M/s S.S. Builders vs Chief Engineer And Others

Ramesh Ranganathan, CJ

This application is filed, under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short the "1996 Act"), seeking appointment of an Arbitrator. The applicant participated in a tender process, and was awarded a construction contract. An agreement was entered into between the parties which contains an arbitration clause, reference to which shall be made later in this order.

On the ground that the amounts due to them were not paid, despite completion of the work, the applicant herein addressed a letter to the respondents seeking appointment of an Arbitrator. Despite issuance of a notice, no Arbitrator was appointed. Reminders were also sent by the applicant for appointment of an Arbitrator. Since no response was forthcoming thereto, the applicant has invoked the jurisdiction of this Court under Section 11(6) of the 1996 Act.

In the counter affidavit, filed to this application, the respondents submit that they had never refused appointment of an Arbitrator in terms of arbitration clause of the agreement; the applicant was asked to forward his consent, for waiver under Section 12(5) of the 1996 Act, and for appointment of an arbitrator in terms of the arbitration agreement; five copies of the agreement were forwarded to the applicant for his signature; in the absence of such an agreement being signed by the applicant, the respondents are in no position to appoint an Arbitrator; and hence the delay in appointment of an Arbitrator, as per the agreed arbitration clause, is because of the non-cooperative attitude of the applicant.

The arbitration clause, under the agreement, is Clause 7(b) which reads thus :

"To execute all works referred to in the said documents upon the terms and conditions contained or referred to therein and as detailed in the General summary below, and to carry out such deviations as may be ordered vide condition 7 of I.A.F.W.-2249 up to a Maximum of 10 (Ten) percent and further agree to refer all disputes as required by condition 70 to the "Sole arbitration of an serving officer, having degree in engineering or equivalent or having passed final/direct final examination of sub -divisions II of Institution of Surveyor (India) recognized by the Govt. of India to be appointed by Engineer-in-Chief, Army Head Quarters, New Delhi-110011 or in his absence the office officiating as Engineer-in-Chief, or Director General of Works, if powers specifically delegated in writing by the Engineer-in-Chief's, Army Headquarters, New Delhi-110011 whose decision shall be final, conclusive and binding."

Condition 70, to which a reference is made in the afore-extracted Arbitration clause, reads thus :

Arbitration. - All disputes, between the parties to the Contract (other than those for which the decision of the C.W.E. or any other person is by the Contract expressed to be final and binding) shall, after written notice by either party to the Contract to the other of them, be referred to the sole arbitration of an Serving Officer having degree in Engineering or equivalent or having passed final/ direct final Examination of sub-Division II of Institution of Surveyor (India) recognized by the Govt. of India to be appointed by the authority mentioned in the tender documents.

Unless both parties agree in writing such reference shall not take place until after the completion or alleged completion of the Works or termination or determination of the Contract under Condition Nos. 55, 56 and 57 hereof.

Provided that in the event of abandonment of the Works or cancellation of the Contract under Condition Nos. 52, 53 or 54 hereof, such reference shall not take place until alternative arrangements have been finalised by the Government to get the Works completed by or through any other Contractor or Contractors or Agency or Agencies.

Provided always that commencement or continuance of any arbitration proceeding hereunder or otherwise shall not in any manner militate against the Government's right of recovery from the contractor as provided in Condition 67 hereof.

If the Arbitrator so appointed resigns his appointment or vacates his office or is unable or unwilling to act due to any reason whatsoever, the authority appointing him may appoint a new Arbitrator to act in his place.

The Arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties, asking them to submit to him their statement of the case and pleadings in defence.

The Arbitrator may proceed with the arbitration, exparte, if either party, inspite of a notice from the Arbitrator fails to take part in the proceedings.

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

The Arbitrator shall give his award within a period of six months from the date of his entering on the reference or within the extended time as the case may be on all matters referred to him and shall indicate his findings, along with sums awarded, separately on each individual, item of dispute. The arbitrator shall give reason for the award in each and every case irrespective of the value of claims or counter claims.

