1. This revision petition is filed against the orders of the Subordinate Judge, Nandyal in O.P No. 167 of 1988 appointing an arbitrator on the petition filed by the first respondent under Section 8 of the Arbitration Act.
2. The first petitioner is the Nandyal Co-operative Spinning Mills Limited and the second petitioner is its Managing Director. In 1986, the first petitioner called for tenders for construction of ancillary building. The first respondent was given the contract for constructing the building for an amount of one crore rupees. The contract was concluded on 11-2-1986 stipulating that the building should be completed within a period of 14 months. On 22-5-1987 the first respondent, who is the contractor, gave an application to the petitioners for extension of time for completion of the contract till 31-10-1987 and later on, on 27-7-1987 the contractor addressed a letter to the petitioners to refer certain disputes to arbitration. The petitioners sent two letters dated 8-8-87 and 18-8-87 stating that the matter is under consideration. On 17-8-1987 the first respondent, who is, the contractor requested the petitioners for appointment of an arbitrator to which the petitioners replied on 18-11-1987 stating that the matter is under consideration. Thereafter, on 7-4-1988, the first respondent filed a petition O.P 167/88 in the Court of the Subordinate Judge, Nandyal to appoint an arbitrator. Subsequently on 27-5-1988 the petitioners appointed an arbitrator by name Sri Yethiraj who is working as Superintending Engineer in the Bharat Heavy Electricals Limited at Hyderabad. The contentions of the petitioners who were the respondents in the O.P are that since Clause 65(1) of the agreement provides that the arbitrator shall be appointed only by the Administrtive Head, that is, the Managing Director of the petitioners-Company, he alone is competent to appoint the arbitrator and therefore, the Court has no power under Section 8 of the Arbitration Act to appoint an arbitrator. The second contention is that since the Managing Director of the petitioners-Company has already appointed the arbitrator viz., Sri Yethiraj, the petition became infructuous.
3. The learned Subordinate Judge considered Clause 65(1) of the agreement, Section 8 of the Arbitration Act and various decisions cited before him and came to the conclusion that since the Managing Director has not appointed the arbitrator within a period of 15 days as per the notice dated 18-9-87 given by the contractor, the contractor is entitled to file an application under Section 8 of the Arbitration Act. He also directed that as per Clause 65(1) of the agreement that only the Managing Director shall appoint the arbitrator is unreasonable and arbitrary and therefore, the Court has got power to appoint the arbitrator under Section 8 of the Arbitration Act. As regards the second contention, he took note of the allegation by the Contractor that the arbitrator, that is, Sri Yethiraj is biased inasmuch as he is connected with Sir Consultents who are the consultants of the Bharat Heavy Electricals Limited and the petitioners herein and he is also the stock arbitrator for the petitioners and held that in such circumstances it is not proper that Sri Yethiraj should continue as arbitrator since one party had no confidence in him. Ultimately, the lower Court appointed Sri Justice C. Sree Ramulu, retired Judge of this Court as arbitrator with a direction that the arbitrator can take the assistance of a technical person, if necessary.
4. In this revision, the learned counsel for the petitioners has attacked the order of the lower Court mainly on the ground that the petition is not maintainable under Section 8 of the Arbitration Act. Section 8(1)(a) of the Arbitration Act reads as under:
“8. Power of Court to appoint arbitrator or umpire:—(1) In any of the following cases—
(a) where an arbitration agreement provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties and all the parties do not, after differences have arisen, concur in the appointment or appointments; or ….. Any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointments or in supplying the vacancy”.
5. Sub-section (2) reads:
(2) If the appointment is not made within fifteen clear days after the service of the said notice, Court may, on the application of the party who gave the notice and after giving the other parties an opportunity of being heard, appoint in arbitrator or arbitrators or impire, as the case may be, who shall have 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”.
6. The learned counsel for the petitioners also referred to Clause 65(1) of the agreement entered into between the parties which provides for referring the disputes to the arbitration. It says that the disputes shall be referred to the sole arbitration of the person appointed by the Administrative Head of the owner, that is, the Managing Director of the petitioner. It further reads that there will be no objection to any such appointment that the arbitrator so appointed is an owner's representative, that he had to deal with the matters to which the contract relates and that in the course of his duties as owner's representative, he had expressed views on all or any other matters in dispute or differences. It further reads that it is also a term of this contract that no person other than a person appointed by such Administrative Head as aforesaid should act as Arbitrator and if for any reason, this is not possible, the matter is not be referred to arbitration at all. He therefore, contends that in view of this clause, application under Section 8(1)(a) of the Arbitration Act is not maintainable.
