Union of India and others vs M/s. D. Khosla and Co.

Arun Kumar Goel, J.—Since identical questions of law are involved in both these appeals, therefore, they are being disposed of by a

common judgment.

CIMANo. 157/96 and CIMA No. 158/96.

Brief facts giving rise to these appeals need to be tested.

CIMA No. 157/96

This appeal has arisen from the order passed by the learned Sessions Judge, Jammu in CID No. 17/Arbitration dated 27-4-1996, whereby

petition for appointment of an arbitrator has been alleged and as a consequence of this authority of arbitrator who was appointed by respondent

during the pendency of the said petition before trial court was revoked and in his place another arbitrator viz. R.V. Ahuja (AVSM) Retd. Chief

Engineer, A-2/53, Azad Apartment, Opp. IIT Gate, Hauz Khas, New Delhi was appointed an arbitrator and matter in dispute was further referred

to him for adjudication. Parties had entered into an agreement No. CE (P) Samparak/MD-4/86-87 for the construction of permanent bridge over

River Tain at KN 80.50 on Akhnoor-Poonch Road. This work was allotted to the respondent. This work was undertaken by respondent,

however, numerous difficulties on account of non-payment as well as lack of decision on the part of department. This resulted in work being not

completed even within the extended period of contract. Though fault was on the part of Chief Engineer, Samparak, who instead of admitting the

name chose to cancel the contract vide its communication dated 14-6-1993.

Since dispute had arisen between the parties to the agreement, therefore, respondents admittedly approach and requested designated authority

for the appointment of the arbitrator in terms of clause 70 of the contract agreement for referring the dispute for determination. The contract period

in the instant case has already expired on 31-3-1993

The designated authority i.e Director General Border Roads Organisations, Army Headquarter, Kashmir House. New Delhi was under

obligation to have appointed an arbitrator within a period of 15 days on receipt of communication in that behalf from the respondent. Since it failed

to appoint an arbitrator and thus neglected in his duty, therefore, respondent filed an application for appointment of an arbitrator. The claim of the

respondent was contested on behalf of the appellants. According to them whatever amount was due stands already paid. The contract had to be

cancelled because of failure on the part of the respondent and alternate arrangement for its completion was undertaken by them. It was admitted

that arbitrator is to be appointed to adjudicate the disputes. He is to be approinted by the authority named in the agreement, it is specific case of

the appellants that it is respondent who owes money to them and not other way around as claimed by latter. It is also case of the respondent that

arbitrator if at all could be appointed was only after the arrangement to carry out the balance work at the risk and cost of the respondent was

completed.

Another fact that needs to be noted is that respondents approached the competent authority in terms of the agreement to appoint an arbitrator

on 16-2-1994. Till 11th July, 1995 no action had been taken by the appellants. Even in the objections filed by the appellants to the application for

appointment of an arbitrator by the Court, it is nowhere stated that arbitrator has been appointed on 11th July, 1995, i.e, during the pendency of

the application for appointment of an arbitrator. It appears that when Brig. Sudhir Kumar was appointed as an arbitrator, an application was filed

for quashing the said order. This application has also been disposed of by means of impugned order by the learned Court below.

CIMA No. 158/96

In this case vide Agreement No. CE(P) Samparak/Mn-1 / 89-89 parties entered into an agreement for construction of permanent bridge over

Nisra Tawi at KN 65.50 on Akhnoor-Poonch Road. Other facts are almost identical as are of CIMA No. 157/96. In this case also Brig. Sudhir

Kumar was appointed an arbitrator on 11-7-1995, for quashing the said order of appointing him as arbitrater, an application was tiled, and by

means of impugned order dated 27-7-1996 authority of Brig. Sudhir Kumar has been revoked and in his place Brig. B.V. Ahuja (AVSM) Retired

above named has been appointed an arbitrator.

Record of these cases that applications were initially filed in this court in both the cases for appointment of an arbitrator. These appear to have

been assigned to learned District Judge for disposal in accordance with law vide order dated 13-3-1995. This is how the matter came to be

adjudicated upon by the said court.

Other fact that needs to be noticed is that both the parties did not lead any evidence before trial so court proceeded on the basis of the facts as

were pleaded by both the sides before it. Even during the course of hearing of these appeals, learned Counsel for the parties stated that no

evidence in the face of admitted position was necessary as such those appeals may be disposed of accordingly.

