Steemen Limited vs The State of Himachal Pradesh etc.

D.B. Lal, J.—This is an application under Sections 5, 8, 11, 12 and 31 read with Section 41 of the Arbitration Act. The Union territory of Himachal Pradesh wanted to construct a bridge across the river Ravi at Sitla in Chamba Division. Accordingly notice inviting tenders was issued and the tender submitted by M/s Steemen Limited, Rahim Manzil, Sanjauli, Simla, was accepted on 31-12-1969 and they were entrusted to do the work. Subsequently the Union territory got the status of a State on 25-1-1971 and as such for the present the State of Himachal Pradesh is one of the parties to the contract. On 14-1-1970 the agreement was signed and the Managing Director of the Petitioner-company who signed on behalf of the company was Gopi Krishan Khanna. Thereafter certain disputes arose on 29-6-1971 and as many as ten points of differences were referred to by the Petitioner-company. The Department, however, felt that there was "slow progress" and accordingly they took the drastic step of rescinding the contract on 5-7-1971. M/s Steemen Limited appealed to the Government and the order rescinding the contract was cancelled by the Government. On 9-7-1971 the disputes were referred to the arbitration of one Narinder Nath, Superintending Engineer. Clause 29 of the agreement inter alia provided that "any question, claim, right, matter or thing whatsoever arising out of the contract" was to be referred to the sole arbitration of a person to be appointed by the Chief Engineer, H.P.P.W.D. incharge of the work at the time of dispute. It was further provided in Clause 29 of the agreement that the arbitrator to whom the matter is originally referred in the case of being transferred or vacating his office, or being unable to act for any reason, the Chief Engineer, H.P.P.W.D. shall appoint another person to act as arbitrator in accordance with the terms of the contract. It was then laid down in the same clause that it is also a term of the contract that no person other than a person appointed by such Chief Engineer, H.P.P.W.D., should act as arbitrator. In exercise of Clause 29, the Superintending Engineer was appointed on 14-9-1971 by the Chief Engineer Shri H. C. Malhotra, who was incharge of the work at the time of the dispute. However, Shri Narinder Nath, Superintending Engineer, resigned on 27-10-1971 and Shri H. C. Malhotra appointed Shri R. K. Sarkar, Superintending Engineer, in his place to act as arbitrator. According to Petitioner-company Shri R. K. Sarkar did not pay much attention to the arbitration work. Since 1971 he could hold only nine sittings which too were of perfunctory nature and no substantial progress could be made. Above all, the arbitrator was sought to be influenced by another Chief Engineer Shri R. C. Singh and Annexures I and II are appended to the rejoinder submitted by the Petitioner-company, which go to prove that fact. Annexure -I is the letter dated 17-9-1973 issued by the arbitrator in which he considered it "unfortunate" that he could not adhere to the instructions issued by the Chief Engineer relating to the arbitration. He pointedly mentioned:

It is relevant to point out that as an Arbitrator. I am not required either to receive or comply with any instructions from any officer of the department.

Annexure-II is the report dated 9-10-1973 received from Shri R.C. Singh, Chief Engineer, in which he inter alia mentioned:

But these are executive instructions issued in the best interest of economy and Government work. Non-implementation of these instructions will be taken note of.

In short, the Petitioner-company contended that Shri R.K. Sarkar failed to use reasonable despatch in entering on and proceeding with the reference, and that he not only neglected and refused to act but was also incapable of acting. As such u/s 5 of the Arbitration Act the authority of the arbitrator is to be revoked with the leave of the court. For this the present petition is filed u/s 5 read with Sections 11, 12 and 31 of the Act. The reference of Section 8 of the Act in the petition, for the reasons to be stated seems to be besides the point as that section is not at all applicable to the situation which has been created.

The usual reply of the Respondents, who are the State of Himachal Pradesh, the Chief Engineer, the Executive Engineer and Shri R.K. Sarkar, is that, there was no delay on the part of the arbitrator and that he was acting with sufficient vigilance and despatch in proceeding with the reference. It was primarily stated that Shri R.K. Sarkar, Superintending Engineer, himself showed inability to proceed with the reference and that he resigned. Thereafter Shri R.C. Singh, Chief Engineer, appointed Shri O.P. Sublok, Superintending Engineer, as arbitrator on 3-4-1975. The main contention of the Respondents is that the petition has become infructuous because of that appointment. It was also pleaded that the court has lost its jurisdiction to try the dispute between the parties as another arbitrator has been appointed.

