Full Judgment Text
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CASE NO.:
Appeal (civil) 3692 of 2007
PETITIONER:
Union of India
RESPONDENT:
M/s. Bharat Battery Manufacturing Co. (P) Ltd.
DATE OF JUDGMENT: 13/08/2007
BENCH:
H.K. Sema & Lokeshwar Singh Panta
JUDGMENT:
J U D G M E N T
CIVIL APPEAL NO. 3692 OF 2007
ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO. 19881 OF 2006
H.K. SEMA, J.
1. Leave granted.
2. This appeal preferred by the Union of India is
directed against the judgment and order dated 26.5.2006 of
the High Court of Delhi in Arbitration Petition No. 213 of 2006.
By the aforesaid order the High Court appointed an arbitrator
on a petition filed by the respondent under Section 11(6) of the
Arbitration and Conciliation Act, 1996 (in short ’the Act’).
3. To answer the question involved in this appeal, it
may not be necessary to delve the entire facts leading to the
filing of the present appeal. Suffice it say that in response to
an invitation to tender inquiry No. A.M-5/RC-14100105/
072003/ WT/ BTYS/ Defence/ 2003-04/ 75 for supply of
battery secondary lead acid, an offer dated 7.10.2002 was
submitted which was revised by letter dated 8.4.2003. On the
basis of the revised offer dated 8.4.2003 a rate contract No.
AM-5/RC-14100105/ 072003/ WT/ BTYS/ DEF/ 2003-04/
75/ BHARAT/ COAC/ 185 dated 5.5.2003 for the period
5.5.2003 to 16.3.2004 was executed between the appellant
and the respondent.
4. Clause 12 of rate contract entered into between the
parties contained a price variation clause. As the variation
factor of the batteries, on account of fluctuation of lead price
had not been incorporated, the respondent made a request to
the appellant to incorporate the same. The respondent herein
also requested the appellant to issue amendment towards rate
of sales tax. It appears that the said request was complied
with almost after one year by a letter dated 2.7.2004.
However, it is alleged that during the pendency of the rate
contract, the appellant issued a supply order No. 01/ RC/Z9/
BTY/ 047/ BHARAT/ 2004-05 dated 16.3.2004 for supply of
19,021 batteries. The respondent herein supplied the same to
the appellant. The respondent also submitted detailed
calculation of unit price of battery as per price variation clause
and the photocopies of Hindustan Zinc Price Circular. It is
contented that although the appellant continued to receive the
batteries but did not issue the amendment with respect to
price variation clause for the quarter April to June, 2004, July
to September 2004, October to December 2004, January to
March 2005, April to June 2005, July to September 2005,
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October to December 2005 and January to March 2006. As
the appellant did not issue the amendment with respect to
price variation clause, nor settled the dispute, which had
arisen between the parties, the respondent herein sent a
notice under Section 11 of Arbitration and Conciliation Act,
1996 on 7.6.2005. Through the said notice the respondent
demanded that the appellant either issue the necessary
amendments on account of price variation with respect to the
above mentioned quarters or appoint an arbitrator within 30
days. The notice dated 7.6.2005 was acknowledged by the
appellant vide acknowledgement slip bearing No. 26110 dated
9.6.2005. Having not complied with the notice, another notice
dated 2.1.2006 was issued by the respondent invoking the
arbitration agreement and seeking appointment of arbitrator.
The second notice was also acknowledged by the appellant by
slip no. 33190 dated 3.1.2006.
5. Despite the aforesaid notices and the receipt thereof,
the appellant neither resolved the disputes between the parties
nor appointed an arbitrator within 30 days from the receipt of
the request to do so, compelling the respondent to file a
petition under Section 11(6) of the Act on 30.3.2006.
6. Clause 24 of the agreement deals with the arbitration
between the parties. The relevant portion of Clause 24 reads
as under:
" i) In the event of any question, dispute or
difference arising under these conditions or any
special conditions of contract, or in connection with
this contract (except as to any matters the decision
of which is specially provided for by these or the
special conditions) the same shall be referred to the
Sole arbitration of an officer in the Ministry of Law,
appointed to be the Arbitrator by the Director
General of Supplies and Disposals. It will be no
objection that the arbitrator is a Govt. Servant that
he had to deal with the matters to which the
contract relates or that in the course of his duties
as a Govt. servant he has expressed views on all or
any of the matters in dispute or difference. The
award to the Arbitrator shall be final and binding on
the parties to this contract.
ii) 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, shall be lawful for the Director
General of Supplies & Disposals to appoint another
Arbitrator in place of the outgoing Arbitrator in the
manner aforesaid.
iii) It is further a terms of this contract that no
person other than the person appointed by the
Director General of Supplies & Disposals as
aforesaid should act as Arbitrator and that, if for
any reason that is not possible, the matter is not to
be referred to arbitration at all."
7. Having stated the brief facts in a nut-shell, we may
now note a few important dates, which are relevant for the
purpose of proper adjudication of the present controversy:
(a) Notices of appointment of arbitrator were issued on
7.6.2005 and 2.1.2006 respectively, which were duly
received by the appellant with acknowledgment.
(b) The appellant failed to appoint an arbitrator within 30
days from the date of receipt of request to do so from
the respondent.
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(c) On 30.3.2006, the respondent filed Section 11(6)
petition before the High Court.
(d) The High Court, by the impugned order dated
26.5.2006, appointed Justice K.S. Gupta, a retired
Judge, Delhi High Court, as an arbitrator.
(e) On 15.5.2006, the appellant said to have appointed
one Dr. Gita Rawat as a sole arbitrator, purportedly
in terms of Clause 24 of the agreement.
