Kishan Chand Petitioner v. The Union Of India And Another S

T.P.S Chawla, J.:— These two cases have been referred for decision by a larger Bench. One was referred by me, and the other by Mr. Justice Avadh Behari. They came before each of us sitting singly on the Original Side. Both the cases have now been heard conjointly as the arbitration clauses round which they turn are substantially the same, and the questions which have arisen are associated. First, we will deal with the case referred by me.

In October 1971, the Union of India accepted a tender submitted by the petitioner, Kishan Chand, for developing the site of the Third Asian International Trade Fair 1972 and providing roads and paths and concrete pavements in the Exhibition Grounds. The formal contract subsequently executed contained an arbitration clause. This was clause 25, of which the relevant part reads:

‘Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right matter or thing whatsoever, in any way arising out of or relating to the contract designs, drawings, specification, estimates instructions orders or these conditions or otherwise concerning the works or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the person appointed by the Chief Engineer, Central Public Works Department, in charge of the work at the time of dispute or if there is no Chief Engineer, the Administrative Head of the said Central Public Works Department at the time of such appointment. It will be no objection to any such appointment that the arbitrator so appointed is a Government servant, that he had to deal with the matters to which the contract relates and that in the course of his duties as Government servant he had expressed views on all or any of the matters in dispute or difference. The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason, such Chief Engineer or administrative head as aforesaid at the time of such transfer, vacation of office or inability to act, shall appoint another person to act as arbitrator in accordance with the terms of the contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of his contract that no person other than a person appointed by such Chief Engineer or administrative head of the C.P.W.D as aforesaid should act as arbitrator and if for any reason, that is not possible, the matter is not to be referred to arbitration at all. In all cases where the amount of the claim in dispute is Rs. 50,000/- (Rupees fifty thousand and above), the arbitrator shall give reasons for the award.

‘Subject as aforesaid the 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 proceeding under this clause.’

Disputes did arise between the parties. So, on 22nd June 1973, the petitioner wrote a letter to the concerned Chief Engineer invoking the arbitration clause, and requested him —

‘to appoint an arbitrator within the statutory period of 15 days from the date of receipt of this notice as per provisions of section 8 of the Indian Arbitration Act 1940.’

At the end of this letter, the petitioner said:

‘Be it noted that in case no arbitrator is appointed by you within a period of 15 days, the claimant shall proceed further under the provisions of section 20 of the Indian Arbitration Act 1940 or any other provisions of the same which may be open to him or be advised. It may also be noted that in that case the Union of India shall have to bear the costs of proceedings and other damages.’

An arbitrator was not appointed by the Chief Engineer within 15 days of the receipt of that letter. Hence, on 23rd July 1973, the petitioner moved an application under sections 8 and 20 of the Indian Arbitration Act 1940 praying that the arbitration agreement be filed and the disputes which had arisen between the parties, and were specified in Annexure A, be referred to an arbitrator in terms of the arbitration clause. The petitioner also said that —

‘the arbitrator so appointed should be a technical person and not below the rank of Superintending Engineer or in the alternative this Hon'ble Court may appoint an arbitrator.’

In its reply, the Union of India admitted that there was an arbitration agreement subsisting between the parties; and conceded that such of the disputes specified by the petitioner as were within the scope of the arbitration clause may be referred to an arbitrator appointed in accordance therewith. The Chief Engineer, it was said, was already taking steps to appoint an arbitrator after completing the necessary administrative formalities, and the petitioner had ‘rushed to the court’ unnecessarily. To which the petitioner rejoined that the Chief Engineer had forfeited his right to appoint an arbitrator, not having done so within 15 days after service of a notice upon him. Therefore, it was contended, the power to appoint an arbitrator now vested only in the Court.

After hearing counsel, and finding that there was a conflict in the authorities, and the points were of repeated occurrence on the Original side, I referred the following questions for decision by a larger Bench:

1. Whether section 8 (1) (a) of the Arbitration Act applies in respect of an arbitration agreement of the kind subsisting in this case ? and

2. Whether in proceedings under section 20 of that act in respect of such an agreement the Court has power, in the circumstances which have arisen here, to appoint an arbitrator itself?