Learned Sr. Central Govt. Standing Counsel submitted that court had no power muchless authority to have appointed an arbitrator as has been

done in the case that too by cancelling appointment of the arbitrator appointed by the competent authority and thereby revoking his power to act

as such. Besides this, he submitted that even if it be assured for the sake of argument that there were disputes existing between the parties which

were to be adjudicated upon by the arbitrator still power to appoint him always remained with the authority named in the arbitration clause and not

with the Court. Therefore, he has prayed for allowing the appeals and upholding the appointment of Brig. Sudhir Kumar as arbitrator and for

allowing both the appeals accordingly. This plea has been seriously contested by Shri Pandita who urged that no doubt the power to appoint an

arbitrator was vested with the competent authority named in the agreement. Still no exception can be taken to the revocation of the authority of

Brig. Sudhir Kumar in the peculiar circumstances of this case that too without spelling out such an appointment in the objections which were filed

after such appointment. Therefore, he urged for dismissal of the appeals with costs.

On the basis of aforesaid submissions urged on behalf of the parties. Sole question involved in this case is that whether the appellants had

forfeited their right to appoint arbitrator in both the cases, after competent authority failed to do so when it was notified on behalf of the respondent

or not.

As already noted that power to appoint an arbitrator is with the competent authority in terms of clause 70 of the General conditions of the

contract contained in A.A.F.W. No. 2249. Arbitrator was to be appointed by C.W.E or any other person who was to refer the dispute after

written notice by either party to the contract had been given to him for sole arbitration by an Engineer officer. As already noted admittedly, on 16-

2-1994 CWE was called upon to appoint an arbitrator since disputes had arisen between the parties. For the reasons best known to him he chose

to sleep over the matter for more, than one year and four months till Brig. Sudhir Kumar was appointed an arbitrator on 11-7-1995. This in my

considered view tantamounts to overreaching as well as circumventing judicial process which were pending before the learned court below.

As per Section 8 of the Arbitration Act, if the competent authority like CWE in the present case in terms of clause 70 (supra) fails to appoint

an arbitrator then there is nothing that prohibits the court to appoint an arbitrator as has been ordered in the present case.

In A.A.No 64/90, Om Prakash Nargotra v. Union of India, matter relating to removal of arbitrator was pending since appointee was not

Engineer officer as was directed by the court on 2-11-1989 in A.A.No. 631/88. As such, a prayer was made for removal of the arbitrator and

independent Engineer be appointed to act as arbitrator. This application was contested and resisted. In addition to this, another arbitrator was

appointed during the pendency of the matter before this court. In these cicumstances when arbitrator was appointed during the pendency of the

proceedings for removal of the arbitrator who had not been appointed in terms of the earlier order of the court it was held as under :-

.. It is now after a lapse of more than nine months that arbitrator has been appointed. Section 8(2) of Arb. Act makes it obligatory to appoint

arbitrator within a period of 15 days after service of notice. It comes out from abovesaid provision of law that the party who receives notice for

appointment of arbitrator has to act in haste and shall communicate appointment of arbitrator otherwise other party would be justified in taking

action under above said law, in which case the court assumes jurisdiction to appoint any other arbitrator. Respondent No. 2 has now appointed

arbitrator after institution of this petition which cannot be permitted under law.

In State of Rajasthan and Others Vs. G.S. Atwal and Co., . while considering the case in almost identical circunstances it was observed as

under :-

Where State Government failed to appoint the Arbitrator in accordance with Section 8(1)(a) the Act within the stipulated period of 15 days from

notice as envisaged under arbitration clause of the agreement, the claimant can make an application. He before Court for appointment of arbitrator

was not obliged to wait indefinitely since rights which were already vested with the claimant had got to be exercised in accordance with S. 8(2) of

the Act and, therefore, the claimants could not get its rights defeated at the instance of the State Government. The very purpose of the arbitration

agreement in view of clause 23 of the agreement would have stood defeated. Consequently the appointment of the arbitrator by the court by

treating the application as u/s 8 was perfectly justified, valid and in accordance with law. It could not be said in such a case, that as under

arbitration clause there was no mention of appointment of arbitrator by concerned authorities and a specific power was given to Chief Engineer to

appoint Arbitrator, it was only application u/s 20 which was maintainable and, therefore, appointment of Arbitrator by Court u/s 8(1) was illegal.

