Tribol Engineering Pvt. Ltd. vs Indian Oil Corporation Ltd.

A.R. Lakshmanan, J.—This unsuccessful plaintiff is the appellant in this appeal. The appellant filed the suit u/s 20 of the Arbitration to file the

original arbitration agreement into Court and to appoint a third party Arbitrator and make an order of reference of the dispute and claims to the

said Arbitrator. The claim of the appellant to appoint a third party Arbitrator was rejected by the learned Single Judge of this Court by holding that

the respondent has already named an Arbitrator and therefore, the appellant has to make a reference to him invoking the arbitration clause.

Aggrieved by the same, the plaintiff has come on appeal before us.

The short facts leading to the filing of the suit by the appellant are as follows : M/s. Neyveli Lignite Corporation Limited (hereinafter referred to

as N.L.C.) awarded a contract in respect of L.S.H.S. (Low Sulphur Heavy Stock) Conversion Project to the respondent/Corporation who in turn

invited tenders by issuing Tender Specification bearing No. SR/TSD/508 dated 24.3.1988. The appellant submitted its tender on 22.4.1988 and

the same was accepted by the respondent. Thereupon, the appellant was awarded the contract by the issuance of the letter of Indent No.

Sr/TSD/508 dated 27.6.1988. The contract awarded to the appellant was in general for the working relating to the supply, fabrication, erection

testing and commissioning for the conversion of the existing furnace oil system to TSRS at N.L.C. Thermal Station I. According to the appellant,

the Letter of Indent based on the abovesaid tender specification as well as the other contract documents referred to in the Letter of Indent formed

the basis for both parties to operate the contract. The appellant accepted the Letter of Indent and commenced, executed and completed the job.

The respondent has also paid several bills to the appellant. However, the respondent has not yet paid the entire bills even though the appellant has

successfully completed the work long back.

According to the appellant, several disputes and differences have arisen between the parties during the execution of the project. Under Clause

22(2) of Section E of the Tender Document, it was agreed upon by both the parties that all disputes, if case could not be settled amicably, shall be

referred to the sole arbitration of the contracting company/respondent herein and persons designated by it. Though the appellant tried its best to

settle all its dispute amicably, the same could not be settled. The appellant made several requests to the respondent to appoint an Arbitrator and

refer all the dispute to him. Instead, after testing and commissioning of the project by the appellant, the General Manager of the respondent

terminated the contract by his letter dated 27.11.1992 on false and erroneous grounds and without giving any prior notice to the appellant. Further,

the respondent has invoked the bank guarantee furnished by the appellant long after the expiry of the warranty obligations, causing undue hardship

to the appellant. The respondent has acted in a vindictive and biased manner on account of the appellant''s persistent demand for the appointment

of an Arbitrator. However, after a lapse of almost one year from the appellant''s invocation of the arbitration clause, the respondent advised the

appellant by their letter dated 11.5.1993 to refer the grievances to the sole arbitration of the Director (Marketing), Indian Oil Corporation,

Bombay, and thereby named the Arbitrator specifically. This, according to the appellant, is presumably arising out of the corporate policy of the

Indian Oil Corporation though not spelt out in the tender document.

According to the appellant, the arbitration clause is vague and ambiguous inasmuch as not naming the Arbitrator, whereas, the respondent by

their letter dated 11.5.1993 specifically identified a particular officer viz., Director (Marketing), Indian Oil Corporation, Bombay, as the sole

Arbitrator. However, when the appellant wrote letters on 11.12.1992 and 15.4.1993, to the said official at Bombay requesting him to intervene

and arbitrate the disputes, the he has totally neglected to act in any manner. Instead, another official of the Indian Oil Corporation at Bombay has

replied by standing that the Southern Region of the Corporation has been advised to go into the details of the case and reply to the appellant''s

letter dated 15.4.1993. It is further contended that the Director (Marketing), Indian Oil Corporation, Bombay, who is named as Arbitrator to

settle all the disputes, is liable to be removed since he has neglected and failed to use all reasonable dispatch in entering or and proceeding with the

reference even after the lapse of nearly two years from the invocation of the arbitration clause by the appellant on 9.4.1992. Under these

circumstances, the appellant filed the above suit to direct the respondent to file the original arbitration agreement into Court and to appoint a third

party Arbitrator and make an order of reference to him.