7. In support of his contention, the learned counsel for the petitioners has relied upon the decision of the Bombay High Court in Union of India v. Ajit Mehta & Associates (1) AIR 1990 Bom. 45. It has reviewed the case law on that aspect and stated at paragraph (25) as follows:
“The conspectus of the decisions cited above, therefore, lays down a proposition that if under a clause of arbitration such as ours where the arbitrator is to be appointed by a named authority and not by consent of the parties, the provisions of S. 8 cannot be invoked for appointment of an arbitrator. It is only the provision of S. 20(4) that can be availed of in such circumstances, and even in that case the only direction that the Court can give, in the first instance, is to the appointing authority to name the arbitrator.”
8. The Delhi High Court in Ved Prakash v. Union of India (2) AIR 1984 Delhi 325 also it is stated that:—
“In a case where the authority to nominate the arbitrator is vested in the Chief Engineer, Section 8 on its own terms shall have no application. The clause provides for an appointment by a named person Chief Engineer in this case. He is persona designata. This method does not fit in the scheme and structure of Section 8.”
9. The learned counsel for the petitioners has also cited the decisions in Boriah B. & Sons v. I.T Industries (3) AIR 1973 Mysore 309 and V.K Construction Works (P) Ltd. v. Food Corporation of India (4) AIR 1987 P & H 97 to the same effect.
10. On the other hand, the learned counsel for the respondent has relied upon the decision of the Calcutta High Court in Food Corpn. of India v. S.K Samanta (5) AIR 1979 Cal. 193 in which it is pointed out that where both the parties agree to refer the dispute to the arbitrator appointed by third party such an agreement does not take the case out of the scope of Section 8(1)(a). Consent to the appointment of any person as arbitrator at the option of the third person, by necessary implication means that any appointment so made is by the consent of both parties. He has also referred to the decision of the Supreme Court in Chander Bhan v. State of Punjab (6) (1977) 2 SCC 715 : AIR 1977 SC 1210. In that case the relevant arbitration clause in the agreement provided that the dispute should be referred to a Committee of three officials to be nominated by the Government. But, before it could conclude its work, the government unilaterally, appointed another Committee. The award passed by that Committee was set aside by the Civil Court. Thereupon the Government gave notice to the other party under Section 8(1) of the Arbitration Act, to agree with the appointment of a Committee. But, the other party did not respond to the notice. The Government made an application in the Court for an appointment of an arbitrator under Section 8(2) of the arbitration Act. One of the contentions raised was that Section 8 is not applicable to the cases where the condition stipulates the appointment of a Settlement Committee by one of the parties. Rejecting that contention, the Supreme Court observed as under:
“Equally untenable is the contention that Section 8 is not applicable to cases where the condition stipulates the appointment of a Settlement Committee by one of the parties. This submission was made relying on the wording of the section that any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy. This part of the section no doubt contemplates two parties but the section cannot be read as not being applicable where the agreement provides for the nomination of the committee by one of the parties for the section itself says that the party may serve the other parties. ‘May serve the other parties’ will include not serving other parties in cases in which the service on the other party is not contemplated.”
11. The learned counsel for the respondent also referred to the latter decision of the Supreme Court in Harbans Singh Tuli & Sons Builders (P) Ltd. v. Union of India (7) (1992) 2 SCC 225. At paragraph (21) the Supreme Court stated that:
“Sub-section (1)(a) would apply to a case of initial appointment of an arbitrator or arbitrators. The implication is in the arbitration agreement, the arbitrator or arbitrators must not have been named. Where, therefore, they are named, this section will have no application. Similarly, the arbitrator or arbitrators are required to be appointed by all parties to the reference with consent. On the contrary, if there is some other mode of appointment, for example, Section 4, where the parties to the agreement agree that the arbitrator has to be appointed by a person designated in the agreement either by name or hold, for the time being in office, certainly, this section will not apply. It has also been held by this Court in Chander Bhan Harbhajan Lal v. State of Punjab (cited supra) that even in cases where by agreement between the parties, one of them alone is given power to make the appointment without consulting others, this sub-section would apply.”