In Executive Engineer, Prachi Division, Bhubaneswar Vs. Gangaram Chhapolia and Another, it was observed as under at page 52 :-

It is well settled that when the parties do not concur in the appointment of an arbitrator or arbitrators, or the party who was to appoint the

arbitrator does not make a proper appointment in accordance with the agreement within time the court may, on the application of the party who

gave the notice and after giving the other party an opportunity of being heard, appoint an arbitrator or arbitrators, as the case may be, who shall

have the like power to act in the reference and to make an award as if he or they had been appointed by consent of all parties. There is no doubt

that on the failure of the Chief Engineer to appoint a proper arbitrator in accordance with the clause 23 of the F-2 agreement within 15 days of due

service of notice as provided in sub-sec. (2) of Section 8 of the Act, the court below had the jurisdiction to appoint an arbitrator and it actually did

so by appointing Sri Dey as the arbitrator in this case. As the Chief Engineer did not make a proper appointment within time, he forfeited his right

to appoint the arbitrator, and the court, in due exercise of its power vested on it under the Act, has already appointed an arbitrator. The arbitrator

therefore has the power to act in the reference made or to be made to him and to pass an award on that matter as if he had been appointed by the

consenu of all the parties.

In AIR 1996 Ori 19, Union India v. Prahallad Moharana, after following G. Ramachandra Reddy and Co. Vs. Chief Engineer, Madras Zone,

Military Engineering Service, , it was observed as under at page 21; of AIR Orissa :-

To take up the first point of Mr. Behura i.e whether the court is competent to appoint an arbitrator of its own choice when the parties agreed to

appoint a named arbitrator in the written agreement.

A direct decision on the point in the case of G. Ramachandra Reddy and Co. Vs. Chief Engineer, Madras Zone, Military Engineering Service, has

been cited to support the view that the Court is competent to appoint an arbitrator of its own choice in the peculiar facts and circumstances of a

given case. In that case, the contract was terminated by the authorities. The contractor exercised his option under the General Conditions of

Contract and called upon the appellants to appoint the sole arbitrator in terms of the agreement. When no action was taken by the authorities, the

respondent filed a suit u/s 20 of the Act for appointment of arbitrator by the Court. The Court appointed a Retired Judge of the High Court as the

sole arbitrator. That was reversed by a Division Bench of the High Court. The Apex Court following its earlier decision reported in Nandyal Coop.

Spinning Mills Ltd. Vs. K.V. Mohan Rao, held in para-6 of the judgment that when a notice was given by the contractor to the opposite

contracting party to appoint an arbitrator in terms of the contract and if no action had been taken, it must be deemed that he had neglected to act

upon the contract. It further held that when no agreement was reached even in the Court between the parties, the Court would get jurisdiction and

power to appoint an arbitrator. Even if Section 8(a) of the Arbitration Act per se does not apply, yet it was a notice indicating the opposite party

to act upon the terms of the contract and in spite of this notice when it does not act in strict terms of the contract, this amounts to forfeiture of the

power to appoint an arbitrator in terms of the contract and gives right to the other party to invoke the Court's jurisdiction under Sec. 20 of the Act.

Mr. Behura during course of argument very much relied on the case of Union of India (UOI) Vs. Prafulla Kumar Sanyal, and submitted that the

Court shall always make an endeavour to find out the feasibility of appointing an arbitrator agreed by the parties. The Apex Court in the case of G.

Ramachandra Reddy and Co. Vs. Chief Engineer, Madras Zone, Military Engineering Service, distinguished the Prafulla's case from the case

before them inasmuch as they observed that in Prafulla's case, the parties agreed that the arbitrator should be appointed by the President and that

too, even before the Court they agreed for such appointment, and such a situation was neither before the Apex Court in the case of G.P.

Ramchandra Reddy (supra) nor the same situation is also before us in the case at hand. In the case before this Court, the defendant Railway did

not respond to the notice though admittedly they received the same. The non-response to the plaintiffs notice for appointing the named arbitrator in

the agreement amounts, as has been held by the Apex Court, to forfeiture of the right to appoint an arbitrator so named in the agreement.