The respondent filed a counter affidavit curiously denying the existence of a tender document and existence of a clause in the Letter of Indent

regarding the referring of any dispute to any Arbitrator. According to them, the Letter of Indent does not specify any arbitration agreement and

apart of from the Letter of Indent, no contract was signed either between the respondent and the appellant and after the Letter of Indent, no other

document was signed warranting the dispute arising out of the contract. Therefore, it was submitted that there is no arbitration agreement between

the appellant and the respondent which can be filed before this Court. They also denied the allegations made by the appellant as false and

incorrect. In conclusion the respondent stated in their counter affidavit that they are not agreeable for the arbitration by any third party because the

contract of the nature, which is in dispute, involves lot of specialised and technical matters which can be understood and arbitrated only by the

officials of the Indian Oil Corporation.

The appellant filed a detailed reply affidavit bringing out the factum of the existence of the tender documents, etc., and the Letter of Indent,

which constituted together a valid contract binding on both parties.

We have heard the arguments of Mr. K. Venkat, Managing Director of the appellant-Company, who appeared party in person, and that of Mr.

T. R. Rajagopalan, learned Senior Counsel who appeared for the respondent for the respondent/Corporation.

The following are the undisputed facts :

(a) The respondent called for tender;

(b) The appellant has submitted its tender;

(c) The same was accepted by the respondent;

(d) The appellant was awarded the contract;

(e) The Letter of Indent bearing No. SR/TSD/508 dated 27.6.1988 was issued to the appellant; and

(f) The Letter of Indent issued to the appellant is comprehensive and complete in all respects.

It is argued that the contentions of the appellant are based strictly on the contract and related document which include tender specifications

dated 24.3.1988 applicable to the respondents as the contracting company and appellant as the contractor. The party in person who appeared for

the appellant has also invited our attention to the various letters exchanged between the appellant and the respondent regarding the settlement of

disputes, which, according to him, shall clearly spell out the intention of the parties to refer the disputes for arbitration, and since the intention has

been so far translated into an effective action by the respondent, the appellant was compelled to file the suit u/s 20 of the Act to get redressal.

According to the appellant, in terms of the contract and the arbitration clause, any dispute/difference arising under the contract can be referred to

arbitration and in the present case, disputes relate to those which arose during execution and after completion as well as after the termination. The

appellants has also furnished the details in paragraph 11.2 of the reply affidavit in regard to the dates of communication exchanged between the

appellant and the respondent regarding the issue of arbitration in a chronological order.

The party in person appearing for the appellant would submit that the respondent has been unwilling to act in terms of Clause 22.2 of the

General Conditions of Contract and has delayed response to the notices and reminders issued by the appellant in this behalf. The respondents has

also misdirected the appellant to approach the Director (Marketing) without appointing the latter as Arbitrator, and after nearly 2 1/2 years, has

finally come up with a plea in the counter affidavit that there is no contract, no arbitration agreement, no dispute and no appointment of Arbitrator.

According to the appellant, all these actions and conduct of the respondent clearly proclaim the respondent''s refusal to act in terms of the

arbitration clause. The appellant would submit that the respondent has taken several inconsistent pleas in their counter affidavit. The respondent has

also not shown sufficient cause in the counter affidavit for not filling the agreement as required u/s 20(3) of the Act and because of the conduct of

the respondent, this Court should not leave the matter of appointing a sole arbitrator in the present case to the respondent but to exercise the

power vested in this Court u/s 20(4) of the Act to appoint a third party Arbitrator in the interests of equity, justice and good conscience.

The appellant has also expressed reasonable apprehension of bias against the respondent for a number of reasons. They are :-

(a) Sincere attempts made by the appellant to get dispute amicably settled in terms of the arbitration clause have been time and again thwarted by

the respondent.

(b) Amounts due to the appellant from time to time on several bills have been paid belatedly and substantial has been withheld by the respondent

without any justification.

(c) When the project execution has been virtually completed by the appellant, the respondent has unfairly terminated the contract by letter dated

27.11.1992.

(d) As regards the project delays, the respondent has gone on making all out efforts to make appellant the scapegoat in order to cover up its own

follies and delays in decision making and failure to discharge its obligations agreed upon in the contract documents relating to project execution.

(e) Continued unreasonable conduct of not appointing an Arbitrator for more than three years.

(f) Director (Marketing), Indian Oil Corporation, Bombay, is an interested person.

Before we proceed further, it is useful to refer to the stand taken by the respondent in their counter affidavit. The counter affidavit was sworn

to by one Mr. K. Tukaram, Deputy General Manager (Engg.), Indian Oil Corporation Madras. In paragraph 5 of the counter affidavit it has been

stated as follows :-

No tender documents were signed between the plaintiff and the defendant herein. The only contract-document signed is the Letter of Indent. This

letter of Indent dose not have any condition regarding the referring of any dispute to any Arbitrator.

