M/s Mohan Agrawal Construction Company vs Union of India

Hon''ble Shri Justice Sujoy Paul

This application is filed u/s 11 of Arbitration and Conciliation Act, 1966 (for brevity, "1966 Act") for appointment of Arbitrator.

The brief facts necessary for adjudication of this matter are as under:

Petitioner was awarded the work under reference vide acceptance letter dated 14/02/2006 Annexure-P/1. The time allowed for completion of work for 16 months to be reckoned after 22 days of letter dated 14/02/2006. An agreement was signed between the parties. There was some delay in execution of work. The petitioner''s allegation is that the hindrances were created by the respondent, which resulted in delay in execution of work. The petitioner sought extension of time for completion of the work. The work was completed on 27/01/2008, but several payments of petitioner were not settled. Petitioner by communication dated 10/03/2008 requested for release of withheld payments. He preferred an application dated 12/05/2008 seeking further time to complete the work. When payments have not been made, the petitioner sent a reminder on 03/05/2010. Lastly, the petitioner preferred a dispute under clause 25 of the said agreement Annexure-P/10 and when Arbitrator was not appointed, he filed this petition in the month of August, 2011.

Respondent has filed its reply to the petition and also filed I.A.No. 145/2012 for dismissal of the petition on the ground that during pendency of the petition, by order dated 14/10/2011 an Arbitrator has been appointed. Since, petitioner''s prayer for appointment of Arbitrator is satisfied it is prayed by the respondent that the petition be dismissed.

Shri Alok Sharma, learned counsel for the petitioner has heavily relied on Bharat Sanchar Nigam Ltd. and Another Vs. Dhanurdhar Champatiray, . On the strength of this judgment, it is stated that right to appoint an Arbitrator continues after expiry of 30 days, but remains in force till the application u/s 11(6) is filed by the other party. On the strength of the aforesaid contention, it is stated that, admittedly, the Arbitrator is appointed after filing of the Arbitration Case and, therefore, such an appointment is bad in law. Relying on the same judgment, Shri Yogesh Singhal learned counsel for the respondent submits that the right was not extinguished.

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

This is not in dispute that there exists an arbitration clause and Arbitrator has been appointed by invoking the said clause. The petitioner has not chosen to challenge the qualification and competence of Arbitrator appointed by the respondent. The singular objection of the petitioner is on the ground that Arbitrator has been appointed after filing of the Arbitration Case and, therefore, it is impermissible in law. The petitioner relied on Para 7 & 8 of the judgment in Bharat Sanchar Nigam''s case (supra), the paragraphs are reproduced herein as under:-

A plain reading of Section 11(5) of the Act would show that if one party demands appointment of an arbitrator and the other party does not appoint any arbitrator within thirty days of such demand, the right to appointment at the instance of one of the parties does not get automatically forfeited. If the appellant makes an appointment even after thirty days of demand but the first party has not moved the Court u/s 11, that action on the part of the appellant would be sufficient. In other words, in cases arising u/s 11(6), if the respondent has not made an appointment within thirty days of demand, right to make an appointment of an arbitrator is not forfeited but continues, but such appointment shall be made before the other party files the application u/s 11 seeking appointment of an arbitrator before the High Court. It is only then the right of the respondent ceases.

In this connection, a three-Judge Bench decision of this Court in Punj Lloyd Ltd. v. Petronet MHB Ltd. may be referred to. In this case, this Court considered the applicability of Section 11(6) of the Act and after considering the scope and object of the Act held that once notice period of thirty days has expired and the party has moved the Hon''ble Chief Justice of the High Court u/s 11(6) of the Act, the other party loses his right to appoint an arbitrator on the basis of arbitral agreement.

