Bombay Intelligence Security (India) Ltd. v. Oil And Natural Gas Corporation Ltd., Mumbai .

1. By this application filed under section 11(6) of the Arbitration and Conciliation Act, 1996, the applicant seeks appointment of arbitrator in terms of clause 2.31 of the agreement dated 14th November, 1995 entered into between the applicants and the respondent which clause is extracted as under:

“2.31 ARBITRATION: If any dispute, difference or question shall at any time, hereafter arise between the parties hereto or their respective representative concerning anything herein contained or arising out of these parties or as to the rights, liabilities, or duties of the said parties hereunder and cannot be mutually resolved, the same shall be referred to the sole arbitration of the person to be appointed by Director (Personnel) of the Corporation at the time of dispute. Such person shall be appointed by the Director (Personnel) within thirty (30) days of the receipt of the notice of any dispute. There will be no objection to any such appointment, that the arbitrator so appointed is an employee of the corporation or that he had to deal with the matter to which the contract relates and if in the course of his duties as corporation's employee, he had expressed views on all or any of the matter in dispute or difference in favour of the corporation.

If the arbitrator to whom the matter is originally referred dies or refuses to act or resign from the position of arbitrator for any reasons, it shall be lawful for the Member of the Corporation 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 the predecessors, if both the parties consent to this effect. Failing which they will be entitled to proceed de novo.

The arbitrator from time to time with the written consent of both parties to the agreement may enlarge the time to make and publish his award.

It is a term of the Agreement 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 this agreement that contractor shall not stop the work under this contract and the work shall continue as expected to continue, whether the arbitration proceeding have commenced or not. The arbitrator shall be deemed to have entered into reference on the date of issue of notice by him to both the parties for filing of the claims/reply.

It is also a term of this agreement that the arbitrator shall give a reasoned and speaking award in respect of each dispute or difference referred to him. The award as aforesaid shall be final, conclusive and binding of all the parties to this contract. The venue of the arbitration shall be Bombay. Subject as aforesaid, the provision of Indian Arbitration Act, 1940, and the statutory modifications or reenactments thereof and rules made thereunder for the time being in force shall apply to the arbitration proceeding under this clause.”

2. The disputes arose between the parties. On 9th July, 2012, the applicants invoked arbitration clause and requested the respondents to appoint arbitrator as contemplated under the arbitration agreement to decide the disputes. By letter dated 26th July, 2012, the applicants sent reminder to the respondents to appoint arbitrator. It is not in dispute that by letter dated 5th November, 2012, the respondents appointed Mr. J.D Parekh as sole arbitrator and informed the applicants about the said appointment. The learned arbitrator appointed by the respondents issued notice on 3rd January, 2013 and entered upon the reference. The first meeting was scheduled to be held by the learned arbitrator on 15th January, 2013. In the meanwhile on 9th January, 2013, the applicants filed this application under section 11(6)(a) of the Arbitration and Conciliation Act, 1996.

3. Mr. Khandeparkar, the learned counsel for the applicant submits that admittedly the Director (Personnel) of the respondents did not appoint arbitrator within thirty days of the receipt of the notice of dispute from the applicants. It is submitted that on expiry of thirty days of receipt of notice dated 9th July, 2012, the respondents could not have appointed any arbitrator in terms of clause 2.31 It is submitted that on expiry of thirty days and in view of the failure by the respondent to appoint arbitrator in accordance with the conditions set out under clause 2.31, the arbitrator can be appointed only by the Hon'ble Chief Justice or his designate under section 11(4) read with section 11(6) of the Arbitration and Conciliation Act. The learned counsel submits that the respondents have lost its right to make any appointment after expiry of thirty days from the date of receipt of notice invoking arbitration. The learned counsel placed reliance upon the judgment of the Supreme Court in the case of Datar Switchgears Ltd. v. Tata Finance Limited, (2000) 8 SCC 151 and more particularly paragraphs 9, 11, 14, 18 and 21 in support of the plea that though it is held by the Supreme Court that after expiry of thirty days from the date of receipt notice invoking arbitration clause, the respondents did not loose its right to appoint arbitrator, however, the respondents having failed to appoint arbitrator within thirty days, which condition was part of the procedure agreed upon under clause 2.31, the respondents lost its right to appoint arbitrator as per that procedure and only the Chief Justice or his designate can appoint the arbitrator. The relevant paragraphs read thus:

“9. Clause 20.9 of the Agreement is the Arbitration clause, which is to the following effect:

20.9 “It is agreed by and between the parties that in case of any dispute under this Lease the same shall be referred to an Arbitrator to be nominated by the Lessor and the award of the Arbitrator shall be final and binding on all the parties concerned. The venue of such arbitration shall be in Bombay. Save as aforesaid, the Courts at Bombay alone and no other Courts whatsoever will have jurisdiction to try suit in respect of any claim or dispute arising outof or under this Lease or in any way relating to the same.