The above statement made in paragraph 5 of the counter affidavit would only go to show as to how effectively the respondent/Corporation is

functioning. It further show that the signatory to the counter affidavit viz., the Deputy General Manager (Engg.) has signed the same without even

verifying the documents and the contract entered into between the parties.

The respondent again reiterated in paragraph 6 of the counter affidavit that the letter of indent dated 27.6.1988 issued to the appellant, which is

comprehensive and complete in all respects, is the only document of contract between the respondent and the appellant, which again is factually

incorrect. It is contended that according to the standard policy of the respondent with all their dealers, distributions and contractors, all the contract

documents contain a clause for reference of all disputes to the sole arbitration of the Director (Marketing), Indian Oil Corporation. Therefore, by

their letter dated 11.5.1993, the respondent directed the appellant to refer any dispute to the Director (Marketing), Indian Oil Corporation,

Bombay, who will be ready and willing at all times to enter upon reference and arbitrate the disputes.

Again, in paragraph 10, sub-para 3 (page 27 of the typed set filed by the appellant), the respondent repeated the same allegation which reads

as follows :-

This defendant has submitted that apart from the Letter of Indent dated 27.6.1988, there is no other contract or document signed between the

Indian Oil Corporation and the plaintiff. There is on document which prescribes arbitration. In the absence of that, mention made by the plaintiff to

the tender document and that in the tender document there is an arbitration clause No. 22(2) of Section 8 is not correct.

The above allegation will again go to prove that the signatory to the counter affidavit has not understood the scope of Clause 22(2) of the tender

document.

It will be shocking to see the statement made in paragraph 11 of the counter affidavit wherein the respondents has stated that the Director

(Marketing), Indian Oil Corporation, Bombay, was never appointed as an Arbitrator. A perusal of the letter dated 11.5.1993 sent by the

respondent to the appellant, which was signed by the Deputy General Manager (Engg.) will clearly show that the respondent have advised the

appellant that in case they are aggrieved by the termination of their contract, they may refer the matter for sole arbitration viz., Director

(Marketing). It is further stated that in case the appellant is interested in setting the entire dispute through arbitration viz., Director (Marketing), they

have to make a proper request to him at the address given stating clearly the disputes and their claim.

The above referred letter dated 11.5.1993 of the respondent to the appellant would clearly indicate the intention of the respondent to refer the

dispute for arbitration, whereas the statement made in paragraph 11 of the counter affidavit clearly shows that the respondent is capable of filing

counter affidavits containing incorrect and misleading statements. Persons who are occupying responsible position, before signing a sworn

statement, are expected to make only the true and correct statements. We record our deep displeasure over the callous manner in which the

counter affidavit was sworn to by the officer concerned. The only hope that the officer at least hereafter by careful and vigilant while swearing to

solemn documents. Otherwise, the same will amount to perjury.

Now we will extract Clause 22(2) of the General Conditions of contract, before we proceed further. It reads as follows :-

22.2. Any dispute or difference at any time, arising between the parties as to the construction, meaning or effect of the contract or as to any

clause, matter or thing, herein contained or as to the rights and liabilities of the parties or relating to the contractor''s claim against contracting

company or vice versa or any interpretation thereof or as to any act or omission, etc., of either party whether arising during the course of the work

or after completion or abandonment thereof or otherwise shall be, if possible, settled amicably. However if this is not achieved, contrary to the

expectations, the matter shall be referred to the sole arbitration of contracting company and persons designated by the contracting company. The

Award of the Arbitrator shall be final, conclusive and binding on all the parties to the contract and provisions of the Arbitration Act, 1940, or any

statutory modification or re-enactment thereof and the Rules made thereunder and for the time being in force shall apply to the arbitration

proceedings under this Clause.

The clause specifically provides that in case of any dispute or difference at any time arising between the parties as to the construction, meaning or

effect of the contract, etc., or as to the rights and liabilities of the parties, the matter shall be referred to the sole arbitration of the contracting

company (Indian Oil Corporation) and persons designated by the contracting company, and that the Award of the Arbitrator shall be final,

conclusive and binding on all the parties.