In their rejoinder the Petitioner-company also con tended that Shri R.C. Singh could not appoint the arbitrator as that function could legally be ascribed to Shri H.C. Malhotra, Chief Engineer, who was incharge of the work at the time of the dispute. Therefore, the appointment of Shri Sublok by Shri R.C. Singh was ab initio illegal and cannot be sustained by the court.

The learned Advocate-General in the first instance wanted this Court to decide, as to whether the petition was not maintainable merely because another arbitrator in place of Shri R.K. Sarkar was appointed. This preliminary objection was decided by this Court under its order dated 21-8-1975 and it was held, that merely because another arbitrator has been appointed, the jurisdiction once vested in the High Court u/s 5 would not be lost and the petition cannot be thrown out as not maintainable. It is for the Court to decide if the authority of Shri Sarkar can be revoked and leave be granted for the same, so that the appointment of Shri Sublok is upheld. Besides it was again a question to be decided by the Court as to whether the appointment of Shri Sublok by Shri R.C. Singh, Chief Engineer, was valid, and in accordance with Clause 29 of the agreement. Therefore, the application was not thrown out at the initial stage and it is at present set down, after fresh reply submitted by the Respondents, for a final decision.

A reading of Section 8 of the Arbitration Act makes it abundantly clear that it confers power on the court to appoint arbitrator only in a case where the appointment is asked for by one party and denied by the other party for which a notice is served upon the other party, and after the expiry of 15 clear days after service of such notice that the court appoints an arbitrator. Such a situation has never arisen in the present case. Firstly, the appointment is not to be made by the other party but by the Chief Engineer and as clear the Chief Engineer cannot be "the other party" as contemplated in Section 8. Secondly, the Chief Engineer has already made the appointment of Shri Sublok and as such he exercised his power rightly or wrongly and as such the case does not strictly fall within the meaning of Section 8. If authority is needed Kishan Chand v. The Union of India and Anr. 1975 P.L.R. 199 can be referred to. In that case their Lordships were considering a very much similar Clause 25 of the agreement and held that the sine qua non of Section 8(1) is that the arbitration agreement must be one which "provides that the reference shall be to one or more arbitrators to be appointed by consent of parties", and that was not the arbitration clause in that case, as it is not in the present case. On the contrary, the power to nominate an arbitrator is vested exclusively in the Chief Engineer and as such it cannot be stated that the State Government being the other party has not supplied the vacancy. In the case before me, rather the vacancy has been supplied by the Chief Engineer. Therefore, a bare reading of Section 8 will disclose that no part of that section is applicable to the present case. The learned Counsel relied on the aforementioned decision of Delhi High Court as well as the decision of the learned Chief Justice in O.M.P. No. 22 of 1975 H.S. Sobti and Co. v. Chief Engineer H.P. P.W.D. decided on 22-9-1975. In the latter case the petition was one u/s 8 and that section was not held applicable because the arbitrator had not refused to act and as such no question could arise for fresh appointment of arbitrator. The decision is totally besides the point and is not applicable to the present case. It is clear that the present petition is essentially one u/s 5 and the two decisions referred to above do not relate to Section 5 at all. Thus I am fortified to hold that Section 8 of the Act is not applicable.