Therefore, I have no hesitation to hold that the Court is competent to appoint an arbitrator of its own choice in a given situation as is found in the

present case.

In view of the decision of the Apex Court in the case of G. Ramachandra Reddy and Co. Vs. Chief Engineer, Madras Zone, Military

Engineering Service, holding that Section 20, sub-section (4) of the Act directly applies to a case where the contracting party does not respond to

the notice of the contractor for appointment of the named arbitrator in the agreement, the two single Bench decisions of this Court should be held

to have been overruled. That apart, the two decisions of the Delhi High Court which were followed by this Court in the case of Lingaraj Das

(supra) were overruled in the Bench decision of the Delhi High Court in the case of Ved Prakash Mittal Vs. Union of India and Others, . In that

case the Court held that in a situation as in the case at hand, the Court would not be powerless to make an appointment of an arbitrator itself. The

Court is competent u/s 20(4) of the Act to appoint the arbitrator of its own choice because it would be a case where the parties cannot agree upon

to appoint an arbitrator. It further held that if the so named arbitrator was not appointed by the parties, such a case was contemplated by the

authors of Section 20(4). The Full Bench further held that to such a case, neither Sec. 8(1)(a) nor Section 8(l)(b) of the Act applied. I have no

hesitation in following the proposition laid down by the Full Bench since a bare reading of Section 8 of the Act it would be amply clear that the

section would not apply to a case as at hand. The reason is as follows :-

Section 8(1)(a) of the Act provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties and if all the

parties do not after differences have arisen concur in the appointment or appointments, any of them can move under this section. It is not the case

at hand. Therefore, sub-clause (a) is not applicable.

Sub-clause (b) comes into play only when an arbitrator already appointed either neglects or refuses to act or is incapable of acting, or does, and

then only the question of supplying the vacancy would arise and that would itself depend on the peculiar facts and circumstances of each case and

on the interpretation of the arbitration clause and we are not concerned with such a situation here.

Sub-clause (c) prescribes a situation where the parties or arbitrators do not appoint an Umpire. The question of supplying the vacancy would only

arise in a case u/s 8(1)(b) and not under Sec. 20(4) of the Act, because Section 20, sub-section (1) clearly predicates that action under that

section can be taken by either of the parties even if the party does not proceed under Chapter II in which Section 8 is included. Therefore, it is

abundantly clear that the power u/s 20(4) of the Act and the power u/s 8 are distinct powers prescribed for meeting different situations and there is

no reason to hold that both the sections overlap each other. To give the real effect and to serve better the purpose of arbitration, the provisions of

both the sections can be resorted to independently. Therefore, the contention of Mr. Behura cannot be accepted.

Shri Bhat learned counsel for the appellants placed reliance on a Full Bench decision reported in Ved Prakash Mittal Vs. Union of India and

Others, and urged that since agreement between the parties require arbitrator to be appointed by CWE, Srinagar, therefore, Section 8 (1)(a) or

8(1)(b) of the Arbitration Act were not attracted as such, appointment of revocation of the authority of Brig. Sudhir Kumar and in his place

appointment of another persons as an arbitrator as detailed hereinabove was liable to be set aside. When a reference is made to this decision, it

does not in any manner support muchless advance the plea urged on behalf of the appellants. Because while conceding the situation as in the

present two appeals what was observed by the Full Bench is as under :-

A contractor and the Government were parties to an arbitration agreement a clause wherein provided that the reference of their disputes

would be made to an arbitrator who would be appointed by the Chief Engineer. A dispute arose and the contractor issued a notice to Chief

Engineer requiring him to appoint the arbitrator. The Chief Engineer refused to appoint the arbitrator. An application u/s 20 was filed by the

contractor against the Government and Chief Engineer.

