The Food Corporation of India vs M.V. Krishna Reddy

J. Eswara Prasad, J.—Both these revisions arise out of the judgment of the learned Second Additional Judge, City Civil Court, Hyderabad, in O.S. No. 680 of 1986. The petitioner in C.R.P. No. 3180 of 1990 is the Food Corporation of India and the petitioner in C.R.P. No. 2349 of 1991 is the contractor.

Pursuant to an agreement entered into between the Food Corporation of India (hereinafter referred to as ''the F.C.I.'') and the contractor on 22-1-1979, certain works relating to construction of 25,000 M.T. capacity (Conventional) Foodgrain godown in 5 units with ancillary services at Cherlapally, Ranga Reddy district, were completed. Disputes arose between the parties and a fine was levied by the F.C.I, against the contractor for the alleged failure on the part of the contractor. The contractor complained that the F.C.I. did not pay the amounts in time, revisiting in the extension of time for completion of work beyond the stipulated time and that due to lapses, defaults and breaches of contract on the part of the F.C.I., the contractor suffered. The contractor claimed that huge amounts are due to him. He requested the Managing Director (for short ''M.D.'') of the F.C.I, to refer the matter to an arbitrator under Clause 25 of the Agreement by his letter dated 18-4-1985. The M.D. rejected the request of the contractor. The contractor filed the suit contending that the M.D. being the designated person, who is empowered to appoint an arbitrator, has failed to do so and prayed for appointment of an arbitrator. The claim of the contractor was resisted by the F.C.I, by contending that the petition is not maintainable and is barred by limitation. It was further contended that it was within the discretion of the M.D. to appoint or not to appoint an arbitrator and hence, rejected the request of the contractor. The learned Judge held that the suit is filed within time as the defendant did not furnish the date of settlement of final bill. He further held that the M.D. failed to refer the matter to arbitrator as required under Clause 25 of the agreement. For the said purpose, he relied on Exs.A-1 and A-2. It was further held that the action of the defendant rejecting the request of the contractor is unilateral and arbitrary and the suit was decreed directing the F.C.I, to nominate a suitable person for adjucating the flaims. Aggrieved by the judgment and decree, the F.C.I, filed C.R.P. No. 3180 of 1990.

The contractor filed LA. No. 304 of 1991 in the suit u/s 152 CPC for correction of judgment and decree dated 28-10-1989 in O.S. No. 680 of 1986 by adding "failing which Sri......is appointed as Sole Arbitrator to adjudicate the disputes between the parries." The learned Judge dismissed the application holding that there was no error in the judgment requiring correction. Aggrieved by the said order, the contractor filed C.R.P. No. 2349 of 1991.

The learned Counsel for the F.C.I, contended that the suit was barred by limitation and that the lower Court was in error in decreeing the suit. He further contended that inasmuch as the final settlement of the bill was over, it was not open to the contractor to pray for appointment of an arbitrator. The learned Counsel for the contractor submitted that the suit is not barred by limitation, inasmuch as the date of final settlement of the bill was not furnished by the plaintiff. He further contended that when the M.D. failed to appoint an arbitrator in accordance with Clause 25 of the agreement, it was necessary for the Court to have appointed an arbitrator in the event of failure of M.D. to appoint an arbitrator within the period specified by the Court.

The learned Judge, dealing with the question of limitation, referred to Exs.A-1 to A-4 and held that the plaintiff did not furnish the date of settlement of final bill and that the question of limitation does not arise. The said finding arrived at by the learned Judge is correct and needs no interference in this revision. The plaintiff (sic. defendant), having failed to furnish the date of settlement of final bill, cannot invoke the clause relating to request for appointment of arbitrator within 90 days of settlement of final bill under Clause 25 of the agreement. The learned Judge relied on Ex. A-2 dated 18-4-1985 by which the plaintiff requested the M.D. to make appointment of an arbitrator. Under Ex.A-3 the M.D. rejected the request of the plaintiff. Clause 25 of the agreement, as evidenced by Ex. A-4, clearly provides for the appointment of an arbitrator by the M.D. The learned Judge was, therefore, perfectly justified in holding that the action of the defendant in rejecting the request of the plaintiff is arbitrary. The direction of the Court below to the M.D. to nominate a suitable person to adjudicate the claims was justified in the circumstances of the case and there are no merits in C.R.P. No. 3180 of 1990. It is, accordingly, dismissed.

With reference to C.R.P. No. 2349 of 1991, Sri Sankar Rao contended that when the M.D. failed to discharge his duty by appointing an arbitrator as required under Clause 25 of the contract, it is necessary for the Court to have given a direction to the M.D. to appoint an arbitrator within a particular time, failing which the arbitrator named by the Court will stand appointed as arbitrator. In support of the said contention, he relied on the decision in Union of India (UOI) Vs. Prafulla Kumar Samal and Another, by the Supreme Court wherein it was held as follows:

"In the instant case, as an arbitrator has not been appointed by the parties and as the parties are not agreed upon an arbitrator the Court may proceed to appoint an arbitrator, but in so doing it is desirable that the Court should consider the feasibility of appointing an arbitrator according to the terms of the contract. In this case the respondent in his petition has prayed for an appointment of an arbitrator under the terms of the agreement. Before us both the parties expressed a desire that the President should be asked to appoint an arbitrator according to Clause 29 of the agreement. We feel that there could be no objection to this suggestion and we accordingly ask the President to appoint an arbitrator as contemplated under Clause 29 within two months from today. The arbitrator so appointed will immediately enter on his duties and dispose of the reference as expeditiously as possible. The appeal is accordingly allowed. The President will appoint the arbitrator within two months from today, failing which Mr. Tapash Banerjee who was appointed as an arbitrator by the Single Judge of the Calcutta High Court will enter upon his duties."

A Full Bench of Delhi High Court in Ved Prakash Mittal Vs. Union of India and Others, quoted the above decision of the Supreme Court as a model order, which should be followed in all cases u/s 20(4) of the Arbitration Act, 1940, where the circumstances were similar and disposed the matter before them by making the order in terms similar to that of the Supreme Court.

In the light of the abovementioned decisions, it was necessary for the Court below to amend the judgment and decree so that the parties will not be left in the lurch by the M.D. by not complying with the decree of the Court. The order of the Court below in I.A. No. 304 of 1991 is set aside and I.A. No. 304 of 1991 is allowed, and the learned Judge is directed to appoint a sole arbitrator to adjudicate the disputes between the parties as the M.D. failed to appoint an arbitrator as decreed by the Court. It is to be noted that C.M.P. No. 15128 of 1990 filed by the F.C.I, for suspension of the decree was dismissed by this Court by an order dated 17-12-1990, but the M.D. failed to act in accordance with the decree. In such circumstances, there is no need to grant any further time to the M.D. for appointing an arbitrator. The Court should appoint a sole arbitrator within four weeks from the date of receipt of this order. The C.R.P. No. 2349 of 1991 is, accordingly, allowed with the above direction. No costs.