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A.B.G Heavy Industries Ltd. v. Indian Oil Corporation .
Factual and Procedural Background
The petitioner company was awarded a contract on 20th August 1991 for the modification and associated work of vacuum and crude columns at Mathura Refinery, with a tight completion timeline of 12 days due to refinery shutdown. During execution, unforeseen circumstances necessitated changes in job configuration and additional specialized work, which the petitioner carried out based on oral instructions from the site engineer, relying on mutual understanding for extra payment. The petitioner submitted a final bill on 27th November 1991 excluding extra work charges, which were subsequently rejected by the respondent in May 1993, leading to disputes. The contract’s Clause 9 provided for dispute resolution through arbitration by a sole arbitrator selected from a panel of three persons nominated by the respondent’s General Manager. The respondent provided such a panel, and the parties appointed Mr. J.K. Verma as arbitrator. However, the petitioner alleged misconduct by the arbitrator and procedural irregularities, resulting in the arbitrator’s resignation in April 1995. The petitioner filed the present petition under Section 20 of the Arbitration Act, 1940, seeking appointment of a new arbitrator to adjudicate the disputes.
Legal Issues Presented
- Whether claims not notified in writing and not included in the final bill can be referred to arbitration.
- Whether the Court can appoint an arbitrator outside the panel specified in Clause 9 of the contract.
- The appropriate relief to be granted in the circumstances.
Arguments of the Parties
Petitioner’s Arguments
- The petitioner contended that oral notice was the accepted mode between the parties due to the nature of work and practical impossibility of giving written notice within ten days.
- The petitioner alleged misconduct and procedural irregularity by the arbitrator, leading to his resignation.
- The petitioner sought appointment of a new arbitrator and argued that the court could supply a vacancy under Section 20(4) of the Arbitration Act.
Respondent’s Arguments
- The respondent contended that Clause 9 of the contract limits arbitration to notified claims made in writing within specified time frames as per Clause 6.6.1.0 and included in the final bill under Clause 6.6.3.0.
- Claims not notified in writing and not included in the final bill are not maintainable and outside the scope of the arbitration agreement.
- The appointment of arbitrator must be strictly in accordance with the arbitration agreement, i.e., selection from a panel of three persons nominated by the General Manager, and the court cannot appoint an arbitrator outside this panel.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Uttam Singh Duggal & Co. (P.) Ltd. v. Indian Oil Corporation Ltd., 1987 1 Arb. LR 281 | Interpretation of arbitration clause and limitation on claims to notified claims included in final bill. | Supported the principle that only notified claims can be referred to arbitration and time limits cannot be extended. |
| Internation Building and Furnishing Co. (Cal.) Pvt. Ltd. v. Indian Oil Corporation Ltd., 1995 32 DRJ 354 | Distinction between arbitrability of disputes and time-barred claims; mandatory nature of notice clauses. | Confirmed that only notified claims can be referred to arbitration and court must decline arbitration for non-notified claims. |
| Ved Prakash Mittal v. Union of India, 1984 26 DLT 35 | Distinguished in context of notice requirements and arbitration jurisdiction. | Referenced to support the mandatory nature of written notice for claims. |
| Jai Chand Bhasin v. Union of India, AIR 1983 Delhi 508 | Similar to Ved Prakash Mittal on notice and arbitration jurisdiction. | Used to affirm the court’s jurisdiction to refuse arbitration for non-notified claims. |
| P.N Shah v. Indian Oil Corporation Ltd., Suit No. 3220-A/89 | Application of notice requirements and scope of arbitration clause. | Supported that claims not notified in writing do not fall within arbitration clause. |
| Bansal Construction Co. v. Indian Oil Corporation Ltd., 1991 21 DRJ 322 | Notice and arbitration clause interpretation. | Supported the principle that claims must be notified in writing to be arbitrable. |
| Associated Hybilds Pvt. Ltd. v. Indian Oil Corporation Ltd., Suit No. 2399A/85 | Similar interpretation of arbitration clause and notice requirements. | Confirmed the necessity of written notice for claims to be arbitrable. |
| Union of India v. D.M Revri & Co., 1976 4 SCC 147 | Common sense approach to contract interpretation. | Applied to affirm that notice requirements must be strictly followed to prevent fake claims. |
| Nilkantha Sidramappa Ningashetti v. Kathinath Somanna Ningashetti, AIR 1962 SC 666 | Definition of “notice” in legal context. | Distinguished oral notice from “notice in writing,” rejecting oral notice as sufficient for contractual claims. |
| T.N Electricity Board v. Bridge Tunnel Construction, 1997 4 SCC 121 | Jurisdiction of arbitrator versus court on arbitrability of disputes. | Clarified that jurisdictional objections can be raised at any stage and are for the court to decide. |
