By this petition, filed under section 34 read with section 16(6) of the Arbitration and Conciliation Act, 1996 (hereinafter, for the sake of brevity, referred to as “the said Act”) the petitioner is challenging the Awards dated 2nd August, 1999 and 30th June, 2001 passed by the Arbitral Tribunal.

2. The facts giving rise to this petition, as narrated in the petition, are as under:—

(i) The disputes arise under Contract No. BRBC/EBG/MAT/SCON/MLU/KC (VS) 94.EYC-68 (hereinafter referred to as “Contract No. EYC-68”) dated 30th September, 1994 for operation and maintenance of 6 Mud Logging Units.

(ii) Mud Logging Services are required for monitoring various Drilling, Geological, Gas and Mud parameters of the wells being drilled by various offshore rigs of the petitioner. Mud Logging operations are of crucial and vital importance to the petitioner for (i) data collection and analysis on continuous basis, (ii) Monitoring of drilling operations on a continuous basis and (iii) most importantly for safety of drilling operations and of the well and the rig itself and the personnel working on the rig.

(iii) The 6 Mud Logging Units were purchased by the petitioner from the respondent vide Supply Order No. BRBC/EGB/MAT/TMP/GL/CAP/29/91/EY-340, dated 6th March, 1993.

(iv) The present Contract-Contract No. EYC-68 was for operation and maintenance of the Units for a period of 9 months from 8th July, 1994. The petitioner issued a letter of Award dated 20th September, 1994. The formal Contract was signed on 30th September, 1994.

(v) The Contract was extended for a period of 6 months by Addendum No. 1, dated 29th May, 1995 with effect from 9th April, 1995. The Contract was again extended by a letter dated 9th October, 1995 from 9-10-1995 to 7-1-1996. The respondent was asked to further continue its services of operation and maintenance for the six units vide petitioner's letter dated 8th January, 1996 (upto 11th March, 1996).

(vi) Disputes and differences arose between the parties. The respondent disputed the deductions made by the petitioner from the invoices submitted by the respondent. The respondent also contended that it was the petitioner's responsibility to provide materials, consumables, chemicals, etc. required for the operation and maintenance of the said six units.

(vii) The arbitration clause in the Contract (Clause 15) provides for reference of disputes to the sole arbitration of a person appointed by the petitioner's Director. The said clause further stipulates that no person other than the person appointed by the petitioner's Director shall act as an arbitrator and that, if for any reason that is not possible, the matter is not to be referred to arbitration at all.

3. The petitioner claims in the petition that in this background the petitioner received a letter dated 13th April, 1998 from the respondent. By that letter he informed the petitioner that he has appointed Shri Ashwin Ankhad as his arbitrator. The petitioner submits that the petitioner by inadvertence being under the impression that the letter relates to the agreement between the petitioner and the respondent where the arbitration clause contemplates appointment of the Arbitrator by both the parties, appointed Hon'ble Justice Shri V.V Tulzapurkar (Retd.) as arbitrator, and addressed a letter to that effect to Justice Shri V.V Tulzapurkar (Retd.) being letter dated 18-2-1999. Copy of which was forwarded to the respondent. In that letter approval of the competent authority to the appointment of Justice Shri Tulzapurkar as an arbitrator was communicated to Justice Tulzapurkar and the letter of the respondent dated 13th April, 1998 appointing his nominee was also referred to. Two arbitrators appointed an umpire. The petitioner appeared before the arbitral tribunal and sought time to file its reply. But before filing reply the petitioner realised that the constitution of the arbitral tribunal is contrary to the contract and the arbitral tribunal presently constituted does not have jurisdiction to decide the disputes. On 21-6-1999 the petitioner filed an objection under section 16(2) of the Act contending that the constitution of the arbitral tribunal is contrary to the contract. To the objection lodged by the petitioner, reply filed by the respondent is dated 28-6-1999. According to the petitioner in that reply only one objection was raised, that because the petitioner has participated in the process of constitution of the arbitral tribunal and because the petitioner has appeared before the arbitral tribunal and sought time to file its reply, it is deemed to have waived its objection to the constitution of the arbitral tribunal. The preliminary objection raised by the petitioner was decided by the arbitral tribunal by its award dated 2nd August, 1999. The arbitral tribunal rejected the preliminary objection raised by the petitioner. Thereafter the arbitral tribunal proceeded to consider the claim on merits and the arbitral tribunal made its award dated 13-6-2001. The arbitral tribunal allowed the respondent's claim and rejected the petitioner's counter claim. The present petition has been filed against both these awards.