However, at the time of hearing, since the respondent has agreed for appointment of an arbitrator, the learned single Judge has not discussed

the points raised before him in detail as to whether the appellant is entitled to ask for arbitration in the absence of any agreement. However, for the

reasons recorded in the judgment, the learned Judge has rejected the request of the appellant for appointment of a third party Arbitrator. It was

contended before the learned Single Judge that the respondent has no objection for the appointment of the Director (Marketing), Indian Oil

Corporation, as the Arbitrator as it is the standard policy of the respondent with all the dealers, distributors and contractors and all the contract

documents contain a clause for reference of all disputes to the sole arbitration of the Director (Marketing), Indian Oil Corporation. Therefore, the

learned Judge, while rejecting the request of the appellant for third party Arbitrator, has dismissed the suit holding that the respondent have already

appointed an Arbitrator through their letter dated 11.5.1993 and that the appellant alone has failed to approach the said Arbitrator. The learned

Judge has further held that the named Arbitrator has not neglected or failed to use all reasonable dispatch in entering on and proceeding with the

reference.

At the time of hearing of this appeal, after seeing the unreasonable attitude of the respondent\Corporation in their counter affidavit as extracted

above, and of the undue delay cause, we suggested to the learned counsel for the respondent that in view of the facts and circumstances of the

case, we are inclined to appoint a third party Arbitrator and asked the learned Senior Counsel appearing for the respondent to ascertain from the

respondent their willingness or otherwise. On the next adjourned date, the learned Senior Counsel for the respondent submitted that the

respondent\Corporation was not willing for appointment of a third party Arbitrator. However, according to him, if the Court is inclined to appoint

any other person other than the Director (Marketing), Indian Oil Corporation, Bombay, the Court may do so and select one among the panel of

names furnished to the Court. The respondent has suggested five names. When we asked the appellant whether they are willing to select any one

of the five named persons, the party in person replied by saying that he is not willing to select any one of the names suggested since he has already

expressed his reasonable apprehension of bias by the Corporation, that his reasonable apprehension is based on cogent materials and that the

proposed persons are all employees of the respondent/Corporation, who are all subordinate officers to the General Manager who terminated the

contract of the appellant.

We are unable to agree with the above said contention of the appellant. We have already extracted the arbitration Clause 22(2). Pursuant to

this clause, the Director (Marketing), Indian Oil Corporation, Bombay, was appointed as the Arbitrator. However, the appellant has not

approached the said officer but has been corresponding with other officers in regard to the dispute. Since the delay is also attributable to the

respondent/Corporation, we are inclined to appoint a third party as an Arbitrator. However, the Corporation has now placed before us five names

and given the choice to this Court to select one from the five. When the parties entered into the contract, for which there is no dispute in this case,

the parties knew the terms of the contract including the arbitration clause. Because the names suggested by the Corporation are all employees and

subordinates to the General Manager of the Corporation, no bias can reasonably be apprehended and made a ground for appointment of a third

party Arbitrator. In our opinion, this cannot at all be good or valid legal ground. Unless there is allegation against the named Arbitrator either

against his honesty, capacity or mala fide or interest in the subject matter or reasonable apprehension of bias, a named and agreed Arbitrator

cannot and should not be removed in exercise of the discretion vested in the Court u/s 5 of the Act.

It is true that a reasonable apprehension of bias in the mind of a reasonable man can be a ground for appointment of a third party as Arbitrator.

But, we are of the view that the apprehension expressed by the appellant herein is not based on any material. There must be reasonable evidence

also to satisfy that there was a real likelihood of bias. In that view of the matter, we reject the contention of bias raised by the appellant. We,

therefore, appoint Mr. A. L. Annamalai, chief Plant Manager (Lube Plant), Tondiarpet, Indian Oil Corporation, who has served the organisation in

various capacities at Secunderabad, Visakhapatnam, Tuticorin, Bombay, etc., as the Sole Arbitrator to decide the disputes and differences

between the appellant and the respondent. The Sole Arbitrator shall complete the arbitration within six months from the date of his entering upon

the reference. He shall conduct the arbitration proceedings at Madras or at a place as desired by mutual consent of both parties.

Though number of authorities have been cited by the appellant in support of his contention raised u/s 20 of the Act, we do not propose to load

this judgment with the authorities since we decide the matter on the facts and circumstances of the case.

For the foregoing reasons, we allow the appeal, set aside the judgment and decree of the learned Single Judge and allow the suit appointing

Mr. A. L. Annamalai as the Sole Arbitrator. The appellant is directed to file their claim petition before the Arbitrator now appointed and it is open

to the appellant to raise all the contentions that are available to them under law. No Costs.

Appeal allowed.