11. The question then arises whether for purposes of section 11(6) the party to whom a demand for appointment is made, forfeits his right to do so if he does not appoint an arbitrator within 30 days. Learned Senior counsel for the appellant contends that even though section 11(6) does not prescribe a period of 30 days, it must be implied that 30 days is a reasonable time for purposes of section 11(6) and thereafter, the right to appoint is forfeited. Three judgments of the High Courts from Bombay, Delhi and Andhra Pradesh are relied upon in this connection.

14. The above decision has no application to the facts of this case as in the present case, the Arbitrator was already appointed before the appellant invoked section 11 of the Act. The Counsel for the appellant contended that the Arbitrator was appointed after a long lapse of time and that too without any previous consultation with the appellant and therefore it was argued that the Chief Justice should have appointed a fresh arbitrator. We do not find much force in this contention, especially in view of the specific words used in the Arbitration clause in the Agreement, which is extracted above. This is not a case where the appellant requested and gave a notice period for appointment of arbitrator and the latter failed to comply with that request. The 1st respondent asked the appellant to make payment within a stipulated period and indicated that in the event of non-payment of the amount within fourteen days, the said notice itself was to be treated as the notice under the Arbitration clause in the Agreement. The amount allegedly due from the appellant was substantial and the 1st respondent cannot be said to be at fault for having given a larger period for payment of the amount and setting the dispute. It is pertinent to note that the appellant did not file an application even after the 1st respondent invoked section 9 of the Act and filed a petition seeking interim relief. Under such circumstances, it cannot be said that there was a failure of the procedure prescribed under the contract.

18. In the present case, the respondent made the appointment before the appellant filed the application under section 11 but the said appointment was made beyond 30 days. Question is whether in a case falling under section 11(6), the opposite party cannot appoint an arbitrator after the expiry of 30 days from the date of demand?

21. We need not decide whether for purposes of sub-clauses (4) and (5) of section 11, which expressly prescribe 30 days, the period of 30 days is mandatory or not.”

4. The learned counsel also placed reliance upon the judgment of Rajasthan High Court delivered on 1st December, 2012 in the case Chetan Construction Co. v. State, 2005(3) ArbLR 1056 (Raj) and more particularly paragraphs, 8, 12 and 13 thereof which read thus:

“8. The respondents counsel Shri J.K Agarwal on the other hand without disputing the factual position has submitted that even if the respondent State has failed to take its decision within 30 days from the date of receipt of the notice, still their right to make appointment of Arbitrator in terms of Clause 23 of the agreement, cannot automatically be forfeited and in support of his contention counsel Shri J.K Agarwal placed reliance on a decision of Hon'blfe Supreme Court in Datar Switchgears Ltd. v. Tata Finance Ltd., MANU/SC/0651/2000 : (2000) 8 SCC 151.

12. As per Clause 23 of the agreement 30 days shall commence from the date of receipt of application and since the notice along with cheque was received in the office of the respondent on 26-8-2002 (Ex. 11), the period of 30 days was required to be computed w.e.f 26-8-2002 and not from the date the notice was processed and receipt register i.e, on 28-8-2002. It seems that the fact with regard to receipt of notice along with cheque dated 26-8-2002 (Ex. 11) was probably not brought to the notice of the learned Single Judge.

13. In our opinion once the party failed to act in accordance with the agreed procedure of appointing Arbitrator as provided under Clause 23 of the agreement, the Chief Justice or the Judge designated by him is required to appoint Arbitrator after taking into consideration the provisions of section 11 of the Act.”