4. At the hearing of the petitioner the learned Counsel appearing for the petitioner submitted that the order of the arbitral tribunal on the preliminary issue of jurisdiction is absolutely illegal. He submits that the arbitral tribunal by holding that by virtue of the correspondence exchanged between the parties in the matter of appointment of the arbitrator, parties have agreed to alter the arbitration agreement and therefore the constitution of the arbitral tribunal which is pursuant to this altered agreement between the parties cannot be faulted. It is submitted by the petitioner that this case of alteration of the arbitration agreement by correspondence is neither pleaded nor argued on behalf of the respondent. He submits that arbitral tribunal for recording this finding has relied on two letters, one dated 13-4-1998 of the respondent and the letter dated 18-2-1999 of the petitioner. The learned Counsel submits that perusal of those letters shows that no such conclusion can be reached from those letters. The learned Counsel further submits that the arbitral tribunal, relies on the conduct of the petitioner of taking part in participation of the arbitral tribunal and of appearing before the arbitral tribunal and seeking time to file its reply is totally uncalled for because the petitioner is permitted by section 16 to raise its objection to the constitution of the arbitral tribunal even in its reply that is filed before the arbitral tribunal and merely because the petitioner participated in the process of appointment of arbitrator and because the petitioner appeared before the arbitral tribunal and sought time to file its reply will not disentitle the petitioner from raising an objection to the constitution of the arbitral tribunal. It is submitted that the finding recorded by the arbitral tribunal is contrary to the provisions of section 16.

5. The learned Counsel appearing for the respondent, on the other hand, submits that by letter dated 18-2-1999 the petitioner had approved the appointment of nominee of the respondent on the arbitral tribunal and this approval amounts to waiver by the petitioner of its right to object to the appointment of the nominee of the respondent on the arbitral tribunal. It is further submitted that the conduct of the petitioner of actually participating in the process of the arbitral tribunal which was contrary to the arbitration clause contained in the contract disable its from raising an objection to the constitution of the same tribunal. The learned Counsel relying on the judgment of the Supreme Court in the case of Narayan Prasad Lohia v. Nikunj Kumar Lohia 2002 (1) Arb. LR 493 (SC) submits that in terms of this judgment an arbitral award can be challenged on the ground of formation of the arbitral tribunal only in case the constitution of the arbitral tribunal is contrary to the provisions of the Act. He submits that constitution of the arbitral tribunal though may be contrary to the contract, cannot be subject matter of challenge before the Court under section 34 of the Act, if the constitution is otherwise in accordance with the Act.

6. Now, in order to decide the question which is raised by both the sides, first I will have to see the clause 15 of the contract between the parties. Clause 15 reads as under:—

“If any dispute, difference, question or disagreement shall at any time, hereafter arise, between the parties hereto or the respective representatives or assignes in connection with or arising out or the contract or in respect of meaning of specifications designs drawings, estimates, schedules, annexures, orders, instructions, the construction, interpretation of this agreement, application of provisions thereof or anything hereunder contained or arising hereunder or as the rights, liabilities or duties incidental to this contract or otherwise concerning the works of execution or failure to execute the same whether before or after the completion or sub-abandonment thereof shall be referred to the sole arbitration of the person appointed by a Director of ONGC at the time of dispute.

If the arbitrator to whom the matter is originally referred to or refuses to act or resigns for any reason from the position of arbitrator, it shall be lawful for the Director of ONGC to appoint another person to act as arbitrator in the manner aforesaid. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor if both the parties consent to this effect failing which the arbitrator will be entitled to proceed de-novo.

It is further term of this contract that no person other than the person appointed by the Director of ONGC as aforesaid shall act as arbitrator and that, if for any reason that is not possible, the matter is not to be referred to the arbitration at all.

The arbitrator (s) may from time to time, with the written consent of all the parties to the contract enlarge the time for making and publishing the award.

It is a term of the contract that the party invoking arbitration shall specify the dispute or disputes to be referred to arbitration under the clause.

It is also a term of the contract that the Contractor shall not stop the work under this contract and that the work shall continue as expected to continue whether the arbitration proceedings have commenced or not.

The arbitrator shall be deemed to have entered on the reference on the date of the issue of notice by him to both the parties for filing the claims.