Held that, in such a case, the Court would not be powerless to make the appointment of the arbitrator itself. u/s 20(4) the Court would appoint the

arbitrator because then it would be a case ""where the parties cannot agree upon an arbitrator"". In such a case a notice would be issued to the

defendant, i.e. the Government, to show cause why the agreement should not be filed. If the Union of India showed a good cause for not filing the

agreement, the Court would refuse to file the agreement and dismiss the petition. But if no sufficient cause was shown by the Govt, the Court

would order the agreement to be filed and would make an order of reference by asking the Chief Engineer to appoint the arbitrator, in terms of the

clause. If the Chief Engineer would then refuse to appoint the arbitrator he must mention a reason for his refusal. If the reasons were satisfactory

the Court would refuse to appoint arbitrator and file the arbitration agreement. The Chief Engineer was a third party to the agreement though he

was the employee of the Govt., one of the parties. It was a ministerial job which the Chief Engineer was to perform. Such a ministerial functionary

could not destroy the arbitration agreement. Section 20(4) conferred upon the Court a general residual power to appoint an arbitrator when the

parties do not agree upon the arbitrator. The purpose of the section was to effectuate the intention of the parties in certain events in which one

would expect them to intend that the provision for arbitration should stand but which were not covered in terms by the arbitration provision. If the

arbitrator was not appointed by the agreed appointor such a case was contemplated by the authors of Section 20(4). They were the authors of

Section 4 also where the power of appointment could be committed to some other party. ILR (1974) 2 Del 637, overruled. Case law discussed.

Similarly, reliance placed on the Division Bench judgment reported in 1973 KLJ 311 Chief Engineer (Construction) Northern Railway v. M/s.

Badri Nath Maggu, does not in any manner improve the case of the petitioner especially under the light of the latter two decisions of Supreme

Court relied upon by the Orissa High Court in AIR 1996 Ori 19 (supra). Besides this, in both the cases under consideration it was on the failure of

the appellant to have acted within the reasonable time in terms of the agreement by appointing arbitrator in question. It was during the pendency of

such proceedings when the arbitrator came to be appointed. Next decision relied by Shri Bhat reported in Council of Scientific and Industrial

Research and Another Vs. Ganga Construction Corporation, , also does not in any manner advance the case of the appellants. Reliance was also

placed on behalf of the appellants in Bhupinder Singh Bindra Vs. Union of India and another, . This case is of no benefit in the circumstances of the

present two appeals. It is no body who either has made any averment of misconduct against the arbitrator or his having delayed in passing of the

award. While conceding these circumstances, Supreme Court held that revocation of the authority of the arbitrator appointed by the parties was

held to be un-jurisdictional and in such circumstances, appointment of an independent arbitrator by the High Court was found to have been rightly

set aside by the High Court in the appeal of the contract.

On examination of the precedent noted hereinabove as well as on consideration of the circumstances of this case there is no infirmity in the order of

the trial Court. Even if it be assumed for the sake of argument that Sec. 8 is not applicable as was urged by Shri Bhat. The question that needs

further examination is whether the authority like CWE in the present case can be permitted to sit over request for appointment of an arbitrator for

unreasonably long period. This can never be intention of either clause 70 of the General Conditions of the contract or for that matter no power can

be assumed by the CWE to act on his whim and fancy. To meet such a situation, the Court is not powerless. It was only after the objections having

been filed in July, 1995 with the order of appointment of Brig. Sudhir Kumar as an arbitrator was conveyed for cancellation whereof an application

was filed by the respondent. The whole effort by appointing I3rig. Sudhir Kumar on the part of respondent appears to be to circumvent the judicial

process started by the respondent on the failure of the appellants in the matter of appointment of an arbitrator when called upon to do so on 16-2-

1994. As already observed that proceedings were initiated for appointment of an arbitrator in the Court somewhere in the year 1994 to be

precised on 22-10-1994, nothing was done till 11-7-1995. That being so, there is nothing wrong with the order passed by the trial Court in

passing the impugned order. Accordingly plea urged on behalf of the appellants against the impugned order has no merit and it is accordingly

rejected.

No other point is urged.

As a result of aforesaid discussion, there is no merit in these appeals which both are accordingly dismissed. Appellants shall pay one set of the

costs to the respondent. Registry is directed to place a copy of this judgment in file No. CIMA 158/96. Record of both these cases shall be sent

back immediately to the trial Court which shall thereafter proceed in the matter and ex parte interim order passed on 3-9-96 for staying the

proceedings before the arbitrator shall stand vacated forthwith. Copy of this order be also sent to Brig. B.V. Ahuja (AVSM) Retired, by the

registry.