In the said case, the Apex Court has also taken note of the earlier judgments on the subject delivered in Punj Lloyd Ltd. Vs. Petronet MHB Ltd. reported in (2006) 2 SCC 638 where the Supreme Court has laid down the same principle of law that if the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the Court u/s 11, appointment of Arbitrator would be permissible. In other words, in cases arising u/s 11(6), if the opposite party has not made an appointment within the 30 days of demand, the right to make appointment is not forfeited, but continues. Appointment has to be made before the former files application u/s 11 seeking appointment of Arbitrator, only then the right of the opposite party cease. This view was further followed by Supreme Court in Ace Pipeline Contracts Private Limited Vs. Bharat Petroleum Corporation Limited, . However, subsequently a some what different view was expressed by Supreme Court in Union of India (UOI) Vs. Bharat Battery Manufacturing Co. (P) Ltd.,

In view of the difference of opinion of the two coordinate Benches of Supreme Court, the matter was referred to three Judge Bench in Northern Railway Administration, Ministry of Railway, New Delhi Vs. Patel Engineering Company Ltd., the Apex Court concluded as under:-

A bare reading of the scheme of Section 11 shows that the emphasis is on the terms of the agreement being adhered to and/or given effect as closely as possible. In other words, the court may ask to do what has not been done. The court must first ensure that the remedies provided for are exhausted. It is true as contended by Mr. Desai, that it is not mandatory for the Chief Justice or any person or institution designated by him to appoint the named arbitrator or arbitrators. But at the same time, due regard has to be given to the qualifications required by the agreement and other considerations.

* * *

In all these cases at hand the High Court does not appear to have focused on the requirement to have due regard to the qualifications required by the agreement or other considerations necessary to secure the appointment of an independent and impartial arbitrator. It needs no reiteration that appointment of the arbitrator or arbitrators named in the arbitration agreement is not a must, but while making the appointment the twin requirements of sub-section (8) of Section 11 have to be kept in view, considered and taken into account. If it is not done, the appointment becomes vulnerable. In the circumstances, we set aside the appointment made in each case, remit the matters to the High Court to make fresh appointments keeping in view the parameters indicated above.

In the considered opinion of this Court, the view taken by Apex Court in earlier cases of Punj Lloyd, Ace Pipeline''s (supra) was clarified in Northern Railways case (supra). It was made clear that the agreement entered into between the parties needs to be given effect to as closely as possible. The Court is required to do what has not been done. The Court must first ensure that the remedies provided are exhausted. It is further held that for the Hon''ble Chief Justice or the designated Judge it is not necessary or mandatory to appoint the named Arbitrator or Arbitrators. However, the qualification of the Arbitrator needs consideration. On the basis of this judgment of three Judges in Northern Railway''s case (supra), it can be safely concluded that where the arbitration agreement contains arbitration clause and appointment of the Arbitrator was after 30 days time from the date of demand, will not render the other side powerless to appoint Arbitrator. Similarly, in adjudication of Arbitration Case, the Chief Justice or the designated Judge is bound to consider the terms of agreement and make efforts to implement it as closely as possible.

Considering the aforesaid, since in this case the arbitration agreement contains an arbitration clause pursuant to which the respondent has already appointed the Arbitrator. The only question raised by Shri Alok Sharma needs to be decided against him. In other words, in view of the law laid down in Northern Railway''s case (supra), the respondent has already appointed Arbitrator as per the agreement. The petitioner has not raised any objection regarding the qualification, eligibility and competence of Arbitrator. Thus, Para 14 of Northern Railway''s case (supra) has no application in the present case.

On the basis of the aforesaid analysis, I am unable to hold that because Arbitrator is appointed after filing of Arbitration Case, appointment of such Arbitrator is impermissible. On the contrary as per Para 12 of the Northern Railway''s case (supra), such appointments are permissible subject to competence, qualification and eligibility of the Arbitrator. On the cost of repetition, since petitioner has not raised any objection of the competence of Arbitrator, this Court is not examining the competence of the said Arbitrator. This singular point raised by Shri Alok Sharma is decided against him. In view of this, since Arbitrator has been appointed, this Arbitration Case has rendered infructuous. Needless to mention, Arbitrator has to act and conduct arbitration proceedings in accordance with law. No costs.