Nav Sansad Vihar Co-Operative Group Housing Society Ltd. (Regd.) v. Ram Sharma And Ass. And Others

J.B Goel, J.:— In the petition (AA 1/98) under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short “the Act”) the petitioner seeks quashing of the appointments of Mr. K.L Sehgal and of Shri K.S Kharb as Arbitrator and for appointment of an Arbitrator.

2. Briefly, the facts are that the petitioner for construction of Multi-storeyed apartments on their plot No. 4, Sector 22, Dawarka Phase-I, New Delhi entered into an agreement dated 23.5.1995 appointing respondent No. 1 as Architects for providing architectural and engineering services specifying the nature of the work to be performed. It is alleged that the respondent No. 1 was found incompetent and due to delay, inaction and other lapses and for various deficiencies, their drawings were not approved by the authorities concerned and the work could not be undertaken. They failed to perform the job in spite of several letters sent to them. The agreement was terminated on 22.8.1997 and they had to engage another agency for the purpose. At the time of entering into the agreement, a sum of Rs. 22.50 lakhs was paid to the respondent No. 1 as advance which they were not entitled to retain and on the other hand claimed further amount. Both the parties have raised claims against each other and thus disputes arose between the parties. The agreement provided for arbitration in its Clause No. 6 which provided for referring the disputes to the Council of Architecture (for short “the Council”). Respondent No. 1 referred the disputes to the said Council who nominated on Shri K.L Sehgal as Arbitrator vide letter dated 17.10.1997 and simultaneously asked the parties to give their consent. Both the parties did not give their consent. The respondent No. 1 vide their letter dated November 19, 1997 asked the council to give a panel of three persons and as is admitted by the petitioner in para 16 of the present application, the applicant never agreed to the said appointment and on the other hand suggested that mediation may be made through Shri R.C Bhalla, President of the Council. No amicable settlement through mediation also could be effected nor any mutually agreeable Arbitrator was agreed between the parties. The Council appointed Shri K.S Kharb, Ex-President, Institute of Surveyor (India) as Arbitrator on 8.9.1998 superseding the earlier appointment. Respondent No. 1 had already submitted their statement of claim.

3. The petitioner, however, took objection that Shri K.S Kharb has not been validly appointed as arbitrator and so could not proceed with the matter. The Arbitrator heard the parties on this objection and by his order dated 31st May, 1999 rejected the same and held that he was validly appointed and has jurisdiction to proceed as Arbitrator. The petitioner has sought revocation of the appointments of Shri K.L Sehgal as well as of Shri K.S Kharb as Arbitrator on the following grounds:

“19. That the Council thus failed to refer the name of the Arbitrator in accordance with the provisions of the Arbitration and Conciliation Act, 1996.

20. That the parties have since failed to arrive at a mutual agreement either on the name of the Arbitrator or on the number of Arbitrator, the applicant is left with no remedy but to file the present petition seeking appointment of the Arbitrator. The Council also acted illegally in removing the Arbitrator as the said powers vest only with the Courts.”

4. Separate petition being OMP No. 199/99 challenging the legality and validity of the order dated 31st May, 1999 has also been filed.

5. The respondent No. 1 in reply has disputed the averments and pleas taken and is contesting it. It is claimed that Shri K.S Kharb has been properly and validly appointed as Arbitrator and the petition is not maintainable.

6. Learned counsel for the petitioner has contended that in the facts and circumstances, once an Arbitrator has been appointed, his appointment could not be cancelled and a new Arbitrator could not be appointed by the council but could be appointed only by the Court under Section 11(6) of the Act. Whereas learned counsel for the respondent No. 1 has contended that the parties had agreed to refer their disputes to the Council who had nominated an Arbitrator subject to consent of parties which was not given by the parties. In the absence of such consent, the Arbitrator also did not accept hisappointment as Arbitrator and as such there was no valid and effective appointment of Shri K.L Sehgal. And the Council has validly appointed Shri K.S Kharb as Arbitrator in accordance with the rules adopted by them and the same is not liable to be revoked by this Court. The parties having appointed their Arbitrator viz., Council, it is only the Council who is competent to act as Arbitrator through its nominee.

