Prasad & Company (Project Works) Limited vs Bharat Heavy Electricals Limited

B.S. Patil, J.—This petition is filed seeking appointment of an Arbitrator to adjudicate the dispute that has arisen between the petitioner and the respondent.

Petitioner is a construction company. Respondent -Bharat Heavy Electricals Limited issued a notice inviting tenders for carrying out certain civil works. Petitioner participated in the tender and emerged as a successful bidder. Letters of intent were issued by the respondent in favour of the petitioner in respect of part A and B works covered in the notification. Work orders were also issued. Petitioner has produced General Conditions of Contract at Annexure-G. In Clause 58 of the General Conditions of Contract, it is provided that all questions of disputes relating to any matter connected with the contract, designs, drawing, specifications etc. concerning the work or the execution or failure to execute the work, whether arising during the progress of the work or after the completion or abandonment thereof, shall be referred to the sole arbitration of the managing director/chief engineer of BHEL and if the managing director/chief engineer is unable or unwilling to act, to the sole arbitration of some other person appointed by the managing director/general manager/chief engineer willing to act as such arbitrator. Indeed, there is no dispute regarding the existence of the arbitration clause in the contract entered into between the parties.

A dispute has arisen between the parties regarding the increase in volume and quantity of work and difference in cost factor. Petitioner has written a letter addressed to the respondent bringing to its notice the cost analysis and the reference in the cost on the basis of plinth area rates approved by the central public works department. When the department did not take any action for amicably resolving the issue by enhancing the contract value and extending the time for performance of obligations of the contract petitioner sought for appointment of arbitrator to resolve the dispute by writing a letter dated 28.09.2011 invoking the arbitration clause. Copy of this letter is produced at Annexure-D.

Respondent informed the petitioner that formalities regarding arbitration had to go on along with the work of all electrical installations. It is relevant to notice that as per the letter written by petitioner on 20.10.2014, petitioner requested for appointment of arbitrator immediately making it clear that if no action was taken within 30 days, they would be compelled to initiate appropriate action as per law. As the respondent has not responded favourably to the letter written, petitioner has approached this Court seeking appointment of an arbitrator to resolve the dispute.

Respondents have filed their statement of objections. It is admitted that under Clause 58 of the general conditions of contract, arbitration clause has been provided. But, their stand is that when the petitioner was asked to wait for some more time to enable the respondent to take decision in the matter, there was no justification for the petitioner to rush to this Court. It is also urged that the arbitrator to be appointed as per Clause 58 is the managing director of the respondent -Company and not any other person at the instance of the petitioner.

I have heard the learned Senior Counsel appearing for the petitioner, Sri. P.S. Rajagopal and the learned Senior Counsel representing the respondent, Sri Udaya Holla, who have taken me through various documents. They have placed reliance on several decisions.

It is apparent from the materials on record including the notice issued by the petitioner and the reply given by respondent that a dispute has arisen between the parties with regard to the work entrusted to the petitioner by the respondent. It also emerges that both parties have agreed for resolution of the dispute through arbitration. The question now is whether the dispute has to be arbitrated by the managing director as provided in Clause 58 of the general conditions of contract or by any other arbitrator to be appointed by this Court in terms of the provisions contained in Section 11(b) of the Arbitration and Conciliation Act, 1996 (for short the Act'').

Sri Uday Holla, learned Senior counsel urges that when the agreement specifically provides for appointment of certain persons or a particular authority as arbitrator, this Court cannot entertain the petition filed under Section 11(6) to appoint any other person as arbitrator. He has placed reliance on the judgments of the Apex Court in the cases of State of H.P. Vs. M.P. Gupta, , S. Rajan Vs. State of Kerala and another, , Bhupinder Singh Bindra Vs. Union of India and another, and India Household and Healthcare Ltd. Vs. LG Household and Healthcare Ltd., to contend that when the procedure provided in the arbitration agreement for appointment of arbitrator is not followed, application under Section 11(6) of the Act is not maintainable.

