Council of Scientific and Industrial Research and Another vs Ganga Construction Corporation

Sethi, J.—The parties to the litigation are reported to have entered into an agreement for construction of guest house building including

sanitary installations at Regional Research Laboratory premises, Jammu, which, inter alia, provided that in case of disputes between them the same

shall be referred to the arbitration of a person to be nominated by the Director General, Council of Scientific and Industrial Research, New Delhi.

As the disputes arose and were brought to the notice of the Director General, Council of Scientific and Industrial Research (CSIR, for short), he

appointed Shri S. K. Nara-yanan, as arbitrator who entered upon reference and conducted some proceedings. On 30-12-1983, the nominated

arbitrator expressed his inability to continue as an arbitrator. The respondent-claimant thereafter filed a petition in this Court praying therein that as

the nominated arbitrator has failed to act as an arbitrator, an independent arbitraror be appointed in his place. The Court vide order impugned in

this appeal accepted the contention of the respondent and appointed Shri H. K. Gandotra, retired Chief Engineer, P.W.D., Jammu, as an

arbitrator with direction to enter upon the reference and submit his award within the statutory period of four months. It may not be out of place to

mention that during the pendency of this appeal, the Director General, CSIR appointed one Shri H.C. Gupta, Joint Secretary and Legal Advisor,

Ministry of Law, Justice and Company Affairs, New Delhi, as an arbitrator in the case.

We have heard learned counsel for the parties and perused the record.

Mr. Bhagotra, learned counsel appearing for the respondent has submitted that this appeal is not maintainable as, according to him, the appellant

had failed to prefer an appeal against the order of a single Bench of this Court dated 21-8-1984. He has relied upon Fertilizer Corporation of India

Limited Vs. Domestic Engineering Installation, , in support of his contention.

Section 39 of the Arbitration Act specifies the orders against which an appeal is competent. Clause (4) of Sub-section (1) of Section 39, deals

with the cases where the Court directs the filing or refusing to file an arbitration agreement which, in fact, and in common parlance, means referring

the dispute to the arbitrator or refusing to refer such cases to the arbitrator. It was held in Satya Narayan Agarwall Vs. Baidyanath Mandal and

Others, that an order setting aside the appointment of a sole arbitrator amounts to be an order superseding the reference and, therefore,

appealable. It is not disputed that as and when an arbitrator is appointed, the order is appealable, but, it is contended, that as the court had

expressed its views regarding the appointment of an independent arbitrator on 21-8-1984 when it asked the parties to submit the names of the

arbitrators and the appellant kept quiet, it was to be presumed that they had no objection to the appointment of an independent arbitrator at that

time and were now debarred from filing the present appeal. In Fertilizer Corporation of India Limited Vs. Domestic Engineering Installation, , the

appeal was preferred against an order passed u/s 20 of the Arbitration Act directing the filing of arbitration agreement and calling for the names of

the agreed arbitrators which order was held to be appealable. The filing of the arbitration agreement is the final order contemplated by Section 20

of the Arbitration Act and cannot be termed to be an interim order only proposing to refer the disputes to the arbitrator as was done by this Court

vide order dated 21-8-1984. In that order it was observed :

Objection have not been filed by Mr. Thakur on behalf of the respondent despite a number of opportunities having been granted to him. Mr. Johal

appears on his behalf. Learned counsel appearing for the parties and directed to furnish list of persons to be appointed as Arbitrators in this case in

the following manner:

Learned counsel for the petitioner shall submit three names who are willing to hold arbitration proceedings at Jammu and learned counsel for the

respondent shall also furnish three names who are willing to conduct the arbitration proceedings at Jammu.

It is contended in the application that an arbitrator was appointed in 1982 and the appointed arbitrator could not continue with the arbitration

proceedings and finally on 30-12-1983 he informed the Deputy Registrar of this Court that he was not willing to act as an arbitrator in the case.

The option in terms of Clause 30 of the agreement was exercised and person nominated earlier has delayed the proceedings and has voluntarily

opted for retirement. I have no option but to discharge him as an arbitrator in this case and appoint a fresh arbitrator in his place. For appointment

of fresh arbitrators I have asked the parties to submit a panel of names and have their venue at Jammu. It will be against the interest of justice if in

respect of a dispute of work which has been executed in Jammu, parties are directed to proceed to Delhi for arbitration. Apart from the

inconvenience to the parties it will cause heavy financial loss to the parties. Therefore, in my opinion, arbitration proceedings be conducted at

Jammu to save the parties from unnecessary expenditure and inconvenience.

Learned counsel for the parties shall submit the panel of names within 15 days from today before the Registry and thereafter the case be listed for

further proceedings.