As to the first question, section 8 of the Arbitration Act 1940 says that:

(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 parties, and all the parties do not, after differences have arisen, concur in the appointment or appointments; or

(b) 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; or

(c) where the parties or the arbitrators are required to appoint an umpire and do not appoint him; 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.

(2) If the appointment is not made within fifteen clear days after the service of the said notice, the Court may, on the application of the party who gave the notice and after giving the other parties an opportunity of being heard appoint an arbitrators or umpire, 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.'

It seems plain to us that section 8 (1) (a) cannot be resorted to in the present case, for the sine qua non is that the arbitration agreement must be one which ‘provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties.’ That is not what the arbitration clause here ‘provides’. On the contrary, it vests the power to nominate an arbitrator exclusively in the Chief Engineer; and, in one event, in the Administrative Head of the Central Public Works Department. ‘Provides’ is used in the sub-section to mean ‘expressly stipulates.’ When an arbitration agreement stipulates what the sub-section says, the sub-section applies. But, not otherwise. Other specific types of arbitration agreement are dealt with in section 9 and 10 of the Arbitration Act. They, too, state what the arbitration agreement must ‘provide’ for them to apply. None of these sections, 8, 9 or 10, are of general application in the sense that they may be applied to every known or conceivable form of arbitration agreement regardless of what it ‘provides’.

That section 8 (1) (a) cannot be applied to the agreement subsisting in the present case, is further manifest from the fact that the notice envisaged by it is impossible to be given. The petitioner could not rightly require the Union of India (the ‘other party’ to the agreement) to concur in the appointment of an arbitrator, for that is not what the agreement ‘provide’. Instead, what the petitioner has done in the notice which he has sent, is to require the Chief Engineer to appoint an arbitrator. Such a notice does not conform to the requirements of section 8 (1) (a) because it is not addressed to the ‘other party’, which the Chief Engineer certainly is not; and, also it does not and, in the light of the agreement, could not solicit concurrence to the appointment of an arbitrator. For these reasons, which we have stated in brief, we would have no hesitation in holding that section 8 (1) (a) of the Arbitration Act does not apply to this case, and that there is no power in the court, notwithstanding all that has occurred, to appoint an arbitrator under that sub-section.

But a contrary view has been taken in Union of India v. D.P Singh, A.I.R 1961 Patna 228 (1) and State of Orissa and Another v. Govinda Choudhry, A.I.R 1969 Orissa 280 (2). In both these cases the arbitration agreement was in all material respects similar to the one before us. Yet, it was held that section 8 (1) (a) could be applied. The basis of these decisions is that the parties had ‘impliedly’ consented to an appointment by the person designated, the consent being ‘inherent’ in the agreement itself. With respect, we think, these cases miss the real point of section 3 (1). The whole point is that the agreement must ‘provide’ what the sub-section assumes that it does, ‘Provides’ means ‘provides’, and not ‘implies’. In the last analysis every arbitration agreement is founded on the consent of the parties, because ex hypothesi it is an ‘agreement’. The consent to which section 8 (1) (a) refers is not the consent to the agreement at all but the consent to the appointment of an arbitrator ‘after differences have arisen’. Unless an agreement ‘provides’ that an appointment will then be made with the concurrence of the parties, it is not in our judgment, within that ambit of the sub-section. Furthermore, it was not observed in these cases that the notice sent was either not addressed to the other contracting party or did not ask for its concurrence.

The theory of ‘implied’ consent was also accepted in Union of India v. Banke Behari Das, I.L.R 1965 Cuttack 616 (3), although as a matter of interpretation of the arbitration clause there under consideration it was concluded that there was no absolute implied consent, as the agreement gave to the contractor a right to object to the persons named in the panel prepared by the Railways for the selection of two arbitrators. A question was raised that the notice sent to the Railways did not ask for their concurrence and thus did not comply with section 8 (1) (a), but was not decided as it was unnecessary to do so in view of the decision on the other point.