| Arvind Construction Co. (P) Ltd. v. Engineering Projects India Ltd., 1988 35 DLT 250 | Filling vacancy of arbitrator by court when arbitration clause is silent. | Noted that court can direct appointment of arbitrator consistent with arbitration clause but cannot override express provisions. |
| Indian Drugs & Pharmaceuticals Ltd. v. Indo Swiss Synthetics Gem Manufacturing Co. Ltd., 1996 1 SCC 54 | Strict adherence to arbitration clause regarding appointment of arbitrator. | Held that arbitration clause provisions cannot be bypassed without challenge in proper proceedings. |
| Prabhat General Agencies etc. v. Union of India, 1971 1 SCC 79 | Conditions for court to appoint arbitrator under Section 20 of Arbitration Act. | Outlined substantive rights and procedural preconditions for appointment of arbitrator by court. |
Court's Reasoning and Analysis
The court examined the arbitration agreement’s clauses defining “notified claim” as those claims given in writing within ten days of the relevant event and included in the final bill. It emphasized that claims not notified in writing and not included in the final bill fall outside the arbitration clause and cannot be referred to arbitration. This principle was supported by multiple precedents and the court’s own prior decisions. The court rejected the petitioner’s argument that oral notice sufficed, distinguishing “notice in writing” as a mandatory requirement that cannot be replaced by oral intimation.
Regarding the appointment of a new arbitrator, the court noted that Clause 9 of the contract strictly limits the arbitrator selection to a sole arbitrator chosen by the contractor from a panel of three persons nominated by the General Manager of the respondent. The court held that it cannot appoint an arbitrator outside this panel, as the arbitration clause’s provisions cannot be overridden. The court relied on Supreme Court and High Court decisions emphasizing strict adherence to arbitration agreement terms for arbitrator appointment.
Further, the court considered procedural aspects under Section 20 of the Arbitration Act, noting that the petitioner had not alleged service of the mandatory 15 days written notice prior to filing the petition, but chose to overlook this technicality in the interest of substantial justice. Consequently, the court directed the respondent’s General Manager to nominate a fresh panel of three persons within three weeks, from which the contractor shall select an arbitrator within two weeks thereafter.
Holding and Implications
The petition is allowed and disposed of with directions to the respondent’s General Manager to nominate a fresh panel of three arbitrators within three weeks, and the petitioner to select one arbitrator from the panel within two weeks.
The court held that only disputes relating to notified claims made in writing and included in the final bill are arbitrable under the contract. Claims not meeting these criteria cannot be referred to arbitration, and the court must decline jurisdiction over such claims. The appointment of arbitrators must strictly conform to the arbitration clause. The court’s decision enforces contractual arbitration procedures without creating new precedents, leaving non-notified claims to be adjudicated by civil courts. The parties bear their own costs.
S.N Kapoor, J.:— This judgment shall dispose of a petition under Section 20 of the Arbitration Act, 1940.
2. According to the petitioner's case, “Modification and Associated Work of Vacuum Column and Crude Column at Mathura Refinery” was given to the petitioner company on 20th August, 1991. Since the Mathura refinery was required to be shut down the work was to be completed within a short span of 12 days, it included increase in capacity of one of the vessels of the refinery which required specialised skills and machineries. Various unforeseen situations were encountered while executing the contract. Accordingly, the site engineer was informed of the same and configuration of the job was changed. Stainless steel lining was required to be grinded. In the peculiar circumstances of the case and the nature of the job, ten days notice in writing was not possible. The petitioner carried out the task under the instructions from the engineer incharge at site in all their goods faith and mutual understanding of extra payment. Hence, the accepted mode of notice between the parties was oral notice. On completion of the work the petitioner had to submit their final bill dated 27th November, 1991 exclusive of the amount for the extra work carried out by the petitioner, for the bill for extra work was rejected vide letter dated 11th May, 1993 vide Annexures D and E. Accordingly, dispute and differences arose. Clause 9 of the General Conditions of the Contract dated 20th August, 1991 provided for settlement of disputes between the parties by means of reference to an arbitrator, namely, the contract itself. However, the respondent Corporation gave a panel of three persons, all employees of the respondent Corporation. A copy of the agreement to refer the dispute is Annexure F.