12. Therefore, this decision reiterates the decision of the Supreme Court in Chander Bhan v. State of Punjab (6th cited supra).
13. Relying on these decisions, the learned counsel for the respondent contended that even if the clause in the agreement stipulates that the arbitrator has to be appointed only by one of the parties, that is, by the petitioners, in this case as the petitioners have been given notice and the appointment is not made within the stipulated time, the Court is perfectly justified in making the appointment.
14. The learned counsel for the petitioner is had sought to distinguish the decision of the Supreme Court in Chander Bhan v. State of Punjab (6th cited supra) on the ground that it relates to a case of filling up a vacancy under Section 8(1)(b) of the Arbitration Act which reads as follows:
“If any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply the vacancy, any party may serve the other parties or the arbitrators etc.”
15. As I have referred to the facts in the case the first Committee appointed by the Government, could not complete its work. The award passed by the second Committee was set aside by the Civil Court and therefore the Government filed the petition under Section 8 of the Act for appointment of the third Committee. Though it was the case of filling up the vacancy virtually it amounts to making a fresh appointment because none of the two Committees had effectively functioned or given any award, and as I pointed out the Supreme Court rejected the contention that Section 8 is not applicable to cases where the condition stipulates the appointment of a Settlement Committee by one of the parties. The principle laid down by this decision was reiterated in the later decision in Harbans Singh Tuli's case (7th cited supra). Therefore, I am unable to accept the contention of the learned for the petitioners that where the clause in the agreement stipulates that one of the parties should appoint an arbitrator and other party has given consent for it he can not invoke the jurisdiction of the Court under Section 8 of the Arbitration Act.
16. When once the Court has got the power to appoint the arbitrator and when the notice was issued by the respondent to the petitioners to appoint an arbitrator was not complied with within the stipulated period of 15 days, the Court is entitled to appoint an arbitrator.
17. The next point to be considered is whether the lower Court is justified in ignoring the appointment of Sri Yethiraj, an arbitrator appointed by the Managing Director of the petitioners-company. As was stated above, the respondent alleged bias against the said gentleman. The lower Court relied upon the decision of this Court in V. Raghunadha Rao v. State of A.P (8) 1988 (1) ALT 461 and held that where allegations of bias are made, it is not proper that the same arbitrator should continue. The learned counsel for the respondent has brought to my notice the decision of the Supreme Court in Delhi Transport Corporation v. D.T Mazdoor Congress (9) 1991 Supp (1) SCC 600 : AIR 1991 SC 101 in which the Supreme Court pointed out that:
“These principles are accepted and followed by the Andhra Pradesh High Court in V. Raghunadha Rao v. State of A.P (8th cited Supra) dealing with A.P Standard Specification Clauses 11, 29, 59, 62(b) and 73.”
18. Apart from that, when the matter has to be decided by an arbitrator, both the parties should have implicit faith in the fairness of the arbitrator. Where one of the parties does not have confidence in the arbitrator who is already appointed by the Managing Director, it is not fair or reasonable that the same arbitrator should continue. Of course mere allegation that the arbitrator is biased, could not be acted upon. Sri N.V.B Shankar Rao the learned counsel for the respondent contended that the lower Court considering the fact that Sri Yethiraj is also connected with Siri Consultants who are the consultants for the Bharat Heavy Electricals Limited as well as the petitioners-Company and an arbitrator in several matters on bahalf of the petitioners-company, thought it fit that Sri Yethiraj should not continue as an arbitrator. That being a finding of fact recorded by the learned Subordinate Judge, I do not wish to differ from him. The lower Court had appointed Sri Justice C. Sree Ramulu, retired Judge of this Court as arbitrator with power for the arbitrator to take the assistance of any technical person. I have tried to ascertain the views of both the learned counsel on either side whether both the parties are agreeable for appointing any other technically qualified person as arbitrator. But, chances of agreement seem to be remote. Therefore, I feel that the order made by the lower Court appointing Sri Justice C. Sree Ramulu with a direction that he can take the assistance of a technically qualified person is appropriate in the circumstances of the case.
19. The revision petition is therefore dismissed.
20. No costs.