Sri Jarnail Singh Sandhu vs National Projects Construction Corporation Ltd. and Another

V. Gopala Gowda, C.J.—This petition is filed by the contractor seeking for appointment of an Arbitrator u/s 11(6) of the Arbitration and Conciliation Act, 1996 (for short ''the Act''). The relevant facts are slated for the purpose of deciding the rival legal contentions urged in this case with a view to find out as to whether the Petitioner is entitled for appointment of an Arbitrator.

The undisputed fact is that there is an agreement between the parties and also there is a dispute with regard to the appointment of Arbitrator as the Opp. Party-Corporation appointed his own officer as Arbitrator on the basis of the Arbitration Clause No. 44 of the agreement between the parties. As per Ext. F/2 it is seen that Sri Shivamoy Ghose, the General Manager of the Corporation was appointed as Arbitrator which was accepted by the Petitioner and the Petitioner was asked to file his claim, Proceedings were conducted on 26.7.2005 and on that day it was adjourned to 27.7.2005. Again on that day the proceeding was adjourned to 22 and 23.9.2005 at NPCC Bhubaneswar as could be seen from the FAX message dated 3.1.2007 to Annexure-A/2. During the pendency of the proceeding he retired from his service. Vide Annexure-A/2, he has written letter to the Managing Director of the Corporation stating as follows:

I was appointed as sole arbitrator for the above mentioned arbitration in Feb, 2005. I had started the proceedings as will be evident from the synopsis enclosed. I could not however continue the same and bring it to the logical conclusion because had retired on 30.9.2005.

I would be glad to render, my services and compete my duty as an arbitrator if I am reimbursed for the same as below:

Professional Charges : Rs. 1000.00 per proceeding

T.A.D.A and incidentals (if required to go out of Chittorgarh. Raj).: Rs. As per actual subject to entitlement as Ex GM NPCC

Clerical charges : Rs. 100.00 per sitting

The above expenses will have to be borne by both the parties equally. If you are kindly agreeable to the above proposal t would request Zonal Manager, NPCC, Guwahati to send me the files which 1 had handed over while being relieved from my office.

The proposal given by the arbitrator was accepted by the Corporation but not accepted by the contractor-Petitioner.

Before this letter was sent to the Chairman, the Petitioner has approached this Court by filing this petition u/s 11(6) placing reliance upon Sections 14(1)(a) and (b) of the Act contending that the arbitrator appointed by the Corporation has in fact on account of his retirement inordinately delayed in conducting the proceedings, is a reason for the failure on the part of the arbitrator to conduct the arbitration proceeding and therefore, he is withdrawn from office is a termination of the arbitrator appointed by the Corporation. Learned Counsel for the Petitioner placed reliance upon the decision of the Apex Court in Union of India v. Singh Builders Syndicate AIR 2009 SCW 3374.

Therefore, Mr. Mohanty, Learned Counsel for the Petitioner has prayed for appointment of a sole Arbitrator as the power of the Chairman-cum-Managing Director of the Corporation is lost since the Arbitrator appointed by him on account of the undue delay and retirement from the service is evidenced for not conducting the proceedings from July, 2005 till A/2 dated 8.1.2007. Therefore, the appointment of the arbitrator by the Managing Director of the Corporation is terminated. Further the Learned Counsel has placed reliance on an unreported decision of this Court dated 30.7.2010 rendered in ARBP No. 18 of 2009 Bhikari Charan Sahu v. East Coast Railway, wherein the question whether the employer has got power, with reference to Clause 64 of the agreement, to appoint his own officer to arbitrate the dispute between the parties, came for consideration. This Court-while examining the power u/s 11(6) of the Act with reference to the Constitutional Bench decision of the Apex Court in Delhi Transport Corporation Vs. D.T.C. Mazdoor Congress and Others, after referring to legal aspect held that the arbitration Clause 64 of the agreement is ab initio void in law as it is unconscionable. Therefore, Learned Counsel submits that this Court notwithstanding Clause 64 of the agreement upon which strong reliance is placed by applying the principle laid down therein, exercise power and appoint Arbitrator to adjudicate the claim of the Petitioner.

Mr. Mohapatra, Learned Counsel for the Corporation by filing a detailed counter-statement, additional affidavit and written note of submission, strongly opposed the prayer of the Petitioner placing strong reliance upon Clause 44 of the agreement and letter dated 8.1.2007 (Annexure-A/2). The Arbitrator appointed by the Managing Director has pointed out that he is willing to conduct the proceedings. He has given certain proposal of terms and conditions for his continuance in conducting the proceedings as he had retired from the service of the Corporation. Therefore, the provisions of Section 14(a) and (b) are attracted in this case. It is submitted that Section 11(6) cannot be invoked by the Petitioner and this Court cannot entertain his petition. In support of such contention, he has placed reliance upon the unreported decision dated 6.7.2009 of the Delhi High Court in Sh. Surendra Pal Singh v. Hindustan Petroleum Corporation Ltd. in which the decisions of the Apex Court in Ace Pipeline Contracts Private Limited Vs. Bharat Petroleum Corporation Limited, and Northern Railway Administration, Ministry of Railway, New Delhi Vs. Patel Engineering Company Ltd., have been referred that even in exercise of powers u/s 11(6) of the Act, the court can give a mandate to the appointing authority to appoint the arbitrator as per the agreement or in terms of agreed mechanism.

