead directing the parties to appoint the arbitrator as
per the GCC, the original applicant before the High Court
has preferred the present appeal.
3. Shri Ramesh Singh, learned Senior Advocate appearing on
behalf of the appellant herein has vehemently submitted
that the High Court has committed a serious error in not
appointing the sole arbitrator in exercise of powers vested
under Section 11(6) of the Act.
3.1 It is submitted that the parties to the agreement are
governed by the arbitration agreement/clause in terms of
the clause 32 of the agreement. It is submitted that despite
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invocation of the arbitration clause in terms of the
agreement the respondent failed to appoint an arbitrator. It
is contended that therefore the respondent forfeited its right
to appoint an arbitrator under the agreement and therefore,
the High Court was required to appoint a sole arbitrator in
exercise of powers under Section 11(6) of the Act. Reliance
is placed on the decision of this Court in the case of Deep
Trading Company vs. Indian Oil Corporation and Others;
.
(2013) 4 SCC 35
3.2 It is further submitted by Shri Ramesh Singh, learned
Senior Advocate appearing on behalf of the appellant –
original applicant that the High Court has seriously erred in
directing the parties to appoint the arbitrator in terms of
clause 64(3)(b) of the GCC.
3.3 It is contended that in the present case the General
Conditions of Contract is not applicable at all on the
grounds interalia that (i) neither the GCC has been signed
by the parties nor the governing agreement makes any
reference to the GCC; (ii) the parties to the original
agreement are neither signatory to the GCC nor the GCC is
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made part of the original agreement entered into between
the parties; (iii) even as per the communication dated
16.07.2020, the GCC, July 2020 shall be applicable to
works contracts on Indian Railways with prospective effect.
It is submitted that therefore the High Court has seriously
erred in directing to constitute an Arbitral Tribunal as per
clause 64(3)(b) of the GCC.
4. Shri K.M. Nataraj, learned ASG appearing on behalf of the
respondent is not in a position to dispute that after the
invocation of the arbitration clause, the General
Manager/Railway failed to appoint the sole arbitrator in
terms of the agreement. He is also not in a position to
satisfy the Court as to how the General Conditions of
Contract shall be applicable with respect to the agreement
between the parties which has been entered into much
prior to the GCC coming into force i.e., July, 2020 and that
neither is there any reference to the GCC in the original
agreement nor the GCC has been signed by the parties.
Therefore, he is unable to support the impugned judgment
and order passed by the High Court directing to constitute
an Arbitral Tribunal as per clause 64(3)(b) of the GCC.
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5. We have heard the learned counsel appearing on behalf of
the respective parties at length.
6. It is not in dispute that the parties to the agreement agreed
to resolve the dispute as per clause 32 of the original
agreement which reads as under:
“32. Arbitration.
(a) In the event of any question, dispute or
difference arising under or in connection with this
Agreement (except as to matters the decision of which
is specially provided for by this Agreement) the same
shall be referred to the sole arbitration of a person
appointed to be the arbitrator, by the General Manager
or the Railway. It will be no objection if the arbitrator
is a Government servant, that he had to deal with
matters to which the Agreement relates or that in the
course of his duties as a Government servant he has
expressed views on all or any of the matters in dispute
or difference. The Award of the arbitrator shall be final
and binding on the parties to this Agreement.
Provided always that the decision of the General
Manager of the Railway as to the disputes which fell
within the “excepted matters” referred to above shall
be final and binding on the parties hereto and such
decision of the General Manager shall not be called in
question before the arbitrator by either of the parties
hereto.
(b) In the event of the arbitrator dying, neglecting or
refusing to act, or resigning or being unable to act for
any reason, or his award being set aside by the Court
for any reason it shall be lawful for the authority
appointing the arbitrator to appoint another arbitrator
in place of the outgoing arbitrator in the manner
aforesaid.
(c) It is further a term of this Agreement that no
person other than the person appointed by the
authority as aforesaid should act as arbitrator and
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that if for any reason that is not possible, the matter is
not be referred to arbitration at all.