7. Clause 6 of the agreement entered into between the parties provides:

“All the differences and disputes arising between the Architect and the client, on any matter connected with this agreement, or in regard to the interpretation of the contents thereof, shall be referred to the Council of Architecture. The decision of the Arbitrator shall be final and binding on the parties hereto. To this arbitration, all the provisions of the Arbitration Act, 1940, and amendment thereto, shall apply.”

8. Disputes arose between the parties and it is not disputed that those disputes are to be resolved through arbitration by Council as provided under Clause 6. The Council has to act through natural persons. The respondent referred the disputes to the Counsel vide his letter dated 2.8.1997 and the said Council in response vide its letter dated 17.10.1997 informed the parties as under:

“… After considering the substance of Clause 6, the COA hereby appoints Shri K.L Sehgal, Architect…. as a sole Arbitrator. The parties to the binding arbitration agreement are requested to convey their consent to the Arbitrator appointed regarding his appointment as an Arbitrator with a copy thereof to the COA.”

9. In reply, the respondent requested the President of the Council as under:

“……… to suggest a panel of at least three persons so to enable us to consider the appointment of the Arbitrator.”

10. The petitioner had also not given their consent for this appointment as it is neither so pleaded nor any document to this effect has been placed on record. Thereafter the Council vide its letter dated December, 3, 1997 required both the parties as under:

“This is to inform that the new incumbent, Shri Premendra Raj Mehta, President of the Council, is pleased to invite both the parties for holding consultation in connection with appointment of Arbitrator(s) at 3.30 p.m, on Friday, the 12th December, 1997 at the office of the Council…. with regard to the subject matter”.

11. Meeting was held with Mr. Mehta on 12.12.1997 and then both the parties were required to furnish the mutually agreed names of Arbitrator by 29.12.1997 from out of the names suggested by him as appears from the Council's letter dated February 17, 1998 sent to them. It appears that no such names were suggested by the parties and the Council then vide its letter dated February 17, 1998 informed them as under:

“This is with reference to the meeting you had with the undersigned on 12.12.1997, wherein both the parties were required to furnish in mutual agreement, the name of the Arbitrator by 29th December, 1997 from out of the names suggested by me. However, nothing has been heard from you in this regard. The Council would now like to proceed further with the arbitration proceedings with the assistance of a member of the Council. I, therefore, request you to forward the required documents by 9th March, 1998, for proceeding further in the matter.”

12. The respondent in its reply letter dated March 2, 1998 informed the Council that they had already submitted their statement of facts and claims and they will reply further on receipt of reply thereto from the applicant. On the other hand, applicant in their letter dated 4.3.1998, wrote as under:

“Reference your letter No. CA/28/97 (Arbitration) dated 17.2.1998, this is to submit that during the discussion on 12.12.1997, at 3.30 p.m held with you in the presence of Mr. Ram Sharma in your Chamber, your goodself had suggested a few names who could be requested to act as Arbitrator.

But after a long discussions it was agreed in your presence that this matter be settled between ourselves through a Mediator without going into the process of appointment of an Arbitrator. Name of Mr. J.R Bhalla's (former President, Council of Architecture) came up and both the parties tentatively agreed to his name. Mr. Ram Sharma indicated that he was going out on a tour and shall inform council on his return. Accordingly, name of Shri Bhalla to act as Mediator was also required to be confirmed by the society.

We would, hereby, like to intimate and confirm the name of Mr. Bhalla for acting as Mediator.”

13. The Council finally wide its letter dated September 8, 1998 informed the parties as under:

“This refers to the requests for arbitration made to the Council of Architecture vide your letter dated 2.8.1997 with a copy thereof to the respondent on the above subject and subsequent requests made to the Council to expedite the appointment of an Arbitrator. In this connection, it is to inform you that the Council has decided to appoint Shri K.S Kharb, Ex-President, Institution of Surveyors (India) as the sole Arbitrator.

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The above letter is issued in supersession of earlier letter No. CA/28/97/Arbitration dated 17.10.1997 issued by Sh. J.R Bhalla, Past President, Council of Architecture and addressed to petitioner and respondent.” The applicant in reply dated 22.9.1998 inter alia informed the Council as under

“………… On perusal of Clause 6 of the agreement, Managing Committee opined that Clause 6 pertaining to arbitration is silent on procedure/modes of appointment Arbitrator………….