In view of the aforesaid rival, factual and legal contentions urged on behalf of the parties, this Court is to examine the following points that would arise for consideration:

(i) whether Mr. Shivamoy Ghose, the Arbitrator appointed by the Chairman-cum-Managing Director of the Corporation in exercise of power under Clause 44 of the agreement, not conducting the proceedings for more than two years amounts to withdrawing himself from conducting the proceedings and comes within the Section 14(1)(a) and (b) of the Arbitration and Conciliation Act, 1996?

(ii) whether the power u/s 11(6) is required to be exercised by this Court for appointing a sole Arbitrator other than the Arbitrator of the choice of the Chairman-cum-Managing Director?

(iii) what order?

All the aforesaid points are required to be answered in favour of the Petitioner for the following reasons:

Clause 44 of the Arbitration reads as under:

Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, design drawings and instruction, before mentioned and as to the quality of workmanship of materials used on the work or as to any other question. Claim, right, matter anything whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works, or the execution or failure to execute the same, whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the persons appointed by the chairman and Managing Director of the National Projects Construction Corporation Ltd. acting as such appointment, that the arbitrator so appointed is a Corporation officer that he had to deal with the matters to which contract relates and that in the courses of his duties as Corporation Officer; he had expressed views on all/or any of the matters in dispute or difference. The Arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason, the Chairman and Managing. Director as aforesaid at the time of such transfer, vacation of office or inability to act, shall appoint another person to act as arbitrator in accordance with the terms of the contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed by the Chairman and Managing Director as aforesaid should act as arbitrator and if for any reason, that is not possible, the matter is not to be referred, to arbitration at all. The arbitrator may from time to time with the consent of the parties, enlarge the time, for making and publishing the award.

I have carefully considered the decision of this Court in East Coast Railway (Supra) upon which the Petitioner has placed strong reliance, in which case this Court relied upon the constitutional Bench decision in Delhi Transport Corporation (supra) and held that the clause in the Arbitration agreement to appoint its own officer of the Railways as all Arbitrator to resolve the dispute is unconscionable and therefore it is void. Further Annexure-A/2 produced by the Corporation, in this case, shows that the Arbitrator was not willing to conduct the proceedings as he had put terms and conditions to both the parties, namely, Petitioner and the Corporation which were acceptable to the Corporation but not to the Petitioner. Having regard to the undisputed fact that the Arbitrator appointed did not conduct the proceedings for more than nearly two years and in the meanwhile he retired from service on attaining the age of superannuation, there was undue delay in deciding the claim between the parties which amounts to that he has withdrawn from the Arbitration, which is one of the reasons for the termination of the arbitratorship. Therefore, the Petitioner has rightly approached this Court filing Section 11(6) petition for appointment of Arbitrator, which was opposed by the Corporation placing reliance upon Section 15(2) of the Act and the decisions of the Apex Court referred to supra. The ratio of the said decisions have no application to the facts situation of this case in view of the observation made by the Apex Court in the case of Union of India v. Singh Builders (supra). The observations made in paragraph-11 thereof are relevant which is quoted hereunder:

We find that a provision for serving officers of one party being appointed as arbitrator/s brings out considerable resistance from the other party, when disputes arise. Having regard to the emphasis on the independence and impartiality in the new Act, Govt. statutory authorities and government companies should think of phasing out arbitration clauses providing for serving officers and encourage professionalism in arbitration.

In my considered opinion, the observation made in the said case with all fours is applicable to the facts situation in support of the claim of the Petitioner. Accepting the unreported decision and also the judgment of the Supreme Court, the fact that the Arbitrator did not conduct the proceedings for more than two years and subsequently he has retired and put certain terms and conditions to conduct the proceedings, amounts to withdrawing himself from conducting the proceedings leading to termination of his mandate. The contention urged that the Arbitrator is still conducting the proceedings, as contended by the Counsel for the Corporation, is wholly untenable in law and not supported by fact or law. Delay for an unreasonable period by the Arbitrator appointed by the Opp. Party, in conducting the proceedings amounted to withdrawing himself from conducting the proceedings. Added to that he retired from service in the mean time and imposed certain terms and conditions to conduct the proceedings, which was not acceptable to the Petitioner, itself is a ground to uphold the termination of mandate of Arbitrator. Hence the Petitioner is entitled for appointment of an arbitrator. Accordingly, the petition is allowed and Justice D.P. Mohapatra, former Judge of Supreme Court of India, is appointed as the Arbitrator to decide the dispute between the parties. The arbitrator so appointed shall enter upon the reference within a period of six weeks from the date of communication of the order. The fee and other charges of the arbitrator will be fixed by the arbitrator himself. After entering upon the reference, the arbitrator shall decide the dispute between the parties within a period of six months.

Registry is directed to communicate the order to the arbitrator appointed immediately.