………”
The appellant and the respondent being signatories to
the agreement are bound by the aforesaid arbitration
clause/arbitration agreement. As the dispute arose
between the parties, the appellant invoked the arbitration
clause in terms of the agreement. However, the respondent
– General Manager/Railway failed to appoint the arbitrator
in terms of clause 32, reproduced hereinabove. That
thereafter, the appellant herein approached the High Court
for appointment of the sole arbitrator in exercise of powers
under Section 11(6) of the Act. Once the dispute has arisen
between the parties and despite invocation of the
arbitration clause in terms of the agreement no arbitrator
is appointed, it can be said that the authority has forfeited
its right to appoint the arbitrator in terms of the arbitration
agreement and thereafter the arbitrator has to be
appointed under Section 11(6) of the Act.
6.1 At this stage, the decision of this court in the case of Deep
Trading Company (supra) is required to be referred to. In
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the said decision it is observed and held that once an
arbitrator is not appointed as per the agreed procedure
within stipulated time, right of the party concerned to
appoint an arbitrator is forfeited and therefore, Chief Justice
ought to have appointed an arbitrator under Section 11(6) of
the Act. In the said decision the Corporation therein
appointed the arbitrator as per the agreed procedure during
pendency of the proceedings under Section 11(6) of the Act
and to that it is observed and held that appointment of
arbitrator by the Corporation during pendency of the
proceedings under Section 11(6) of the Act was of no
consequence, as failing to appoint an arbitrator within the
prescribed time, the Corporation had lost its right to appoint
an arbitrator.
6.2 In the present case also, the respondent failed to appoint an
arbitrator as per the agreed procedure and in terms of the
agreement. Therefore, the respondent forfeited its right to
appoint an arbitrator in terms of the agreement and
therefore the appellant was justified in filing the application
before the High Court for appointment of a sole arbitrator in
exercise of powers under Section 11(6) of the Act. The Chief
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Justice or his nominee thus was required to appoint the
arbitrator under Section 11(6) of the Act.
7. By the impugned judgment and order and while allowing
the application under Section 11(6) of the Act instead of
appointing the arbitrator in exercise of powers under
Section 11(6) of the Act, the High Court has directed to
constitute an Arbitral Tribunal in terms of clause 64(3)(b) of
the GCC. It is not in dispute that neither the GCC was
signed by the parties nor the GCC was made part of the
agreement between the parties. There is no reference to the
GCC in the main agreement entered into between the
parties. Even as per communication dated 16.07.2020, the
GCC, July 2020 shall be applicable to works contract of
Indian Railways with prospective effect. Therefore, the
parties are not governed by the GCC at all. Therefore, the
High Court has committed a serious error in directing to
constitute an Arbitral Tribunal in terms of the provisions of
the GCC, which are not binding to the parties.
8. In view of the above and for the reasons stated above the
impugned judgment and order passed by the High Court to
the extent directing to constitute an Arbitral Tribunal in
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terms of clause 64(3)(b) of the GCC is unsustainable and
deserves to be quashed and set aside and is accordingly
quashed and set aside. The Chief Justice or his nominee
was required to appoint a sole arbitrator/arbitrator in
exercise of powers under Section 11(6) of the Act. The High
Court has failed to appoint the sole arbitrator in exercise of
powers under Section 11(6) of the Act. Therefore, as such
the matter is required to be remanded to the High Court for
appointment of a sole arbitrator. However, instead of
remanding the matter to the High Court and to avoid any
further delay, with the consent of the learned counsel
appearing on behalf of the respective parties, we appoint
Smt. Justice R. Banumathi, Former Judge of this Court, as
a sole arbitrator to adjudicate and resolve the dispute
between the parties. The present appeal is accordingly
allowed. No costs.
………………………………….J.
[M.R. SHAH]
NEW DELHI; ………………………………….J.
July 27, 2022 [B.V. NAGARATHNA]
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