3. Parties accordingly referred the dispute to the arbitration by Mr. J.K Verma, General Manager, Mathura Refinery.
4. According to the petitioner, Mr. J.K Verma, learned arbitrator, misconducted himself and the proceedings. He adopted the procedure of special nature which was unheard of. The petitioner did not agree to such a short-cut procedure; raised objections and moved an application before the arbitrator requesting him to desist from going ahead with the arbitration proceedings in view of the expiry of statutory time period.
5. The learned arbitrator ultimately in the minutes of meeting dated 9th November, 1994 expressed his unwillingness to continue as an arbitrator and adjourned the arbitration proceeding sine die. On April 6, 1995, he resigned as an arbitrator. Vide Annexures O and P.
6. The petitioner is seeking appointment of a new arbitrator for adjudicating upon the disputes mentioned in paragraph 28 of the petition.
7. This petition is being contested by the respondent Corporation on the ground that Clause 9.0.0.0 of the General Conditions of Contract (hereinafter called “the GCC” for short) is confined to notified claims of the petitioner in accordance with Clause 6.6.1.0 and including final bill in 6.6.3.0 It is also claimed that numerous claims as mentioned in reply to paragraph 28 are neither notified claims nor included by the petitioner in the final bill and therefore, claim relating thereto is, therefore, not maintainable and no reference can be made to the arbitration of such claims as the same are not covered by the arbitration agreement. Appointment of arbitrator by the Court is opposed also on the ground that new arbitrator can only be appointed in accordance with the arbitration agreement between the parties for notified claims of the petitioner. No other claim referred to in the petition can be referred to arbitration. Clause 9.0.0.0 of the GCC does not provide for supplying a vacancy by an outside arbitrator or for the appointment of any arbitrator other than those nominated in the clause.
8. I have heard learned counsel for the parties and gone through the record.
9. Following points need consideration:
(a) Whether the claims which are not notified in writing and not included in the bill can be referred to arbitration ?
(b) Whether the Court could supply the vacancy by an outside arbitrator not contemplated in Clause 9 ?
(c) Relief.
Point A
10. In so far as the question of reference on non-notified claims is concerned, the matter is amply settled by not one but several judgments of this court, including a judgment of D.B However, before referring to those judgments, it would be desirable to refer to various Clauses of the arbitration agreement. Relevant Clauses of the GCC are reproduced as under:
1.0 24.0 “Notified Claim” shall mean a claim of the Contractor notified in acceptance with the provisions of Clause 6.6.1.0
6.6.0 0. Claims by the Contractor.
6.6.1.0 Should the Contractor consider that he is entitled to any extra payment or compensation in respect of the works over and above the amounts due in terms of the contract as specified in Clause 6.3.1.0 here of or should the Contractor dispute the validity of any deductions made or threatened by the Owner from any Running Accounts Bills or any payments due to him in terms of the contract, the Contractor shall forthwith given notice in writing of his claim in this behalf to the Engineer-in-Charge and the Site Engineer within 10 (ten) days from the date of issue of orders or instruction relative to any works for which the Contractor claim such additional payment or compensation, or on the happening of other event upon which the Contractor based such claim and such notice shall give full particulars of the nature of such claim, grounds on which it is based, and the amount claimed. The Contractor shall not be entitled to raise any claim nor shall the Owner anywise be liable in respect of any claim by the Contractor unless notice of such claim shall have been given by the Contractor to the Engineer-in-Charge and the Site Engineer in the Manner and within the time aforesaid, and the Contractor shall be deemed to have waived any or all claims and all his rights in respect of any claim nor notified to the Engineer-in-Charge and the Site Engineer in writing in the manner and within the time aforesaid.