The arbitrator shall give reasoned award in respect of each dispute or difference referred to him. The award as aforesaid shall be final and binding on all the parties to this contract in accordance with the law.

The venue of the arbitration shall be the place from where the contract has been placed.

Subject as aforesaid, the provision of the Indian Arbitration Act, 1940 and any statutory modifications or re-enactments thereof and rules made thereunder and for the time being in force shall apply to the arbitration proceedings under this clause.

7. It is clear from perusal of clause 15 that it contemplates a sole arbitrator for deciding the disputes and that sole arbitrator has to be appointed by a Director of the petitioner. It is further clear that no person other than a person appointed by the Director can act as an arbitrator and in case a person is not appointed as an arbitrator by the Director, then the matter is not to be referred to the arbitration. It is common ground that the arbitral tribunal which has passed the award is not in confirmity with clause 15. According to award of the arbitral tribunal clause 15 was altered by the parties and the parties had agreed for a different constitution of the arbitral tribunal. That finding has been recorded by the arbitral tribunal on the basis of two letters, one dated 13th April, 1998 from the respondent to the petitioner and the other addressed by the petitioner to Justice Shri V.V Tulzapurkar (Retd.), dated 18-2-1999, copy of which was forwarded to the respondent. Clauses 4 and 5 of the letter dated 13th April, 1998 are relevant. They read as under:—

4. Kindly note that we have waited for a long time for you to clear the above payment and we are not willing to wait indefinitely. Further in view of the disagreement expressed by you as regards the payment due to us we are not left with no alternative but to invoke the arbitration as per clause 34 of the Contract Agreement dated 12th April, 1993 with your Corporation. The same arbitration clause also appeared as Clause 22 in your Contract No. EYC 148 dated 22nd August, 1996.

5. Accordingly we hereby give you this notice of our intention to go for arbitration for settlement of the issue regarding payment of our aforesaid outstanding dues of Rs. 45,49,824.50 and interest thereon @ 24% p.a from the dates of respective outstandings, by your Corporation to us. We are hereby appointing Mr. Ashwin Ankhad, Advocate High Court, 101 Poddar Chambers, S.A Brelvi Road, Fort, Mumbai-400001 (Phone Nos. 266 4363/267 1110) as our nominated arbitrator and call upon you to appoint/nominate your arbitrator within thirty days from the date of receipt of this letter by you.

8. Perusal of above quoted paras shows that there is no proposal contained for alteration of original clause 15. Straightaway the respondent has appointed Mr. Ankhad as his nominee on the arbitral tribunal and called upon the petitioner to appoint their nominee within a period of 30 days. In my opinion, paragraph I of the letter dated 18-2-1999 is relevant. It reads as under:—

“I am directed to convey the approval of competent authority of ONGC regarding your appointment as ONGC's Arbitrator in the aforesaid matter, Oil Field Instrumentation, Thane, Maharashtra vide their letter No. OFI/0NGC/MUM/98-233 dated 13-4-1998 and further clarified by subsequent letter No. OFI/ONGC/MUM-AR/99-940 dated 19-1-1999 requested for appointment of Arbitrator from ONGC side and conveyed the appointment of Shri Ashwin Ankhad, Advocate, High Court, 101, Poddar Chambers, S.A Brelvi Road, Fort, Mumbai as their Arbitrator in the aforesaid matter.”

9. Perusal of the above paragraph shows that ONGC did not approve the appointment of Mr. Ankhad as arbitrator. What was done by that letter was that the competent authority approved the appointment of Justice Shri Tulzapurkar as the arbitrator and the letter of the respondent nominating Mr. Ankhad was merely referred to. This letter does not show, as has been observed by the arbitration, that the appointment of Shri Ankhad is approved by the petitioner. In my opinion, reading of these two letters does not lead one to the conclusion that the parties consciously altered clause 15 of the contract between the parties. The finding of the arbitral tribunal in this regard, in my opinion, is liable to be set aside, also because it was not the case of the respondent in the reply that because of the above referred two letters parties have altered clause 15 of the agreement and therefore, the finding of the arbitral tribunal in this regard is recorded in breach of the principal of natural justice, because the petitioner at no point of time got an opportunity to submit its point of view in this regard.

