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Haryana Telecom Ltd. v. Union Of India (Uoi) And Anr.
Factual and Procedural Background
The petitioner was the successful bidder in a tender floated by the respondent for procurement of underground PIJF telephone cables for the years 1995-96 and 1996-97. The petitioner claimed entitlement to orders for a sizeable quantity of cables, but alleged that the respondent failed to provide the contract, resulting in losses. The petitioner filed a writ petition which was disposed of, granting liberty to invoke the arbitration clause. Subsequently, multiple arbitrators were appointed by the respondent or their nominees, but either declined to act or resigned due to conflicts of interest or other objections raised by the petitioner. After repeated failures and delays in the appointment and commencement of arbitration proceedings since 2001, the petitioner filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996, seeking appointment of an arbitrator by the Court. The respondent appointed an arbitrator after the petition was filed, which the petitioner challenged as invalid based on Supreme Court precedent.
Legal Issues Presented
- Whether the Court can proceed to appoint an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, despite the respondent having appointed an arbitrator after the filing of the petition.
- Whether the appointment of an arbitrator made by the respondent after the petition is filed but before the Court’s appointment is valid or can be treated as contrary to the Supreme Court’s dictum in Datar Switchgear versus Tata Finance Co. Ltd.
- Whether the Court’s jurisdiction to appoint an arbitrator under Section 11 is ousted or limited by the respondent’s post-petition appointment of an arbitrator.
- The applicability and effect of the Supreme Court’s ruling in Datar Switchgear on the timing and validity of arbitrator appointments under Section 11(6).
Arguments of the Parties
Petitioner’s Arguments
- The respondent initially failed to appoint an arbitrator despite invocation of the arbitration agreement.
- The respondent’s appointment of an arbitrator after the petition was filed is invalid and contrary to the Supreme Court’s ruling in Datar Switchgear.
- The Court retains jurisdiction under Section 11 to appoint an arbitrator even after the respondent’s belated appointment.
- Previous arbitrators either resigned or were conflicted, justifying the petitioner’s demand for a fresh appointment by the Court.
Respondent’s Arguments
- The respondent appointed an arbitrator after the petition was filed, which should be recognized as valid.
- Reliance was placed on a Single Judge decision in Essel Shyam Communication Ltd. versus Union of India, which interpreted Section 11(2) as limiting the Court’s power to secure the appointment only to agreed arbitrators, not to appoint another arbitrator.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Datar Switchgear versus Tata Finance Co. Ltd. (2000) 8 SCC 151 | Clarified that under Section 11(6) of the Act, the opposite party’s right to appoint an arbitrator is not forfeited if appointment is made after 30 days but before the first party files application under Section 11. Appointment after filing the petition is ineffective. | The Court treated the respondent’s post-petition appointment as null and void, thereby justifying the Court’s appointment of arbitrator under Section 11(6). |
| R.S. Avtar Singh and Company versus India Tourism Development Corporation Ltd. | Appointment of arbitrator is effective only when communicated to the parties, not when an internal decision is taken. | The Court relied on this to hold that the respondent’s appointment after notice and petition filing was ineffective. |
| Harchararn Dass Gupta versus Shivlok C.G.H.S. Ltd. | Substitute arbitrator to be appointed under Section 15; Sections 11(5) and 11(6) do not apply to substitution. | The Court distinguished this precedent as decided before Datar Switchgear and held it did not advance the petitioner’s case. |
| S.K. Gupta versus D.D.A. and others | Delay in appointment of arbitrator can be condoned if not due to collusion or neglect. | The Court noted this precedent was prior to Datar Switchgear and did not affect the present case. |
| Essel Shyam Communication Ltd. versus Union of India and others | Interpreted Section 11(2) as confining Court’s power to securing agreed appointments, not appointing arbitrators. | The Court rejected this interpretation as reading down the powers under Sections 11(4), (5), and (6). |
| Grid Corporation of Orissa Ltd. versus Aes Corporation and others | Held that a conjoint petition under Sections 11(6) and 14 of the Act is not maintainable. | The Court acknowledged this as obiter but gave it due regard in exercising administrative powers under Section 11. |
| Suresh Chandra Bose versus State of West Bengal | Void acts are non-est and need not be set aside; they are nullities. | The Court applied this principle to treat the respondent’s appointment as a nullity that does not require separate setting aside. |
Court's Reasoning and Analysis
The Court examined the timeline and conduct of the parties, noting that multiple arbitrators appointed by the respondent either resigned or were objected to by the petitioner, leading to prolonged delay in commencement of arbitration proceedings. The Court emphasized the Supreme Court’s ruling in Datar Switchgear, which clarified that under Section 11(6) the right of the party to appoint an arbitrator does not get forfeited simply by delay beyond 30 days, but this right ceases once the other party files an application under Section 11 seeking appointment by the Court.