Sri P.S. Rajagopal, learned Senior Counsel appearing for the petitioner has strongly urged that none of the judgments relied on by the respondent has any application to the facts of the present case inasmuch as in the instant case, despite issue of notice dated 20.10.2014 calling upon the respondent to refer the matter for arbitration, no steps have been taken by the respondent to resolve the dispute or to appoint an arbitrator within a period of 30 days from the date of receipt of the request which compelled the petitioner to approach this Court seeking appointment of arbitrator. He contends, by placing heavy reliance on the judgment of the Apex Court in the case of Union of India (UOI) Vs. Bharat Battery Manufacturing Co. (P) Ltd., that similar contentions urged by the petitioner have been considered and repelled by the Apex Court holding that as the party who was required to appoint the arbitrator had failed to appoint within the time stipulated in the notice, it cannot later on exercise its powers under the relevant clause seeking to appoint arbitrator and refer the matter to the authority named therein. He points out that the Apex Court has laid down that once petition under Section 11(6) of the Act was filed before the Court seeking appointment of an arbitrator, power to appoint an arbitrator in terms of the arbitration clause of the agreement ceases.

In the light of the above submission, I have carefully considered the judgments on which reliance is placed by learned counsel for both parties.

As is clear from the facts of the case involved in the case of BHARAT BATTERY, Clause 12 of the rate contract entered into between the parties in the said case contained a price variation clause. As dispute arose between the parties with regard to the rate contract entered, appellant - Company therein refused to issue amendment with respect to the price variation clause relating to certain supplies of batteries made nor did it take any step to settle the dispute. A notice was sent invoking the arbitration clause wherein it was demanded that either necessary amendment be issued to the price variation clause on account of variation in the price or an arbitrator be appointed within 30 days. Receipt of notice was acknowledged. As this was not complied with, another notice was issued by the respondent invoking the arbitration clause seeking appointment of arbitrator. Despite the same, appellant therein had neither resolved the dispute nor appointed an arbitrator thereby compelling the respondent to file petition under Section 11 (6) of the Act. Clause 24 of the agreement dealt with arbitration between the parties. It provided for reference of dispute to the sole arbitration of an officer in the Ministry of Law to be appointed by the Director General of supplies and disposals. The clause further provided that there would be no objection for the arbitrator being a government servant and that he had to deal with matters to which contract related. The Director General of supplies and disposals was also clothed with a right to appoint another arbitrator in the event of the arbitrator dying or because of his negligence or refusal to act or resigning or being unable to act for any reason. The clause further provided that no person other than the person appointed by the Director General of supplies and disposals can act as arbitrator and that if for any reason that was not possible, matter was not to be referred to arbitration at all.

In the wake of such a clause, it was contended by the appellant therein that appointment of Justice K.S. Gupta as a sole arbitrator was not in consonance with the arbitration agreement inasmuch as Clause 24 of the agreement provided that if any dispute arises, the same shall be referred to the sole arbitration of an officer in the Ministry of Law to be appointed by the Director General of supplies and disposals. The Apex Court repelled this contention and held by referring to Section 11(8) of the Act that such provisions 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 made by the respondent. The Apex Court has further held in paragraph 9 of the judgment that the appellant therein had appointed the arbitrator after the petition under Section 11(6) was filed by the respondent which was not permissible in law. The Apex Court has ruled that once such a petition under Section 11(6) was filed before the Court seeking appointment of arbitrator, the power to appoint arbitrator in terms of arbitration clause of the agreement ceases. The Apex Court has referred to the judgments in the cases of State of H.P. Vs. M.P. Gupta, and S. Rajan Vs. State of Kerala and another, on which learned counsel for respondent, Sri Uday Holla has placed reliance.