6.6.3.0 Any or all claims of the Contractor notified in accordance with the provision of clause 6.6.1.0 here of as shall remain persist at the time of preparation of Final Bill by the Contract or shall be separately included in the Final Bill prepared by the Contractor in the form of a Statement of claims attached thereto, giving particulars of the Contractor in the claim, grounds on which it is based, and the amount claimed and shall be supported by a copy(ies) of the notice(s) sent in respect there of the Engineer-in-Chief and Site Engineer under Clause 6.6.1.0 hereof. In so far as such claim shall in any material particular be at variance with the claim notified by the Contractor within the provision of clause 6.6.1.0 hereto, it shall be deemed to be a claim different from the notified claim with consequence in respect there of indicated in Clause 6.6.1.0 hereof, and within consequence in respect of the notified claim as indicated in Clause 6.6.3.1 hereof.
6.6.3.1 Any and all notified claims not specifically reflected and included in the Final Bill in accordance with the provisions of clause 6.6.3.0 here of shall be deemed to have been waived by the Contractor, and the Owner shall have no liability in respect there of and the Contractor shall not be entitled to raise or include in the Final Bill any claim(s) other than a notified claim conforming in all respects in accordance with the provisions of clause 6.6.3.0 hereof.
9.0 1.0 Subject to the provisions of Clauses 6.7.1.0 and 6.7.2.0 hereof, any dispute or difference between the Parties arising out of any notified claim of the Contractor included in his Final Bill in accordance with the provisions of clause 6.6.3.0 here of and/or arising out of any amount claimed by the Owner (whether or not the amount claimed by the Owner or any part there of shall have been deducted from the Final Bill of the Contractor or any amount paid by the Owner to the Contractor in respect of the work) shall be referred to arbitration by a Sole Arbitrator selected by the Contractor from a panel of three persons nominated by the General Manager.
9.1.3.0 No award shall be challenged, nor shall be Contractor refuse to make an appointment within the provisions of clause 9.1.0.0 here of on the ground that any person nominated by the General Manager or appointed by the Contractor pursuant to the provisions of the said clause, is an employee of the Owner is or otherwise howsoever connected with the Owner.”
11. A similar contract came to be interpreted by this court in Uttam Singh Duggal & Co. (P.) Ltd. v. Indian Oil Corporation Ltd. . 1987 1 Arb. LR 281. Analysing the clauses in the said case, it has been held that it has first to be seen if there was a dispute to which the arbitration clause applies; in fact if reference is made to the arbitration clause in the present case, no time limit is prescribed for the appointment of the arbitrator. Ultimately it was held that even time could not be extended in case the conditions in the aforesaid clauses were satisfied.
12. A Division Bench of this Court in FAO (OS) 194/94, Internation Building and Furnishing Co. (Cal.) Pvt. Ltd. v. Indian Oil Corporation Ltd. . 1995 32 DRJ 354, made the following observations in regard to similar kind of clause.
“We are in entire agreement with the view taken in the Indian Oil Corporation's case by Wadhwa, J. and the manner in which the learned Judge distinguished the decision of the Full Bench in Ved Prakash Mittal v. Union of India . 1984 26 DLT 35, and the decision of the Division Bench in Jai Chand Bhasin v. Union of India . AIR 1983 Delhi 508. We hold that the two latter decisions of Bahri, J. in Kukreja and Saraswati Construction cases are, for the same reasons assigned by Wadhwa, J.
The question before us is whether the claim is a “notified claim” so as to be referred to the arbitrator. If the claim is not a notified claim, there is no agreement to refer the claim of arbitration. The words “notified claim” are given a particular meaning in the agreement of the parties. It is only those claims which can be referred. We are not here concerned with the question whether a claim is time barred and therefore, deemed to be waived by the party as in the Full Bench case. If the matter goes to the Civil Court because we are declining arbitration, it will be for that court to decide whether the claim is barred or whether there is any waiver of the claim.
For the aforesaid reasons, the appeal fails and is dismissed.”