In the present case, the respondent’s appointment of an arbitrator after the filing and service of the petition was held to be ineffective and contrary to Datar Switchgear. The Court rejected the respondent’s reliance on Essel Shyam Communication Ltd., which sought to limit the Court’s powers under Section 11, as inconsistent with the statutory scheme. The Court also considered the administrative nature of its jurisdiction under Section 11 and the necessity to avoid multiplicity of proceedings.
Applying the principle from Suresh Chandra Bose, the Court treated the respondent’s post-petition appointment as a nullity that need not be set aside by separate proceedings. This approach was seen as just and efficient, allowing arbitration to proceed without further delay. The Court therefore exercised its jurisdiction to appoint an arbitrator under Section 11(6) to fill the vacancy and enable resolution of the disputes.
Holding and Implications
The Court appointed Justice P.K. Bahri, former Judge, as the sole arbitrator to adjudicate the disputes between the parties.
The Court fixed the arbitrator’s fee and ordered it to be shared equally by the parties, subject to the outcome of the arbitration. The decision directly resolves the deadlock caused by repeated failures in arbitrator appointment and affirms the Court’s power under Section 11(6) to appoint an arbitrator even when the respondent attempts to appoint one after the petition is filed. No new precedent was set beyond the application of existing Supreme Court rulings, but the order ends protracted delays and facilitates the commencement of arbitration proceedings.
1. This is a petition under Section 11 of the Arbitration and Conciliation Act, 1996, raising a significant question with regard to the scope and exercise of jurisdiction under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act, for short).
2. The appointment of the Arbitrator is sought by the petitioner under Section 11 of the Act on the ground that the respondent despite the invocation of the arbitration agreement, initially failed and neglected to appoint the Arbitrator and thereafter appointed the Arbitrator after filing of the present petition under Section 11 of the Act. The question to be considered by the Court in this petition is, despite the respondent having appointed an arbitrator after filing of the petition, can the Court proceed to appoint another arbitrator under Section 11(6) of the Act treating the appointment of arbitrator made by the respondent as being contrary to Datar Switchgear versus Tata Finance Co. Ltd. reported at (2000) 8 SCC 151 and of no effect.
3. Let us now notice the facts of the present case:
Petitioner was a successful bidder in the tender floated by the respondent for procurement of underground PIJF telephone cables for the years 1995-96, 1996-97. Based on the Evaluation Committee, the petitioners claimed to be entitled to orders for a sizeable quantity of cables. Petitioner's grievance is that the contract to which they were entitled, were not given resulting in losses to them. A Writ Petition bearing No.1200/97 filed by the petitioner-Company was disposed of, giving liberty to the petitioner-Company to invoke the arbitration clause. On 25.4.2000, the Director General Telecome appointed Shri K.L. Jain, General Manager (Development) as the sole arbitrator in view of the letter by the petitioner dated 26th February, 2000. Shri K.L. Jain indicated his unwillingness to act as arbitrator.
4. Thereafter, petitioner-Company filed its claim before Mr.Ram Kumar, G.M. (A&P) U.P. (W) Circle Dehradun, who was appointed as the arbitrator in his place, claiming Rs.274430/- with interest at 18% and also for release of purchase orders for cables. The arbitrator despite the petitioner's request vide letter dated 14th February, 2001, did not proceed with the arbitration. The petitioner perforce on 23rd March, 2001, requested the Director to appoint an arbitrator as the arbitrator did not hold any hearing and appeared not to be willing to act an an arbitrator.