Other High Courts have not agreed with that interpretation, and latterly have differed. In Surendranath Paul v. Union of India, A.I.R 1965 Calcutta 183 (4), the question was whether the power to appoint an arbitrator, conferred on a person designated in the arbitration agreement, could be exercised more than once. As a part of its reasoning on this question, the court referred to Union of India v. D.P Singh, A.I.R 1961 Patna 228, (1) for the proposition that an appointment made by the person designated was tantamount to an appointment made by consent of the parties. The Calcutta case cannot be regarded as having approved the Patna view in any other respect, for the question for decision was not the same. In Union of India v. Gorakh Mohan Das and another, A.I.R 1964 Allahabad 477, (5) the arbitration clause was identical with that in Union of India v. Banke Behari Das, I.L.R 1965 Cuttack 616, (3) but the Allahabad High Court held that section 8 (1) (a) did not apply as ‘The contract does not contemplate the appointment of the two arbitrators by consent of the parties’. It is true, of course, that none of the cases taking the opposite view were cited before the Allahabad High Court on that occasion; but in Union of India and others v. Gupal Dass & Co., 1966 A.IJ 518, (6) the attention of the court was drawn to Union of India v. D.P Singh. A.I.R 1961 Patna 228, (1) and the correctness of that decision was expressly doubted.

What was doubted was whether a sole arbitrator appointed by a person designated in the agreement could ‘be deemed to be an arbitrator appointed by consent of the parties.’

Again, in C. Rai v. Union of India, A.I.R 1957 J&K 27, (7) though no authority was cited either way, it was held on the plain words of section 8 (1) (a) that it could not be invoked unless ‘there is provision in the arbitration agreement for appointment of an arbitrator by consent of the parties.’ There, by the arbitration clause, the power to appoint an arbitrator was vested in the Government of India, and such a clause, it was ruled, was not within the concept of the subsection. Finally, in Brij Bhushan Lal v. Chief Engineer, North Western Zone (Central Govt.) and another A.I.R 1972 P&H 266 (8), a single Judge of the Punjab & Haryana High Court has expressly differed from Union of India v. D.P Singh, A.I.R 1961 Patna 228 (1). He found the language of section 8 (1) (a) perfectly clear, and said:

“According to section 8 (1) (a), it is plain, that it will be attracted only if the arbitration agreement specifically provides that the appointment of the actual person as an arbitrator must have the consent of both the parties. It will not be enough if the parties agree only to the person or authority who will subsequently appoint an arbitrator, . . . . . . . . .”

We agree with that view, and also find the sub-section so plain as to be incapable of leading to any other conclusion. And, accordingly, we answer the first question referred in the negative.

For the answer to the second question it is necessary to construe section 20 (4) of the Arbitration Act. That section provides that:

‘Where no sufficient cause is shown, the court shall order the agreement to be filed and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise, or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court.’

The content of the word ‘otherwise’ in this setting naturally depends on the meaning to be given to the preceding words — ‘the arbitrator appointed by the parties . . . . . . in the agreement’, ‘Otherwise’ will occupy those areas of the scene which remain out of the bounds of those preceding words. In Union of India through General Manager, South Eastern Railway Calcutta v. V. Krishna Rao, A.I.R 1970 M.P 49, (9) the judgment assumes, although it does not expressly state, that the words ‘appointed by the parties . . . . . . in the agreement’ denote an agreement in which the arbitrator is named. Consequent to this assumption, it was thought, that the word ‘otherwise’ was intended to refer to the method or procedure for making an appointment prescribed in agreements in which an arbitrator was not named. On the other hand, Fertilizer Corporation of India Limited v. M/s. Domestic Engineering Installation, A.I.R 1970 Allahabad 31, (10) in the same way, assumes that both kinds of agreements are within the words ‘appointed by the parties . . . . . . in the agreement’, and ‘otherwise’ was taken to mean an appointment made by the parties dehorts the agreement disregarding the mode of appointment laid down in it. This case was referred to and seems tacitly to have been approved, in M/s. Prabhat General Agencies etc. v. Union of India and another 1971 (1) SCC 79 (11) though the actual question there was with respect to the application of section 8 (1) (b).

From the Notes on Clauses appended to the Statement of Objects and Reasons of the Bill which became the Arbitration Act 1940, it appears, that section 20 (4) was based upon paragraph 17 of the Second schedule to the Civil Procedure Code 1908. Reference to that paragraph is helpful for understanding the present provision. Sub paragraph 4 of paragraph 17 said:

‘Where no sufficient cause is shown, the court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed in accordance with the provisions of the agreement, or, if there is no such provision and the parties cannot agree, the court may appoint an arbitrator.’