Society accordingly consents in referring the disputes raised by Shri Ram Sharma and Associates to the Council of Architecture only and requests the Council to resolve the issues/differences without resorting to Arbitration.”

and requested the Council to take appropriate action before proceeding in the matter. The Council was also requested to order Shri K.S Kharb not to proceed as an Arbitrator.

14. Shri K.S Kharb accepted his appointment, entered upon the reference and called upon the parties to submit their claims. The applicant, however, took objection regarding his appointment and jurisdiction to act as Arbitrator on the ground that he was not validly appointed. Before the Arbitrator took any decision, the applicant filed this application. As no stay was granted, the Arbitrator proceeded in the matter and decided the objections about his jurisdiction against the application May 31, 1999 and that order has been challenged separately under Section 34 of the Act.

15. Learned counsel for the petitioner has cited some case law rendered on the old Arbitration Act, 1940. The provisions of new Act are materially different for appointment of Arbitrator which are provided under Section 11 of the Act.

16. As noticed earlier, the applicant earlier had also taken an objection before the Council that there was no arbitration agreement between the parties and the question of appointment of Arbitrator did not arise. That plea has not been taken in the application nor during arguments. Clause 6, reproduced earlier, is an arbitration clause which provides for resolving disputes by the named Arbitrator, viz., the Council of Architecture. Section 11 of the new Act so far as relevant reads as under:

“11. Appointment of Arbitrators:

(1) A person of any nationality may be an Arbitrator, unless otherwise agreed by the parties.

(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the Arbitrator or Arbitrators.

(3) xxxxxx

(4) xxxxxx

(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole Arbitrator, if the parties fail to agree on the Arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.

(6) Where, under an appointment procedure agreed upon by the parties.

(a) a party fails to act as required under that procedure; or

(b) the parties, or the two appointed Arbitrators, fail to reach an agreement expected of them under that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,

a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.”

17. In the present case, the parties had agreed to refer their disputes for arbitration to the Council as Arbitrator. Thus, the parties have entered into an agreement for arbitration, the Arbitrator and to refer their disputes to it. Thus, procedure for appointing the Arbitrator contemplated under sub-section (2) of the Act was agreed. In that case, sub-section (5) of Section 11 would not be attracted. Sub-clauses (a) and (b) of sub-section (6) of Section 11 are not relevant and under sub-clause (c) of sub-section (6), a party to an agreement can approach the Chief Justice or His delegate for appointment of an Arbitrator only if the person or institution agreed between the parties fail to perform any function entrusted to him or it under the procedure.

18. Now, the question is whether the Council has failed to perform its function entrusted to it under Clause 6 of the agreement.

19. The Council has not failed to perform the functions entrusted to it. It has accepted to act as an Arbitrator for the parties. The Council is not a natural person and obviously it has to act through natural persons. The Council is not an institution of arbitration and perhaps they had not formulated its own rules and procedure to deal with such cases. After accepting the appointment as Arbitrator, they nominated the name of Shri K.L Sehgal as an Arbitrator and intimating both the parties to give their consent for his being so appointed. Both the parties did not give their consent. The respondent asked for a panel of three Arbitrators whereas the applicant disputed that there was at all an arbitration agreement to decide the disputes by arbitration. They took the stand that the Council could act as a mediator only. That stand they have abandoned now. The appointment of Shri Sehgal as Arbitrator would have become effective only if the parties had given their consent which they did not give. Though the parties have not disclosed in their pleadings as to whether Shri K.L Sehgal had accepted the appointment or not, however Shri K.S Kharb in his order dated May 31, 1999 has observed that the Arbitrator had sought consent of both the parties vide his letter dated 11.11.1997 and, Shri Sehgal did not proceed with the case because the parties did not give their consent.

20. In this case, the appointment of Shri Sehgal as Arbitrator would have been effective only when the appointed Arbitrator had accepted office and is armed with the duty and authority of an Arbitrator which did not happen. In these circumstances, it cannot be said that Shri K.L Sehgal's appointment as Arbitrator was complete and effective. Shri K.L Sehgal thus has not been validly appointed as an Arbitrator.

21. The Council has not refused to act as an Arbitrator and in that case the Council could appoint another Arbitrator which it has done.