13. In response to the plea that the petitioner could not given notice, a single Judge of this Court in P.N Shah v. Indian Oil Corporation Ltd. . Suit No. 3220-A/89.. observed as under:
“Learned counsel for the petitioner submits that in fact the petitioner could not have given notice to the Engineer-in-Charge earlier during the execution of the work in regard to its basic claims pertaining to prolongation of work beyond the stipulated period on completion and the change effected by the respondent in the size of the pipes. If that be so, then the case of the petitioner does not fall within the purview of the clause 6.0.1.0 of the agreement. In this view of the matter, the claim of the petitioner would also not fall within clause 9.0.1.0 of the agreement as that clause is attracted only when the claims of the contractor have been notified in accordance within Clause 6.6.1.0
14. Same view was taking in Bansal Construction Co. v. Indian Oil Corporation Ltd. . 1991 21 DRJ 322, and Associated Hybilds Pvt. Ltd. v. Indian Oil Corporation Ltd. . Suit No. 2399A/85 decided on 15th OCT, 1997.
15. There cannot be any dispute with the proposition that “the meaning of such a contract must be gathered by adopting a common sense approach and it must not be allowed to be thwarted by a narrow pedantic and legalistic interpretation” as has been held in Union of India v. D.M Revri & Co. . 1976 4 SCC 147. Adopting the same commonsense approach, when
(i) the intention appears to be to nip in the bud to forestall the eveil of fake claims raised sub-sequently,
(ii) by laying down detailed procedure and by creating a mechanism to meet the urgent needs by making an engineer-in-charge and site engineer available to lodge the claim, and
(iii) by specifically requiring notice in writing within 10 days, it cannot be said that these clauses of the contact could be interpreted otherwise. In case’ written notice was not required within 10 days from the date of issue of order or instructions relating to any additional work, it might possibly be interpreted as submitted by learned counsel for the petitioner.
16. There cannot be any dispute with the proposition that ‘Notice’ does not necessarily mean ‘communication in writing’ as had been held in Nilkantha Sidramappa Ningashetti v. Kathinath Somanna Ningashetti . AIR 1962 SC 666.. But “notice in writing” can never be an oral intimation. As such, this submission is of no help to the petitioner.
17. Another submission of the learned counsel for the petitioner is that objection to refer the matter to arbitration cannot be sustained for three reasons. Firstly, the respondent did not raise the objection to the inclusion of claims notified orally being outside the scope of the scope. Secondly, in International Building and Furnishing Co. (Cal.) Pvt. Ltd. v. Indian Oil Corporation Ltd. (supra), (Pr. 12) this court has held that such a provision is not mandatory. Thirdly, the question of arbitrability of dispute must be decided by the arbitrator and not by the court in the light of T.N Electricity Board v. Bridge Tunnel Construction . 1997 4 SCC 121. I find that while the legal propositions cannot be disputed, in the present context this submission cannot be accepted. In so far as non-notified claims are concerned in absence of any agreement, reference could not be made. Moreover, this question related to scope of reference and consequently to the jurisdiction of the arbitrator. Secondly, in Internation Building and Furnishing Co. v. Indian Oil Corporation Ltd. (supra), distinction between “a claim being barred” which is for the arbitrator to decide and “an arbitration reference being barred” in respect of sepcific disputes which is for the court to decide, was clarified and followed by refusing to refer such disputes. Since the objection relates to jurisdiction it can be taken at any state. As regards nature of clause being mandatory or otherwise, Intemation Building and Furnishing Co. (Cal.) Pvt. Ltd. v. Indian Oil Corporation Ltd. (supra), the Division Bench of this Court has not approved the view taken in earlier judgments and refused to express and any opinion whether such clause would not be treated as mandatory. Submission of the learned counsel for the respondent that seeing the purpose, the context and requirements, it is mandatory, cannot be rejected out of hand. As such this objection cannot be ignored by this court. Consequently, it is not possible to hold any view different from the view expressed by this Court in Intemation Building and Furnishing Co. (supra), and Uttam Singh Duggal & Co. (P.) Ltd. (supra).
18. Accordingly, if any dispute does not relate to a notified claim covered by Clauses 1.0.24.0, 6.6.1.0 or 6.6.3.1, it cannot be referred to arbitration. This point is decided accordingly.
Point B
19. Before this court considers the question of supplying the vacancy, the court in the peculiar facts and circumstances, has to consider first whether there is any notified claim which could be referred for arbitration. In this regard, it may be mentioned that in respect of following claims, there is no dispute that they are notified claims and reference is permissible under the clauses referred to above.