A comparison of this sub-paragraph with Section 20 (4) shows that the words ‘appointed by the parties . . . . . . in the agreement’ have been substituted for the words ‘appointed in accordance with the provisions of the agreement’, and the word ‘otherwise’ has been substituted for the words ‘if there is no such provision’. Rendering the present pharases in terms of the earlier equivalents reveals that ‘appointed by the parties . . . . in the agreement’ signifies an appointment ‘in accordance with the provisions of the agreement’. And, ‘otherwise’ is when ‘there is no such provision’ — which accords with the view in Fertilizer Corporation of India Limited v. M/s. Domestic Engineering Installation, A.I.R 1970 Allahabad 31, (10). The purpose and the effect of the word ‘otherwise’ is to vest express power in the court to grant its imprimatur to the appointment of an arbitrator made by the parties ‘otherwise’ than in the agreement. In the earlier sub-paragraph such an express power was wanting, though perhaps it might legitimately have been inferred.

However, all the cases are agreed that the power of the court itself to appoint an arbitrator arises only if there is no arbitrator appointed by the parties, whether in the agreement or otherwise, and the parties cannot agree upon an arbitrator. This is implicit in the passage in M/s. Dhanrajmal Gobindram v. M/s. Shamji Kalidas and Co., A.I.R 1961 S.C 1285, (11) where the Supreme Court says:

‘If the parties do not agree, the court may be required to make a decision as to who should be selected as an arbitrator, and that may be a function either judicial, or procedural, or even ministerial; but it is unnecessary to decide which it is.’

It is important to notice that in this case the power of selecting an arbitrator was given by the arbitration agreement to a person designated, and relative to such a person it was said ‘the Court can certainly perform the ministerial act of sending the agreement to him to be dealt with by him.’

This case was understood, in Union of India v. M/s. Himco (India) Private Ltd., A.I.R 1965 Calcutta 404 (12), to mean that even if an appointed arbitrator were to be replaced by another ‘the procedure laid down in the arbitration agreement will prevail and will have to be followed’. It was understood likewise in Union of India v. S.V Krishna Rao, A.I.R 1970 M.P 49 (13). In our opinion this case rightly reasons that —

‘When the agreement is being enforced, it cannot be logically said that the agreement to refer the dispute to arbitration is to be enforced and not the other part of the agreement, namely, the arbitration by the named persons or the persons to be selected by following the previously agreed procedure.’

An earlier case which was cited, Karam Chand v. M/s. Sant Ram Tara Chand and another, A.I.R 1958 Punjab 418 (14), is not in any manner inconsistent with this view. The other cases which were referred to by counsel are of no assistance in deciding the point.

A conundrum was sought to be posed in the course of the argument. It was said that, whereas section 4 of the Arbitration Act recognised the validity of an arbitration agreement vesting power in a person designated to appoint an arbitrator or arbitrators, on the construction we were placing on section 20 (4) the court would be unable to deal with a situation in which the person designated failed or refused to appoint. So, it was argued, we ought to construe that sub-section as giving to the court an overriding power to appoint an arbitrator in every case. It may well be that the court is powerless in the situation contemplated. Indeed, the observations in Union of India v. Messrs New India Constructors Delhi and others, A.I.R 1955 Punjab 172, (15) seem to suggest that that is probably the legal position. But the Arbitration Act is not all-comprehending and does not provide for every imaginable case. We do not think such riddles ought to deflect us from the plain words of section 20 (4); more especially when the cases to which we have referred subscribe to the opinion we entertain.

Thus, despite what happened prior to commencement of proceedings in the case which has been referred, the appointment of an arbitrator must be had from the person designated in the arbitration clause. Our answer to the second question referred is, also, in the negative.