22. Assuming the appointment of Shri Sehgal is valid. His appointment is not challenged on the grounds available under Section 12 of the Act. He has not accepted his appointment or has withdrawn to act as Arbitrator. His mandate as an Arbitrator has been terminated under Section 14 or Section 15 of the Act. In that case, Section 15(2) gets attracted and as provided therein, “a substitute Arbitrator shall be appointed according to the rules that were applicable to the appointment of the Arbitrator being replaced”.

23. In other words, the appointment of new Arbitrator shall be made as per provisions of Section 11 of the Act. The Council has been appointed by the parties for arbitration. It has to appoint a natural person to act as Arbitrator. The Council has not declined to arbitrate. So long as the Council is ready and willing, to act, the parties cannot resort to Section 11(6) of the Act.

24. There is thus no illegality and infirmity in the appointment of Shri K.S Kharb as an Arbitrator by the Council.

25. In that view of the matter, this application under Section 11(6) of the Act is not maintainable.

26. The same is accordingly dismissed with costs.

OMP 199/99

27. Already noticed, after Shri K.S Kharb was appointed as an Arbitrator, he had entered upon reference and called upon the parties to submit their statements of claims. Petitioner appeared before the Arbitrator but raised an objection about his jurisdiction to act as an Arbitrator as not validly appointed. The learned Arbitrator after hearing both the parties vide his order dated May 31, 1999 had held that he had been validly appointed and had jurisdiction to proceed to decide the disputes. The petitioner has challenged that order under Section 34 of the Act.

28. Learned counsel for the petitioner has contended that this order amounts to award within the meaning of Section 16(6) of the Act and is challengeable under Section 34 of the Act. Learned counsel for the respondent disputes and contests this contention. According to him, this order is not award and Section 34 of the Act is not applicable.

29. Under Section 16 of the Act, the arbitral tribunal is competent to rule on its own jurisdiction and if such a plea is taken the Arbitrator is competent to decide the same under sub-section (5) of Section 16 which reads as under:

“(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.”

30. And if such a plea is rejected, the Arbitrator would continue with the arbitral proceedings and make an arbitral award. This necessarily contemplates that such decision is not an award but simply an order deciding the objection about the competence/jurisdiction of the Arbitrator. By such order he has not decided the controversy on merit. On his decision, if such a plea is rejected, he has to proceed to make an Arbitral award, i.e, decide the controversy or disputes arising between the parties on merit. No separate remedy has been given under the Act against such order and the aggrieved party whose challenge was rejected will have to wait till an award is given. It is that award which could be challenged under Section 34 of the Act by making an application for the purpose in accordance with sub-sections (2) and (3) of Section 34. Such award could be set aside by the Court if any of the conditions mentioned in sub-section (2) of Section 34 are fulfilled. One such ground is about composition of the Tribunal under sub-clause (v) of Clause (a) of sub-section (2) of Section 34 of the Act which reads as under:

2. An arbitral award may be set aside by the Court only if—

(a) the party making the application furnishes proof that:

(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; or”

31. This means that the decision of the Tribunal rejecting the plea about this jurisdiction could be challenged on this additional ground. Otherwise his such decision in itself was neither an award nor it can be challenged as an award under Section 34 of the Act before the arbitral award on merit is given by the Arbitral Tribunal.

32. Learned counsel for the petitioner has referred to certain case law rendered under the old Arbitration Act, 1940.

33. In Sundaram Finance Ltd. v. Nepc India Ltd. . JT 1991 1 SC 49, in para 9 it has been observed that:

“The 1996 Act is very different from the Arbitration Act, 1940. The provisions of this Act have, therefore, to be interpreted and construed independently and in fact reference to 1940 Act may actually lead to misconstruction. In other words the provisions of 1996 Act have to be interpreted being uninfluenced by the principles underlying the 1940 Act. In order to get help in construing these provisions it is more relevant to refer to the UNCITRAL Model Law rather than the 1940 Act.”

34. In view of the scheme of the Act containing specific provisions providing for mode for remedy to an aggrieved party, it is unnecessary to refer to the case law rendered under the old Act.

35. This petition thus is also not maintainable and the same is also hereby dismissed with costs. Both these petitions are accordingly dismissed with costs of Rs. 10,000.

36. Petition not maintainable.