The learned Advocate-General contended that the jurisdiction of the Court u/s 5 is lost simply because the arbitrator himself has resigned and a new arbitrator has been appointed. I regret, I am unable to subscribe to this view of the learned Counsel. The jurisdiction once conferred upon the court u/s 5 cannot be set at naught because a party has chosen to defeat that jurisdiction by calling upon the arbitrator to resign and by making a fresh appointment of arbitrator. In a case where the contractor has some grievance against the State Government, because the arbitrator appointed by the latter is finding it difficult to enter into reference, due to extraneous influence exercised upon him and thus seeks to revoke his authority, so that recourse could be had u/s 12 for the Court to cancel the arbitration agreement itself, can such a contractor be defeated to have that recourse to cancellation of arbitration agreement u/s 12, for which he invoked jurisdiction of the Court u/s 5, by enabling the State Government to ask for the resignation of the arbitrator and thereby rendering the application u/s 5 nugatory so that the Court''s jurisdiction is lost and no order can be passed u/s 12 of the Act? In my opinion such a situation cannot be permitted to exist. Therefore, it would be a negation of justice if the jurisdiction of the Court is held to be lost u/s 5 simply because one of the parties has chosen, suo moto, to revoke the authority of the arbitrator by compelling him to resign. This is also so spelled out from Section 31(4) of the Act, because the Court alone has jurisdiction over an application u/s 5 which refers to arbitration proceeding and the said jurisdiction cannot be defeated by unilateral executive act of either party. It is a different matter that the Court itself may revoke the authority of the arbitrator by availing of the circumstance, that the arbitrator has chosen to resign or is not willing to act as arbitrator.

This apart, Shri R.C. Singh, the Chief Engineer, was definitely not entitled to appoint Shri Sublok as the arbitrator. Clause 29 of the agreement makes it abundantly clear that the sole arbitrator is to be appointed by the Chief Engineer "incharge of the work at the time of dispute". Such a Chief Engineer was Shri H.C. Malhotra and in fact he appointed Shri R.K. Sarkar as the arbitrator. It is also a term of the contract that no person other than a person appointed by "such Chief Engineer, H.P. P.W.D." can act as arbitrator. The expression "such Engineer" decidedly refers to the Chief Engineer incharge of the work at the time of dispute. Therefore, the Chief Engineer incharge of the work at the time of dispute could alone appoint a substitute for Shri R.K. Sarkar. Instead Shri R.C. Singh, Chief Engineer, appointed the substitute and his appointment dated 3-4-1975 of Shri Sublok was decidedly illegal and could not be maintained. Therefore, the appointment of Shri Sublok was without jurisdiction.

The Court is, therefore, faced with a somewhat peculiar situation. Shri R.K. Sarkar was rightly appointed as the arbitrator. He has refused to act and has even resigned. Before he could do so, the jurisdiction of the Court was invoked, under Sections 5 and 12 of the Act. I have already held that this Court may give leave to revoke the authority of Shri Sarkar simply because the latter has refused to act or has shown his inability to act as arbitrator. The appointment of Shri Sublok is manifestly incorrect and the said appointment cannot be upheld. The Court can certainly exercise jurisdiction u/s 12 after revoking the authority of the arbitrator. It can either appoint any other person to act as sole arbitrator or can hold that the arbitration agreement shall cease to have effect with respect to the differences referred. In my opinion, the latter course should be adopted. The reason is, that an affidavit dated 11-3-1976 is filed by Shri Gopi Krishan Khanna, Managing Director of the Petitioner-company, indicating his deep-seated enmity with Shri H.C. Malhotra, the Chief Engineer. A reading of this affidavit along-with its annexures makes it clear that Shri H.C. Malhotra lodged a report against Shri Gopi Krishan Khanna under Sections 386, 511 and 506 of the I.P. Code relating to this very contract. In return, Shri Gopi Krishan Khanna sent a complaint to the Prime Minister. As a result to the report lodged by Shri Malhotra, a criminal case is also pending in a Court at Delhi against Shri Gopi Krishan Khanna. In view of these allegations and counter-allegations between the Chief Engineer Shri Malhotra and Shri Gopi Krishan Khanna it will not be proper to ask the Chief Engineer, Shri H.C. Malhotra to appoint an arbitrator which I could do u/s 12 of the Act in compliance of Clause 29 of the agreement. In my opinion, it is a fit case to order that the arbitration agreement should cease to have effect with respect to the differences referred.

The application is, therefore, allowed and leave is granted to revoke the authority of the Arbitrator Shri R.K. Sarkar. The appointment of Shri Sublok another Arbitrator is also held illegal and unenforceable. u/s 12 of the Arbitration Act the arbitration agreement shall cease to have effect with respect to the differences referred to the Arbitrator.

In the special circumstances made out, parties shall bear their own costs.