In the case which has been referred by Mr. Justice Avadh Behari, the appointment of an arbitrator by the court is sought under section 8 (1) (b) of the Arbitration Act. B.L Kapoor is the petitioner. In 1955 he entered into a contract with the Union of India for constructing a Nurses Hostel within the precincts of the G.B Pant Hospital, New Delhi. Again, Clause 25 in the contract was the arbitration clause. Its terms were the same as in the case before. After disputes had arisen, Mr. V.S.K Raman was appointed the arbitrator on 27th August 1969. Some proceedings were held by him. On 27th August 1970 he resigned. Then, on 18th December 1970, the Chief Engineer appointed Mr. V.V Vaze as the arbitrator. There were also some proceedings before him, but on 30th May 1973, he, too, resigned.

Thereafter, on 23rd June 1973, the petitioner wrote a letter to the Secretary, Ministry of Works & Housing, Government of India, New Delhi, in which, after complaining about the previous course of the proceedings in arbitration, the petitioner suggested the names of 5 persons suitable for appointment as the arbitrator; and ‘prayed and notified’ the Secretary that —

‘you will be pleased to issue necessary instruction to Chief Engineer (D.A.Z) to appoint a technical person out of the list given as an Engineer-Arbitrator at your earliest and oblige.

A copy of this letters was endorsed to the Chief Engineer, who was requested —

‘to appoint a technical arbitrator from the list given above to fill up the vacancy caused by the resignation of Shri V.V Vaze, Arbitrator, within the statutory period of 15 days from the receipt of this letter.’

No reply was received to this letter; nor was any appointment made within the 15 days.

A petition under section 8 (1) (b) was filed in this court on 12th July 1973, and it was prayed that an arbitrator may be appointed by the court. Whilst this petition was pending, the Chief Engineer, by a memorandum of 19th October 1973, appointed Mr. M.B Rao as the arbitrator. Later, a reply to the petition was filed on behalf of the Union in which it was contended that the petition was not maintainable. The question now is whether, in these circumstances, the court is competent to appoint an arbitrator under section 8 (1) (b) of the Arbitration Act.

Assuming that the requirements of section 8 (1) (b) are completely fulfilled, including that as to notice to the other party, though these are matters on which we express no opinion, yet, it seems to us, there is an insuperable obstacle to the appointment of an arbitrator by the court. It will be recalled that the arbitration clause categorically states:

It is also a term of this contract that no person other than a person appointed by such Chief Engineer or administrative head of the C.P.W.D, as aforesaid should act as arbitrator, and if, for any reason, that is not possible, the matter is not to be referred to arbitration at all.'

Obviously, the purpose of this stipulation was to negate the power of the court to appoint an arbitrator under the Arbitration Act. Conceivably, no other authority or person could have or obtain the power to appoint an arbitrator to determine disputes arising out of the agreement. So absolute is the stipulation made that if, for any reason it is not possible that an arbitrator be appointed by the Chief Engineer or the administrative head of the C.P.W.D, the arbitration agreement itself is destroyed.

Such a stipulation is not invalid. In Russell on the Law of Arbitration, 18th edition, it is said on page 1:

‘The parties to an arbitration may in large degree themselves determine the procedure to be followed and the powers the arbitrator is to have, as well as the constitution of the arbitral tribunal. The Act lays down a code governing all these matters, but many of its provisions may be excluded by agreement between the parties.’

This is borne out by two English cases: In Re An Arbitration between Villiams and Stepney, (1891) 2 Q.B.D 257 (16) and In Re An Arbitration Between Wilson & Sons, and The Eastern Countries Navigation and Transport Company, (1891) 1 Q.B.D 81 (7). In the latter of these cases the question was whether the court could appoint an arbitrator under section 5 (b) of the English Arbitration Act 1899, which was nearly identical with section 8 (1) (b) of the Indian Arbitration Act 1940. Dealing with this question, Mr. Justice A.L Smith said:

‘. . . . . . the Act applies so as to introduce certain provisions into a submission, unless the contrary is provided. In the present case the contrary is provided.’

That is also to position here. Therefore, we hold, that the court has no power to appoint an arbitrator under section 8 (1) (b) as that power has been expressly excluded by the arbitration clause.

These cases will now be placed before a Single Judge for disposal in accordance with the opinion we have recorded. Considering that on some points the law was not beyond all doubt, we leave the parties to bear their own costs of the hearing before us.

Reference Answered accordingly.