10. It was urged on behalf of the respondent that the conduct of the petitioner of writing the letter dated 18-2-1999, specially paragraph which has been quoted above amounts to waiver. In my opinion, the entire argument based on waiver is misconceived. Even it is assumed that by the letter dated 18-2-1999 the petitioner waived its right to have the dispute decided by the sole arbitrator, then there will have to be an agreement between the parties regarding constitution of the arbitral tribunal. The parties will have to agree to give power to the respondent to appoint his nominee on the arbitral tribunal. Merely by the petitioner waiving his rights to have the sole arbitrator, the constitution of the arbitral tribunal will not become valid.

11. Insofar as the submission that because the petitioner participated in the appointment of the arbitral tribunal, appeared before the arbitral tribunal and sought time to submit its reply, it cannot raise objection to the constitution of the arbitral tribunal, in my opinion, is without any substance in view of sub-section (2) of section 16 of the Arbitration Act. Sub-section (2) of section 16 of the Act reads as under:—

16(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because he has appointed, or participated in the appointment of an arbitrator.

12. The above quoted provisions in terms permits an objection to the constitution of the arbitral tribunal to be raised in its statement of defence. It is nobody's case that the objection to the arbitral tribunal was raised by the petitioner after submission of statement of defence. The above quoted provisions in terms lays down that merely because a party has participated in the process of appointment of the arbitral tribunal or has appointed an arbitrator does not preclude the party from raising objection to the validity of the constitution of the arbitral tribunal. From the conduct of the petitioner of participating in process of constitution of the arbitral tribunal and appearing before that arbitral tribunal and seeking time to file its statement of defence an inference of waiver or acquiescence cannot be drawn.

13. Lastly, so far as reliance placed on the judgment of the Supreme Court in Narayan Lohia's case on behalf of the respondent is concerned, the Supreme Court in paragraph 19 of that judgment on which reliance was placed has construed the provisions of section 34(2)(a)(v) of the Act. That provisions reads as under:—

34(2)(a)(v):— the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part;

and the Supreme Court has observed in paragraph 19 thus:—

19. In our view, section 34(2)(a)(v) cannot be read in the manner as suggested. section 34(2)(a)(v) only applies if “the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties”. These opening words make it very clear that if the composition of the arbitral tribunal or the arbitral procedure is in accordance with the agreement of the parties, as in this case, then there can be no challenge under this provision. The question of “unless such agreement was in conflict with the provisions of this Act” would only arise if the composition of the arbitral tribunal or the arbitral procedure is not in accordance with the agreement of the parties. When the composition or the procedure is not in accordance with the agreement of the parties then the parties get a right to challenge the award. But even in such a case, the right to challenge the award is restricted. The challenge can only be provided when the agreement of the parties is in conflict with a provision of Part-I which the parties cannot derogate. In other words, even if the composition of the arbitral tribunal or the arbitral procedure is not in accordance with the agreement of the parties but if such composition or procedure is in accordance with the provisions of the said Act, then the party cannot challenge the award. The word “failing such agreement” have reference to an agreement providing for the composition of the arbitral tribunal or the arbitral procedure. They would come into play only if there is no agreement providing for the composition of the arbitral tribunal or the arbitral procedure. If there is no agreement providing for the composition of the arbitral tribunal or the arbitral procedure and the composition of the arbitral tribunal or the arbitral procedure was not in accordance with Part-I of the said Act, then also a challenge to the award would be available. Thus, so long as the composition of the arbitral tribunal or the arbitral procedure are in accordance with the agreement of the parties, section 34 does not permit challenge to an award merely on the ground that the composition of the arbitral tribunal was in conflict with the provisions of Part-I of the said Act. This also indicates that section 10 is a derogable provision.

14. From the above quoted observations of the Supreme Court it cannot be said that even if the constitution of the arbitral tribunal is contrary to the contract between the parties, an objection cannot be raised. In my opinion, the Supreme Court has taken a view that a party can always challenge the award on the ground that the constitution of the arbitral tribunal was contrary to the agreement reached between the parties. A party, cannot do so only if the term of the agreement in relation to composition of the arbitral tribunal is contrary to the Part-I of the Act, which is binding on the party. In my opinion, a party can always challenge composition of the arbitral tribunal which is contrary to the terms of the agreement between the parties.

15. Thus, taking overall view of the matter, therefore, it has to be held that composition of the arbitral tribunal was not in accordance with the agreement between the parties. Therefore, both preliminary and final award made by the arbitral tribunal are liable to be set aside.

16. In the result, therefore, this petition is granted in terms of prayer clause (a). The respondent shall also pay to the petitioner the costs of this petition as incurred by the petitioner.

Order accordingly.