(i) Out of the numerous claims referred to in para 28(b) of the petition and concerning bills dated 19th October 1992, the claims mentioned at SI. No. 5, 7, 9, 14, 15, 16, 23, 24 and 26 at p. 112 to 117 of Annexure R to the petition;
(ii) Claim raised in bill dated 20th November 1992 for Rs. 19,576,85P.:
(iii) Claims mentioned in paras 28(i) and (j) are notified claims.
20. About other claims mentioned in various paras, of para 28 of the petition, the petitioner does not claim that any notice in writing was given within 10 days, as required under Clauses 6.6.1.0, 6.6.3.0 and 6.6.3.1 and obviously in view of the decision on point A, they cannot be referred for arbitration. However, this court need not go into the question of limitation and waiver etc., in respect of non-notified claims and leave the matter to be decided by Civil Court for this court is bound to decline arbitration in view of the judgment of Division Bench of this court in Internation Building and Furnishing Co. (Cal.) Pvt. Ltd. v. Indian Oil Corporation Ltd. (supra). It will be for the Civil Court to decide whether the claim is barred or there is waiver of the claim or not.
21. In so far as notified claims are concerned, the matter could possibly be referred to for arbitration.
22. However, in this condition, the submission of the learned counsel, for the respondent is that the arbitrator should be a neutral arbitrator and not one from the panel to be chosen from the respondent's General Manager. On the other hand, it is contended by learned counsel for the petitioner that in any event, Clause 9 of GCC does not provide for supply of vacancy by an outside arbitrator or for the appointment of any arbitrator than those nominated in Clauses 9.0.1.0 and 9.1.3.0 read as under:
9.0 1.0 Subject to the provisions of Clauses 6.7.1.0 and 6.7.2.0 thereof, any dispute or difference between the parties hereto arising out of any notified claim of the Contractor included in his final bill in accordance with the provisions of clause 6.6.3.0 here of and/or arising out of any amount claimed by the Owner (whether or not the amount claimed by the Owner or any part there of shall have been deducted from the Final Bill of the Contractor or any amount paid by the Owner to OB the Contractor in respect of the work) shall be referred to arbitration by a Sole Arbitrator selected by the Contractor from a panel of three persons nominated by the General Manager.
9.1.3.0 No award shall be challenged, nor shall be Contractor refuse to make an appointment with the provisions of clause 9.1.0.0 here of on the ground that any person nominated by the General Manager or appointed by the Contractor pursuant to the provisions of the said clause, is an employee of the Owner is or otherwise howsoever connected with the Owner.
23. If both the clauses are read together,
(i) arbitrator has to be a sole arbitrator;
(ii) it has to be selected by the contractor from the panel of three persons nominated by the General Manager, and
(iii). the contractor shall not refuse to make an appointment within the provisions of clause 9.1.0.0 on the ground that any person nominated by the General Manager or appointed by the contractor pursuant to the proviso of said clause is an employee of the owner is or otherwise howsoever, connected with the owner.
24. It gives an indication that arbitrator could only be a person from a panel of three persons nominated by the General Manager.
25. Learned Counsel for the petitioner referred to Arvind Construction Co. (P) Ltd.… v. Engineering Projects India Ltd.…. . 1988 35 DLT 250, in support of his contention that in that case vacancy could be supplied by the court for there is no provision in the arbitration agreement between the parties regarding filling up the vacancy of the arbitrator by the respondent itself. Accordingly, in view of Section 20(4) the vacancy may be supplied. However, the observations of Hon'ble Mr. Justice B.N Kirpal do not support the contention of learned counsel for the petitioner in its entirely for the court observed:
“In terns of the clause, the Chairman and Managing, Director himself can act as the sole arbitrator but I think the court, while exercising powers under Section 20(4) of the Arbitration Act, can direct that if the Chairman and Managing Director does not himself act as the sole arbitrator and decides to appoint another person as the sole arbitrator then the person to be so appointed should belong to a profession or a category suggested by the court. Such a direction by the court would not, to my mind, be contrary to the provision of the arbitration clause because the arbitration clause postulates the selection of the arbitrator by the Chairman & Managing Director and as long as this discretion remains with the appointing authority merely suggesting or directing the appointment of particular type of arbitrator would not be contrary to the arbitration clause.”