In the facts of the present case, it is clear that petitioner has issued notice dated 20.10.2014 bringing to the notice of the General Manager of the respondent - Company regarding the disputes to be referred for resolution to the arbitrator. It has been stated in the said notice that all disputes listed in the letter had been already brought to the knowledge of the BHEL, but no steps for resolving the disputes had been initiated. Hence, it was contended in the notice that non resolution of the issues was directly affecting the progress of the prestigious project, therefore, petitioner was compelled to request BHEL to refer the dispute to an arbitrator for settlement. Respondent has indeed responded to the letter stating that action had been initiated with regard to the claim made by the petitioner in the notice and that it was completing the process and formalities in that regard. But, no action was taken to refer the claim for arbitration. Indeed, another reply dated 07.11.2014 has been sent by the respondent - BHEL informing the Executive Director of the petitioner - Company that they were in the process of examining the request made by the petitioner. It is thus clear that no action was taken either to resolve the dispute or to refer the same to the arbitrator in terms of arbitration clause contained in Clause 58 of the General Conditions of Contract. Thirty days time given by the petitioner vide his letter dated 20.10.2014 expired on 20.11.2014. Even after the expiry of the time stipulated in the notice issued by the petitioner, no action was taken to refer the matter for arbitration to the Managing Director or to the person of his choice. This petition has been filed on 15.12.2014. It is not the case of the respondent that before filing this petition, action has been indeed taken to refer the dispute for arbitration to the Managing Director of the respondent - company.

Therefore, in the light of the judgment in the case of BHARAT BATTERY referred to supra, respondent cannot be heard to say that petition filed by petitioner under Section 11(6) seeking appointment of arbitrator cannot be entertained. In addition, learned Senior counsel Sri P.S. Rajagopal has rightly brought to the notice of the Court the judgment of the Apex Court in the case of Deep Trading Company Vs. Indian Oil Corporation and Others, wherein the position in law as referred to supra has been emphasized after referring to the Apex Court''s judgment in Datar Switchgears Ltd. Vs. Tata Finance Ltd. and Another, to hold that if no appointment of arbitrator had been made by the opposite party till application under Section 11(6) had been filed, right of the opposite party to make appointment ceases and would be forfeited and that Section 11(8) would not come to the aid of the opposing party for appointment of arbitrator. It is also stated therein that to secure appointment of an independent and impartial arbitration, it was necessary that someone other than an officer of the Corporation be appointed as arbitrator once the Corporation had forfeited its right to appoint the arbitrator in terms of the agreement.

Therefore, in the light of the judgments referred to above, the inescapable conclusion is that as the petitioner had sought for appointment of arbitrator and the respondent had delayed the same and had not exercised its option to refer the matter to the Managing Director to arbitrate the dispute, respondent -BHEL had forfeited its right to appoint the arbitrator and refer the matter to the Managing Director after filing of the petition by the petitioner before this Court invoking Section 11(6) of the Act. I am also of the view that in the instance case, having regard to the fact that respondent has not appointed the arbitrator in terms of Clause 58 of the General Conditions of Contract, ends of justice would require that an independent arbitrator has to be appointed to adjudicate the dispute. Indeed, in the connected writ petition No. 25/2015 wherein also similar dispute has arisen between the same parties the parties have agreed for appointment of Justice V. Jagannathan, retired Judge of this Court as arbitrator to adjudicate the dispute. It is submitted at the bar by the learned counsel for both parties that as the dispute that has arisen in this case is also similar, it is advisable to appoint the same arbitrator to facilitate effective and expeditious disposal of the dispute between the parties by way of arbitration.

Keeping in mind the above submission and in the light of the reasons assigned above, this petition is allowed. Sri V. Jagannathan, retired Judge of this Court is appointed as arbitrator to adjudicate the dispute that has arisen between the parties. It is made clear that consent given by the respondent for appointment of Justice V. Jagannathan is without prejudice to the contentions that have been raised and are met in this proceeding.

The learned arbitrator is directed to enter upon the reference, issue notice to the parties and dispose of the matter in accordance with law.

Registry is directed to send copy of this order to the Arbitration Centre, Bangalore and also to the learned arbitrator.