8. It is contended by Mr. P.P. Malhotra, learned Additional
Solicitor General appearing for the appellant, that the High
Court did not follow the procedure prescribed under Section
11(8) of the Act. According to him, the appointment of Justice
K.S. Gupta as a sole arbitrator is not in consonance with
Clause 24 of the agreement inasmuch as Clause 24 of the
agreement provides that if any dispute arises, the same shall
be referred to the sole arbitration of an officer in the Ministry
of Law, appointed to be the Arbitrator by the Director General
of Supplies and Disposals.
9. We are unable to countenance with the submission of
the learned counsel for the appellant. Section 11(8) of the Act
could have come to the aid of the appellant had the appellant
appointed the arbitrator within 30 days from the date of
receipt of request to do so from the respondent or the extended
time as the case may be. In the present case, as noticed
above, Section 11(6) petition was filed on 30.3.2006 by the
respondent. The appellant stated to have appointed one Dr.
Gita Rawat on 15.5.2006, i.e. after Section 11(6) petition was
filed by the respondent on 30.3.2006, which is not permissible
in law. In other words, the appellants are stopped from
making an appointment of the arbitrator in terms of Clause 24
of the agreement after Section 11(6) petition is filed by the
respondent. Once Section 11(6) petition is filed before the
Court, seeking appointment of an arbitrator, the power to
appoint an arbitrator in terms of arbitration clause of the
agreement ceases.
10. Mr. Malhotra, learned ASG referred to the decision of
a three-Judge Bench of this Court in Union of India And
Another (appellant) v. M.P. Gupta (respondent) (2004) 10
SCC 504, wherein this Court held that since there was
express provision contained that two gazetted railway officers
shall be appointed as arbitrators, Justice P.K. Bahri could not
be appointed by the High Court as the sole arbitrator. This
case was not in a situation where Justice P.K. Bahri was
appointed after Section 11(6) petition was filed. It appears
from the facts that Justice P.K. Bahri was appointed a sole
arbitrator dehors clause (3)(a)(iii) of the arbitration agreement
in that case. It also appears that Justice P.K. Bahri was
appointed by the Court as the sole arbitrator on a petition filed
by the respondent therein by an ex-parte order.
11. The facts of that case, therefore, are clearly
distinguishable from the facts of the present case. The
aforesaid decision is of no help to the appellant in the present
case.
12. Learned counsel for the appellant also referred to the
decision of this Court in S. Rajan (appellant) v. State of
Kerala and Another (respondent) (1992) 3 SCC 608. In
that case, this Court was of the view that in a case where the
agreement itself specifies and names the arbitrator, the Court
has no jurisdiction to appoint an arbitrator not specified in the
agreement itself.
13. In the given facts of this case afore-stated, the ratio
of this decision is also of no help to the appellant.
14. A three-Judge Bench of this Court in Punj Lloyd
Ltd. (appellant) v. Petronet MHB Ltd. (2006) 2 SCC 638
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considered the applicability of Section 11(6) petition and
considered the facts which are similar to the facts of the
present case and held that once notice period of 30 days had
lapsed, and the party had moved the Chief Justice under
Section 11(6), the other party having right to appoint
arbitrator under arbitral agreement loses the right to do so.
While taking this view, the Court had referred to the judgment
rendered in Datar Switchgears Ltd. (appellant) v. Tata
Finance Ltd. and Another (2000) 8 SCC 151 wherein at
page 158 (para 19) SCC, this Court held as under:
"19. So far as cases falling under Section 11(6) are
concerned - such as the one before us \026 no time
limit has been prescribed under the Act, whereas a
period of 30 days has been prescribed under
Section 11(4) and Section 11(5) of the Act. In our
view, therefore, so far as Section 11(6) is concerned,
if one party demands the opposite party to appoint
an arbitrator and the opposite party does not make
an appointment within 30 days of the demand, the
right to appointment does not get automatically
forfeited after expiry of 30 days. If the opposite
party makes an appointment even after 30 days of
the demand, but before the first party has moved
the court under Section 11, that would be sufficient.
In other words, in cases arising under Section 11(6),
if the opposite party has not made an appointment
within 30 days of demand, the right to make
appointment is not forfeited but continues, but an
appointment has to be made before the former files
application under Section 11 seeking appointment
of an arbitrator. Only then the right of the opposite
party ceases. We do not, therefore, agree with the
observation in the above judgments that if the
appointment is not made within 30 days of demand,
the right to appoint an arbitrator under Section
11(6) is forfeited."
15. As already noticed, the respondent filed Section 11(6)
petition on 30.3.2006 seeking appointment of an arbitrator.
The appellant, thereafter, said to have appointed one Dr. Gita
Rawat on 15.5.2006 as a sole arbitrator, purportedly in terms
of Clause 24 of the agreement. Once a party files an
application under Section 11(6) of the Act, the other party
extinguishes its right to appoint an arbitrator in terms of the
clause of the agreement thereafter. The right to appoint
arbitrator under the clause of agreement ceases after Section
11(6) petition has been filed by the other party before the
Court seeking appointment of an arbitrator.
16. We are, therefore, of the view that the order of
appointment of Dr. Gita Rawat by the appellant as a sole
arbitrator dated 15.5.2006 was passed without jurisdiction.
Once Section 11(6) petition is filed by one party seeking
appointment of an arbitrator, the other party cannot resurrect
the clause of the agreement dealing with the appointment of
the arbitrator, in this case Clause 24 of the agreement.
17. In the view that we have taken, there is no merit in
this appeal and the same is, accordingly, dismissed with no
order as to costs.