26. These observations make it clear that this court was just directing the Managing Director to supply the vacancy and for supplying the vacancy certain suggestions were also made.
27. However, in a pari material case, Indian Drugs & Pharmaceuticals Ltd. v. Indo Swiss Synthetics Gem Manufacturing Co. Ltd. . 1996 1 SCC 54, Supreme Court in response to similar submissions made following observations in para 16.
“….He prays that any retired High Court Judge may be appointed as an arbitrator by us. We have not felt inclined to accept this submission, because arbitration clause states categorically that the difference dispute shall be referred “to an arbitrator appointed by the Chairman and Managing Director of IDPL” (Indian Drugs and Pharmaceutical Limited) who is the appellant. This provision in the arbitration clause cannot be given a go-bye merely at the askance of the respondent unless he challenged its binding nature in an appropriate proceeding which he did not do.”
28. Accordingly, since arbitration clause states categorically that “any dispute or differences….shall be referred to arbitration by a sole arbitrator selected by the contracto from the panel of three persons nominated by General Manager”, in the light of the observations in Indian Drugs & Pharmaceuticals Ltd. v. Indo Swiss Synthetics Gem Manufacturing Co. Ltd. (supra), this provision in arbitration clause cannot be given a go-bye merely at the instance of the petitioner. In Govt, of Andhra the arbitration agreement provided for arbitration of 3 persons holding specific post. Civil Court ordered appointment of sole arbitrator. Supreme Court set aside the order and directed the trial Court to refer the dispute for decision to “the present Chief Engineer, Srisailam Project, Deputy Secretary to Govt., Finance Department and Director of Accounts, Sriramsagar Project with a direction to the parties to cooperate in concluding the proceedings expeditiously”. Objections that the petitioner participated before the sole arbitrator (under protest) and the sole arbitrator has given award were overruled and the award was also set aside. This also indicates that the agreement of arbitration by specified persons cannot be ignored and if vacancy is to be supplied, it has to be supplied out of the specified class of person(s), as the case may be.
29. For the abovesaid reasons, it is held that while vacancy can be supplied in absence of any provision to the contract in the arbitration clause, it has to be supplied in terms of the agreement. Accordingly, the notified disputes cannot be referred for arbitration to any person not contemplated in Clause 9.
Point C: Relief
30. Now an altogether different facet of the same point is required to be seen. In Prabhat General Agencies etc. v. Union of India . 1971 1 SCC 79. The Supreme Court observed in para 4 of the judgment as under:
4. Section 20 is merely a machinery provision. The subtantive rights of the parties are found in Section 8(1)(b). Before Section 8(1)(b) can come into operation it must be shown that
(1) there is an agreement between the parties to refer the dispute to arbitration;
(2) that they must have appointed an arbitrator or arbitrators or umpire to resolve their dispute;
(3) anyone or more of those arbitrators or umpire must have neglected or refused to act or is incapable of acting or has died;
(4) the arbitration agreement must not show that it was intended that the vacancy should not be filled; and
(5) the parties or the arbitrators as the case may be had not supplied the vacancy.
31. Apart from this, it may further be added that in view of proviso to Section 8(1), the party may serve the other parties or the arbitrator as the case may be with a written notice to concur in the appointment or in supplying the vacancy. The right would arise only “if the appointment is not made within 15 clear days after service of the said notice, and thereafter the court may appoint on the application of the party who gave the notice.” It means that the petition under Section 8 of the Arbitration Act read with Section 20 could not be filed without service of 15 clear days notice. In the petition, it is nowhere alleged that any such notice was given. As such, it would appear that the petition itself may not be competent as it is. But this would just amount to taking too technical a view which is likely to thwart substantial justice Filing of the petition itself is sufficient notice for Section 8(2) does not provide for written notice though service of notice may be interpreted to be written notice also.
32. For the foregoing reasons and, in order to do substantial justice in between the parties, it is desirable that for referring the disputes relating to notified claims mentioned in para 28 of the petition the General Manager may nominate a panel of three persons within three weeks from today and the contractor may select one of them out of the panel of three persons so nominated by the General Manager for reference of disputes to the person so selected within two weeks thereafter.
33. The petition is disposed of accordingly. Parties are left to bear their own cost.
34. Petition allowed.
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