5. As there was no response the petitioner filed AA 125/2001 seeking appointment of an arbitrator. After issuance of notice, respondent filed their affidavit dated 9th October, 2001 stating that Shri R.K. Tyagi, General Manager (Development), Haryana Telecom Circle, had been appointed the sole arbitrator in place of Shri Ram Kumar. The petitioner-Company objected to the said appointment of Shri R.K. Tyagi on the ground that Mr. R.K. Tyagi had been monitoring the case against the applicant-Company. The respondent in place of Shri R.K. Tyagi, appointed Shri Ram Narain as the arbitrator. The appointment of Shri Ram Narain was also opposed by the petitioner-Company on the ground that he has been appearing against the Company in another arbitration proceeding.
6. The petitioner-Company thereupon requested Director General, Telecom to appoint another arbitrator in place of Shri Ram Narayan vide its letter dated 30th March, 2003. It is on the non-appointment of another arbitrator pursuant to the demand made on 3rd April, 2003, that the present petition has come up before this Court. The present petition has been filed on 21st April, 2003, by which time the Director General, Telecom, had not appointed any arbitrator. It is claimed that the respondents were served prior to 27th May, 2003. Respondent now have chosen to appoint the arbitrator. Shri Gurdeep Singh, G.M.(NMS NTR) as the new arbitrator.
7. The plea raised by the petitioner is that as the respondents have failed to appoint an arbitrator prior to filing of the petition under Section 11, this Court may appoint an arbitrator, as the jurisdiction to appoint an arbitrator by the Court after filing of the petition cannot be taken away.
8. The above narration recapitulates the manner in which arbitrators appointed by the respondent-Department resigned either on account of their having dealt with the case of the petitioner-Company while discharging their duties or declining to act.
9. The net result has been that from March, 2001, when the petitioner-Company first invoked arbitration which is intended to be an expeditious method of resolution of disputes, the commencement of arbitral proceedings has still eluded the parties. The arbitration agreement gives the mandate to the respondent to appoint an arbitrator. Reference in this connection may usefully be made to the following paragraph in the case of Datar Switchgear (supra):-
"So far as cases falling under Section 11(6) are concerned-- such as the one before us-- no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the Court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited."
10. In case, respondents fail to exercise their right, the Court is free to proceed with the appointment of an arbitrator. This position has been followed by this Bench in its decision in R.S. Avtar Singh and Company versus India Tourism Development Corporation Ltd., reported at . In the cited case, objections sought to be raised were that the respondent appointed arbitrator after the date of filing of the petition and notice of petition being served upon them by taking an internal decision to appoint an arbitrator, without communicating the same to the petitioner. This Bench held that the Order of appointment would have taken to have been made when communicated and received by the arbitrator and the concerned party and not when an internal decision was taken. This Bench relying on Datar Switchgear (supra) proceeded to appoint an arbitrator.
11. In the present case, appointment of the arbitrator in terms of Datar Switchgear (supra) is sought to be opposed by relying on decision of the Single Bench of this Court in Harchararn Dass Gupta versus Shivlok C.G.H.S. Ltd. Reported at . In the cited decision, learned Single Judge held that in case where the arbitrator withdraws from the office for any reason and his mandate comes to an end then a substitute arbitrator is to be appointed in his place. It was held that a substitute arbitrator was to be appointed under Section 15 and the provision of Section 11(5) and Section 11(6) of the Act, do not apply, in case of substitution or replacement of an already appointed arbitrator. Reference was also invited to a decision of this Bench in S.K. Gupta versu D.D.A. And others reported at where delay in appointment of arbitrator having been found not due to any collusion, neglect or deliberate was condoned and the appointment upheld. Harcharan Das (supra) and S.K. Gupta (supra) were both decided before Datar Switchgear (supra) and the Court did not have the occasion to consider the effect of Datar Switchgear (supra). Both the above authorities accordingly cannot advance the petitioner's case.
12. Learned counsel for the respondent also placed reliance on certain observations made by a learned Single Judge in Essel Shyam Communication Ltd. versus Union of India and others reported at .
13. Learned Judge in the said judgment had proceeded on the basis that as per the arrangement under section 11(2) the power of the Court was to secure the appointment of the arbitrator and thus the Court would not have the power to appoint another arbitrator. Learned Judge interpreted the word in the provisions 'necessary measures for securing the appointment' as confined to meaning the appointment of an agreed arbitrator, if any. In other words, it meant that the agreement between the parties had to be given effect with regard to the appointment of the arbitrator in terms of the arbitration clause.
