M. Somassoundirame vs Executive Engineer

Sanjay Kishan Kaul, C.J.—The petitioner, a Civil Engineering Contractor, submitted a bid for the tender floated by the respondent in respect of the work for construction of tail end bed dam across Vanjiar River at Melaveli in Karaikal. The bid of the petitioner was accepted resulting in a work order dated 31.05.2007 for the work to be completed within a period of ten months of a value of Rs. 1,15,80,060/-. The agreement inter se the parties contains clause 25 as the arbitration clause. This clause inter alia provides:

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

It is not in issue that disputes have arisen inter se the parties from the agreement and consequently, the petitioner called upon the designated authority of the respondent to nominate an arbitrator in terms of the arbitration clause, vide letter dated 05.05.2009 followed by reminders. The fact remains that no arbitrator was appointed compelling the petitioner to file the present petition under Section 11(4) of the Arbitration and Conciliation Act, 1996.

The sole defence urged before the Court by learned counsel for the respondent is based on the aforesaid extracted portion of clause 25, i.e., the failure to appoint an arbitrator would result in a consequence that there shall be no arbitration at all and the petitioner should be relegated to the remedy of a civil suit.

The aforesaid aspect, in a similar clause, has been discussed by the Division Bench of the Delhi High Court in an unreported judgment in FAO (OS) No. 231 of 2010 (between M/s. Nav Nirman Construction Company vs. Executive Engineer CD-IX, Irrigation and Flood Control Department, GNCT of Delhi) decided on 16.09.2011, authored by one of us (Sanjay Kishan Kaul, J., as he then was). In the said judgment, a reference is made to the opinion expressed by the Hon''ble Supreme Court in Nandyal Coop. Spinning Mills Ltd. Vs. K.V. Mohan Rao, , as under:

"11. It would thus be clear that if no arbitrator had been appointed in terms of the contract within 15 days from the date of receipt of the notice, the administrative head of the appellant had abdicated himself of the power to appoint arbitrator under the contract. The court gets jurisdiction to appoint an arbitrator in place of the contract by operation of Section 8(1)(a). The contention of Shri Rao, therefore, that since the agreement postulated preference to arbitrator appointed by the administrative head of the appellant and if he neglects to appoint, the only remedy open to the contractor was to have recourse to civil suit is without force. It is seen that under the contract the respondent contracted out from adjudication of his claim by a civil court. Had the contract provided for appointment of a named arbitrator and the named person was not appointed, certainly the only remedy left to the contracting party was the right to suit. That is not the case on hand. The contract did not expressly provide for the appointment of a named arbitrator. Instead power has been given to the administrative head of the appellant to appoint sole arbitrator. When he failed to do so within the stipulated period of 15 days enjoined under Section 8(1)(a), then the respondent has been given right under Clause 65.2 to avail the remedy under Section 8(1)(a) and request the court to appoint an arbitrator. If the contention of Shri Rao is given acceptance, it would amount to putting a premium on inaction depriving the contractor of the remedy of arbitration frustrating the contract itself.

After quoting the aforesaid portion, it was observed in M/s. Nav Nirman Construction Company, (supra) as under:

" The Supreme Court held that the appointment of the arbitrator by the trial court as upheld by the High Court was perfectly legal and valid warranting no interference as the failure to appoint an arbitrator by the designated authority would invite the provisions of Section 11(6) of the said Act. We note that Nandyal Coop. Spinning Mills Ltd.''s case (supra) was decided under the provisions of the Arbitration Act, 1940.

Both the learned counsels for the parties seek to rely upon the case of Indian Oil Corporation Ltd. and Others Vs. Raja Transport (P) Ltd., .

Learned counsel for the appellant has drawn our attention to paragraphs 46 and 47 of the judgement, which reads as under:

"46. This takes us to the effect of the condition in the arbitration agreement that "it is also a term of this contract that no person other than the Director, Marketing or a person nominating by such Director, Marketing of the Corporation as aforesaid shall act as Arbitrator." Such a condition interferes with the power of the Chief Justice and his designate under Section 11(8) of Act to appoint a suitable person as arbitrator is appropriate cases. Therefore, the said portion of the arbitration clause is liable to be ignored as being contrary to the Act.

But the position will be different where the arbitration agreement names an individual (as contrasted from someone referred to by designation) as the Arbitrator. An example is an arbitration clause in a partnership deed naming a person enjoying the mutual confidence and respect of all parties, as the Arbitrator. If such an arbitration agreement provides that there shall be no arbitration if such person is no more or not available, the person named being inextricably linked to the very provision for arbitration, the non- availability of the named arbitrator may extinguish the very arbitration agreement. Be that as it may."

It is, thus, submitted that the failure of a designated authority to appoint an arbitrator does not impede the authority of the Chief Justice or his designate under Section 11(6) of the said Act to appoint a suitable person in appropriate cases. We may, however, note that the appointment of the arbitrator by the court was set aside on the ground that there was no valid invocation to appoint an arbitrator prior to approaching the court.

The third judgement referred is in the case of Ace Pipeline Contracts Private Limited Vs. Bharat Petroleum Corporation Limited, , which has, in fact, been considered in Indian Oil Corporation Ltd. & Ors. Vs. Raja Transport (P) Ltd. case (supra).

The legal position, which emerges, is as follows:

i) If the arbitration clause contains a term that a designated authority shall appoint an arbitrator, then recourse to take arbitration shall be according to the said provision.

ii) The position would be slightly different if there is a named arbitrator where the failure of the named arbitrator to act would nullify the arbitration clause itself. In other words, the arbitration clause, such as the one in issue, will not perish merely because the designated authority fails to appoint an arbitrator even though charged with the said obligation.

iii) In case of the designated authority failing to act in appointing an arbitrator after the arbitration clause has been invoked the aggrieved party is well within its right to approach the court under Section 11 of the said Act seeking the appointment of an arbitrator by the Hon''ble Chief Justice or his designate.

The present case is an identical one, where it is not a named arbitrator on whom the parties have confidence, but of a designated authority failing to nominate an arbitrator. Thus, this issue is no more res integra and this Court is, thus, entitled to proceed in appointing an arbitrator.

Learned counsel for the parties, faced with the aforesaid position, suggest the name of Mr. Marudavanan, a retired Superintending Engineer, Public Works Department, to enter upon the reference and adjudicate the disputes inter se the parties.

Thus, I appoint, Mr. Marudavanan, a retired Superintending Engineer, Public Works Department, residing at 21-Nathaj Street, Ashok Nagar, Lawspet, Puducherry, as the Sole Arbitrator, to enter upon reference and after issuing notice to the parties and upon hearing them, pass an award as expeditiously as possible, preferably within a period of six months from the date of receipt of this order. The learned Arbitrator is at liberty to fix the remuneration and other incidental expenses, which shall be borne equally by both the parties.

Accordingly, the original petition is allowed, leaving the parties to bear their own costs.