5. The learned counsel submits that it is held by the Rajasthan High Court that once the respondent fails to appoint arbitrator within thirty days from the date of receipt of notice, the Chief Justice or his designate has power to appoint arbitrator by exercising powers under section 11(6) of the Arbitration and Conciliation Act, 1996.

6. The learned counsel submits that in view of the fact that the arbitrator has not been appointed within thirty days, appointment of the arbitrator by the respondents after expiry of thirty days would be illegal being contrary to the procedure agreed upon between the parties and thus even if such arbitrator has entered upon reference, the powers of the Chief Justice or his designate under section 11(6) are not taken away and by exercising such powers, the Chief Justice or his designate can supersede the appointments made by the respondents.

7. Mr. Sawant, the learned counsel appearing for the respondents on the other hand submits that even as per the judgment of the Supreme Court in the case of Datar Switchgear, the right of appointment of the arbitrator even made after expiry of thirty days is not taken away. It is submitted that under arbitration clause recorded between the parties, there is no consequences provided for the failure on the part of the respondents if appointment of arbitrator is not made within thirty days. The learned counsel distinguished the judgment of Rajsthan High Court relied upon by the learned counsel for the applicants on the ground that in the matter before Rajasthan High Court, the arbitrator was not appointed by the respondents whereas in the present case the arbitrator has been already appointed by the respondents who has entered upon the reference.

8. It is not in dispute that the arbitrator appointed by the respondent has already entered upon the reference and has fixed the date of schedule of hearing. Though the respondents did not appoint any arbitrator within thirty days from the date of receipt of notice, the applicants did not file this proceedings immediately. In the meanwhile the respondents have already appointed arbitrator. The learned arbitrator appointed by the respondents is in place in the office of arbitrator. There is no vacancy as on today which can be filled by the Hon'ble Chief Justice or his designate under section 11(6) of the Arbitration and Conciliation Act, 1996. This Court in the case of Shane Duff…Applicant; v. Essel Sports Pvt.Ltd…. in Arbitration Application (L) No. 49 of 2013 [2013(3) Mh.L.J 54] in the judgment delivered on 22nd January, 2013 has held that unless there is vacancy, the application filed under section 11(6) of the Arbitration and Conciliation Act, 1996, is not maintainable. Paragraph 18 of the said judgment reads thus:

“18. Under section 11(4) of the Act, the Hon'ble Chief Justice or his designate can appoint arbitrator only if the party fails to appoint arbitrator in accordance with the agreed procedure under section 11(2) of the Act. In view of the agreement arrived at under clause 21 of the agreement, the respondent has exercised its right by appointing substitute arbitrator, in my view the proceedings under section 11(4) would not be maintainable. The proceedings under section 11(6) can be filed only if the parties fail to act as required under the agreed procedure and not otherwise. The respondents have already appointed Justice A.D Mane (retired) as substitute arbitrator. In my view, unless there is vacancy, the application filed under section 11(6) of Arbitration Act, 1996 is not maintainable. I am therefore, of the view that the present application is not maintainable and the same is therefore, rejected. There shall be no order as to costs.”

9. In my view, the Hon'ble Chief Justice or his designate cannot decide under section 11(6) of the Arbitration and Conciliation Act, 1996 as to whether the appointment of the arbitrator already made by the respondents in terms of the arbitration agreement is valid or illegal. The fact remains that the respondents have already appointed arbitrator, may be after expiry of thirty days of receipt of notice invoking arbitration clause by the applicants. The question as to whether such appointment is in terms of the agreed procedure prescribed in the arbitration clause or not, in my view touches the jurisdiction of the arbitrator which cannot be decided by the Hon'ble Chief Justice or his designate under section 11(6) of the Arbitration Act, 1996. In my view, such issue of jurisdiction in respect of the arbitrator appointed by the respondents can be raised before the arbitrator himself by making application under section 16 of the Arbitration and Conciliation Act, 1996. It is made clear that this Court has not expressed any views as to whether the arbitrator appointed by the respondents is validly appointed or not and the said issue is kept open.

10. In view of the aforesaid reasons, no order for appointment of the arbitrator can be passed in this proceedings. The application is disposed of in the aforesaid terms. There shall be no order as to costs.

11. It is made clear that other issues which touches the jurisdiction of the arbitrator already appointed by the respondents are also to be decided by the learned arbitrator under section 16 of the Act.

Order accordingly.