14. With respect it may be noted that the above would amount to reading down the powers conferred on the court under Sub-sections (4) , (5) and (6) of Section 11 of the Act of filling the vacancy by Court. Sub-section (2) sets down the manner and method of selection of the arbitrator. It does not curtail the powers to be exercised under Sub-sections (4),(5) and (6) of Section 11 of the Act. The cited case therefore does not advance the respondent's case.
15. Let us consider the matter shorn of unnecessary details. Number of arbitrators who were appointed, for one reason or the other, they either resigned or refused to act and objected to in some cases. Petitioner who has been seeking arbitration since 27th May, 2001, has not made any progress. This Petition was filed and notice served and till then the arbitrator was not appointed. The arbitrator in this case has been appointed after the issuance of the notice and its service upon respondents in the petition and in terms of Datar Switchgear (supra) as detailed above, respondents had failed to appoint the arbitrator and forfeited their right.
16. The Court is conscious of the fact that while exercising jurisdiction under Section 11 Act, it is exercising administrative functions as per the dictum of the Supreme Court. The Court is also conscious of the observations made by the Supreme Court in Grid Corporation of Orissa Ltd. Versus Aes Corporation and others reported at holding that a conjoint petition under Section 11(6) and Section 14 of the Act, would not be maintainable. While the above observation itself have been made in petition under Section 11, i.e., a petition involving an exercise of administrative power, nevertheless the Court is conscious that the observations, even though not binding as precedent being obiter and in the exercise of administrative powers, they deserve to be given due regard coming from Supreme Court.
17. There is yet another perspective from which the matter may be considered.
18. The Court has before it a petition under Section 11 for appointment of an arbitrator. It finds that an arbitrator has been appointed contrary to the dictum of the Supreme Court in Datar Switchgear (supra). Can the Court refrain from exercising its jurisdiction under Section 11 or proceed to appoint an arbitrator in accordance with the duty cast upon it by the statute? The answer to my mind is in the affirmative. Reference may also be made to the decision in Suresh Chandra Bose versus State of West Bengal reported at wherein it was held that
" a thing which is void is non-est and it is not necessary to set that aside. Though it is sometimes convenient to do so. If that is the position then as the said assessments were nullities those are not required to be actually set aside."
19. Applying the above ratio it would be seen that the appointment of the arbitrator by the respondent would be contrary to the dictum as laid down in Datar Switchgear (supra). In this view of the matter, the Court is not required either to treat the present petition as one also under Section 14 of the Act which the Hon'ble Supreme Court in Grid Corporation (supra) held was not maintainable. The Court can simply proceed on the basis that the appointment of order is a nullity and does not require to be separately set aside by appropriate proceedings. This interpretation would also subserve the ends of justice and avoid multiplicity of proceedings. It would put an end to the protracted proceedings so that arbitration can proceed.
20. Accordingly, I appoint Justice P.K. Bahri, former Judge of this Court, r/o.AB-81, Shahjahan Road, New Delhi-11003, as the sole Arbitrator to adjudicate upon the disputes between the parties. The fee of the Arbitrator is fixed at Rs.11,000/- per hearing to be shared equally between the parties subject to outcome of the cause.
21. Learned counsel for the respondent also placed reliance on certain observations made by a learned Single Judge in Essel Shyam Communication Ltd. versus Union of India and others reported at .
22. Learned Judge in the said judgment had proceeded on the basis that as per the arrangement under section 11(2) the power of the Court was to secure the appointment of the arbitrator and thus the Court would not have the power to appoint another arbitrator. Learned Judge interpreted the word in the provisions 'necessary measures for securing the appointment' as confined to meaning the appointment of an agreed arbitrator, if any. In other words, it meant that the agreement between the parties had to be given effect with regard to the appointment of the arbitrator in terms of the arbitration clause.
23. With respect it may be noted that the above would amount to reading down the powers conferred on the court under Sub-sections (4) , (5) and (6) of Section 11 of the Act of filling the vacancy by Court. Sub-section (2) sets down the manner and method of selection of the arbitrator. It does not curtail the powers to be exercised under Sub-sections (4),(5) and (6) of Section 11 of the Act. The cited case therefore does not advance the respondent's case.
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