The venue of Arbitration shall be such place or places as may be fixed by the Arbitrator in his sole discretion.

The Award of the Arbitrator shall be final and binding on both parties to the Contract.

In terms of Condition 70, disputes between the parties must be referred to the sole arbitration of a Serving Officer, having a degree in engineering or equivalent, or having passed final/direct final examination of Sub-Division II of the Institution of Surveyors (India) recognized by the Govt. of India, to be appointed by the authority mentioned in the tender document. The respondents sought waiver, of the condition stipulated in Section 12(5) of the 1996 Act, to enable them to appoint their serving officer as the Arbitrator.

Section 12(5) of the 1996 Act stipulates that, notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule of the 1996 Act, shall be ineligible to be appointed as an arbitrator. The Seventh Schedule deals with the Arbitrator's relationship with the parties or counsel; and Item (1) thereunder relates to an arbitrator who is an employee, consultant, advisor or has any other past or present business relationship with a party. In terms of Condition 70, the respondents seek appointment of their employee as an Arbitrator, which is hit by Section 12(5) read with Item (1) of the Seventh Schedule to the 1996 Act.

As noted hereinabove, Section 12(5) of the 1996 Act applies notwithstanding any prior agreement to the contrary. Consequently, notwithstanding the arbitration agreement between the parties and Condition 70 applicable in terms thereof, no employee of the respondents can be appointed as an Arbitrator. However, in terms of the proviso thereto, parties may, subsequent to disputes having arisen between them, waive the applicability of Section 12(5) by an express agreement in writing. In effect, the proviso to Section 12(5) enables the applicant to waive the requirements of Section 12(5), and agree in writing for appointment of a Serving Officer of the respondents as the Arbitrator.

The decision, whether to waive or not to waive their right under Section 12(5) of the 1996 Act, can only be taken by the applicant. The respondents cannot be heard to contend that the applicant should waive their right, under Section 12(5) read with the Seventh Schedule to the 1996 Act, to object to the appointment of a serving officer of the respondents as an Arbitrator; and the consequence, of their refusal to waive their right under Section 12(5) of the 1996 Act, would be that no Arbitrator would be appointed.

Waiver is a voluntary act on the part of a party to the agreement, and the other party thereto cannot contend that an Arbitrator would be appointed only if they waived their right under Section 12(5) of the 1996 Act. The respondents' contention, that an Arbitrator can be appointed only if the applicants waive their right under Section 12(5) of the Act, therefore necessitates rejection. While it was always open to the respondents to appoint an Arbitrator, other than the one who suffered a disqualification under the Seventh Schedule to the 1996 Act, the respondents have chosen not to do so, resulting in the applicant invoking the jurisdiction of this Court under Section 11(6) of the 1996 Act.

Under Section 11 (6A) of the 1996 Act, the High Court, while considering any application under Section 11(6) thereof, must confine its examination only to the existence of an Arbitration agreement. Since the existence of an arbitration agreement has not been disputed by the respondents, and has in fact been admitted, this application must be ordered, and the dispute referred to arbitration.

We consider it appropriate, in such circumstances, to appoint Mr. P.C. Agarwal (Retd. District Judge), R/o 143, H.I.G, Indirapuram, G.M.S. Road, Dehradun as an Arbitrator, to resolve the dispute, between the parties, in this case.

The learned Arbitrator shall, in terms of Section 11(8) of the 1996 Act, furnish his disclosure in writing to this Court within 15 days from the date of receipt of a certified copy of this order. He shall, thereafter, fix his remuneration, and charges towards other expenses, in consultation with the parties to the dispute. He shall endeavour to complete the arbitral proceedings, and to pass an award with utmost expedition, preferably within six months from the date on which he enters upon a reference.

The Arbitration Application is, accordingly, disposed of.