The learned single Judge had not removed the nominated arbitrator but only agreed to discharge him as an arbitrator in terms of Clause 30 of

the agreement executed between the parties. The said order cannot, in any manner, be held to be a final order for the purposes of filing an appeal

u/s 39 of the Arbitration Act. The Director General, CSIR had in the meantime appointed Shri H.C. Gupta as the arbitrator whose appointment

continues to be in existence even now. Assuming but not ad milting that order of the Court dated 21-8-1984 was also appealable it cannot be said

that the final order by which the agreed arbitrator has been removed, cannot be appealed against. There is no merit in the preliminary objection

which is rejected.

Learned counsel for the parties have referred to various judgments in support of their rival contentions. Mr. Bhagotra, relying upon the

authorities referred to by him, submits that as the nominated arbitrator has refused to discharge his duties or act as an arbitrator it is only the Court

which can appoint his successor whereas Mr. Thakur has referred to the case law in support of his contention to submit that if the arbitration clause

itself contains the exigency of appointing an arbitrator in place of the vacancy created, the Court in that event, cannot appoint the arbitrator and has

to afford in arbitrator in place of the vacancy created, the Court in that event, cannot appoint the arbitrator and has to afford an opportunity to the

appointing authority to exercise its powers.

After considering the rival contentions of the parties and perusing the judgments relied upon by them we have come to the conclusion that in a

case where the agreed nominated arbitrator refuses to act as such it is the Court which can appoint his successor provided the arbitration

agreement between the parties does not provide otherwise for filling the vacancy and any procedure to substitute an arbitrator in place of an

arbitrator who has resigned or refused to act as such. In the instant case the parties are governed by Clause 30 pertaining to the arbitration

agreement which provides:

(a) 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 so to the quality of workmanship materials used on the work or so to any question, claim, right, matter

of thing whatsoever, in any way arising out of or relating to the contract, design, drawings, specifications, estimates, instructions, orders or these

conditions or otherwise concerning the works, or the execution of the same whether arising during the progress of the work after completion of

abandonment thereof shall be referred to the sole arbitration of a person nominated by Director General, Scientific and Industrial Research, and if

he is unable or unwilling to act, to the sole arbitration of some other person appointed by him willing to act as such arbitrator. The submission shall

be deemed to be submission to Arbitration under the meaning of the Arbitration Act, 1940 or any statutory modification of re-enactment thereof

for the time being in force. The award of arbitrator so appointed shall be final, conclusive and binding on all parties to this contract.

(b) It is agreed that contractor shall not delay the carrying out of the work by reasons of any reference to arbitration and shall proceed with the

work with all due diligence and shall until the decision of arbitration abide by the decision of the Engineer duly conveyed to him.

(d)The Arbitrator (s) may from time to time with the consent of the parties, enlarge the time for making and publishing the award.

A perusal of this clause would clearly show that where the nominated arbitrator is unable or unwilling to act as an arbitrator, the Director General,

CSIR is under a contractual obligation to appoint some person as new arbitrator in place of the arbitrator who has refused to act as such. Without

having resort to the procedure prescribed under Clause 30 of the agreement executed between the parties, the respondent-claimant rushed to this

Court for the appointment of an independent arbitrator which was not permissible under law. The Director General, after knowing about the

vacancy created by refusal of Shri S.K. Narayanan to act as an arbitrator, himself appointed Shri H.C. Gupta, Joint Secretary and Legal Advisor,

Ministry of Law Justice and Company Affairs, New Delhi in the case. As the arbitrator was to be appointed directly in accordance with the

agreement executed between the parties, the learned single Judge was not justified in superseding the arbitration clause by appointing an

independent arbitrator vide the judgment impugned in this appeal. The judgment of the learned single Judge being contrary to the facts of the case

and the settled proposition of law cannot be sustained and is liable to be set aside.

It is conceded at the bar that after his appointment,Shri H.C. Gupta could not act as an arbitrator on account of the pendency of this appeal and

in terms of the stay granted by this Court vide the order passed on 13-8-1985. Mr. Thakur, learned counsel appearing for the appellant has been

fair to concede that Mr. H.C. Gupta, the nominated arbitrator may not be available to act as an arbitrator on account of the lapse of time of about

8 years. It is submitted by learned counsel for the appellant that the Director General, CSIR is prepared to exercise his option and appoint a new

arbitrator in terms of Clause 30 of the Arbitration agreement executed between the parties.

Under the circumstances the appeal is accepted and the judgment impugned is set aside. The appointment of Shri H.K. Gahdotra as arbitrator

between the parties is quashed. Keeping in view the pendency of the litigation between the parties for over two decades, the Director General,

CSIR, is directed to appoint a new arbitrator in terms of Clause 30 of the arbitration agreement within a period of one month from the date of the

judgment failing which it shall be presumed that he has opted not to exercise his powers and in that event the respondent-claimant shall be justified

to pray for the appointment of an independent arbitrator. The arbitrator so appointed shall enter upon the reference and conduct the proceedings at

Jammu as has been agreed to by learned counsel for the appellant. The award shall be filed in the Court within the statutory period.

The parties shall bear their own costs.

All connected C.M.Ps. shall stand disposed of accordingly.