K.S Radhakrishnan, J.:— National Thermal Power Corporation Limited, in short “the NTPC”, have come up with these writ petitions aggrieved by the Order passed by the learned single Judge under Section 11(6) of the Arbitration and Conciliation Act, 1996 appointing a former Chief Justice of this Court as the arbitrator in respect of an arbitration dispute.
2. The NTPC had awarded the contract to the respondent and an agreement was entered into on 27-5-1997. As per the tender conditions and the agreement, both the petitioner and respondent are bound by the special conditions of the contract and general conditions of the contract. Condition No. 56 is the arbitration agreement between the parties, which is extracted below for easy reference.
“Except where otherwise provided for in the Contract all questions and disputes relating to the meaning of the specifications, designs, drawing 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 of thing whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, 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 General Manager of National Thermal Power Corporation Limited and if the General Manager is unable or unwilling to act; to the sole arbitration of some other person appointed by the Chairman and Managing Director, National Thermal Power Corporation Limited, willing to act as such arbitrator. There will be no objection if the arbitrator so appointed is an employee of National Thermal Power Corporation Limited, and that he had to deal with the matters to which the contract relates and that in the course of his duties as such 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 as aforesaid at the time of such transfer, vacation of office or inability to act, Chairman and Managing Director, National Thermal Power Corporation Limited, shall appoint another person to act as arbitrator in accordance with the terms of the Contract. It is also a term of his contract that no person other than a person appointed by C.M.D N.T.P.C Ltd. 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.”
Dispute arose between the parties. Consequently respondent as per letter dated 21-1-2004 requested the petitioner to appoint an arbitrator invoking the arbitration clause. In the said letter dated 21-1-2004, respondent made the following request.
“Under the above circumstances we hereby inform you and demand of you to appoint an Arbitrator as per condition 56 of GCC for Civil Works to resolve/adjudicate the disputes and differences detailed hereinabove as per arbitration and conciliation Act 1996 failing which we will be constrained to take appropriate legal steps for the redressal of our grievances for which this is to be treated as the requisite notice without further reference, which please take note of. Both the parties have agreed to adopt new enactment, if any, under condition 56 of GCC (Arbitration) for the purpose of conducting arbitration proceedings. As new enactment viz. Arbitration and Conciliation Act, 1996 came into force on 25-1-1996 the proceeding in connection with arbitration may be directed to be conducted as per the said new enactment for all purpose.”
According to the NTPC, by letter dated 21-2-2004 they had informed the respondent that steps are being taken to appoint arbitrator as per the latter's request. Another letter dated 12-2-2004 was also sent by the respondent to the Honourable Minister, which reads as follows:
“Under the circumstances we would like to have your personal intervention in this matter and direct the NTPC authorities to appoint a Sole Arbitrator agreeable to both parties to adjudicate the disputes.
Furthermore we may suggest the name of the following reputed persons from Kerala Estate (sic) for consideration as sole Arbitrator for adjudicating the disputes between us and NTPC regarding the above four contract works.
1. Mr. P.S Divakaran, Retd. Dist. Judge, Retd. Registrar of High Court of Kerala Former Ombudsman for Local Self Govt. Institution of Kerala, Aswanthi, Kannachanthodu Road, (Near Ayyappankavu), Cochin 682018.
2. Adv. V. Ganesan (Retd. Chief Engineer) Vrindhavan, Post Office Lane, Peroorkada P.O, Thiruvananthapuram.
Under the above circumstance the petitioner Company's Directors and their families supplicate before your goodself to be benevolent and compassionate to intervene in this petition and be pleased and merciful to initiate, immediate steps to redress the petitioners genuine grievance and afford consolation, and hope for life in the interest of natural justice and may kindly impart the necessary orders directing the NTPC authorities to:—
(i) Resolve all the disputes which are beyond the Scope of Arbitration and immediate release of payment together with the admitted payment as on date.
(ii) Return the illegally encashed bank guarantee amount immediately to the Bank together with their interest to avoid revenue recovery.
(iii) Appoint an independent and impartial “Sole Arbitrator” agreeable to both parties to adjudicate the disputes.
Respondent later filed arbitration request to the Chief Justice under Section 11(6)(a) of the Arbitration and Conciliation Act, 1996 on 1-3-2004 seeking the following reliefs.
1. It is humbly prayed that the necessary measure be taken in terms of Section 11(6) of the Arbitration and Conciliation Act, 1996 in relation to Annexure-1 agreement and the arbitration for resolution of the claims of the petitioner enumerated in Annexure-2 notice.
2. It is further humbly prayed that such further orders as are deemed necessary to secure the ends of justice may be passed.
3. It is further humbly prayed that the petitioner be awarded the cost of these proceedings.
The Chief Manager (HR) of NTPC filed counter-affidavit before this Court stating as follows:
“The petitioner as per notice dated 21-1-2004 requested for appointment of the Arbitrator in respect of the certain alleged disputes said to have arisen between the parties. The notice was sent to the Chairman and Managing Director of National Thermal Power Corporation Limited. On receipt of the notice, the concerned file was sent to NTPC Kayamkulam for further necessary action. On receipt of the intimation NTPC Kayamkulam initiated a note on 17-2-2004 for appointment of Arbitrator for adjudicating the alleged disputes. As per clause 56 of the General Conditions of the Contract, the dispute shall be referred to the sole arbitration of the General Manager of NTPC and if the General Manager is unable or unwilling to act, the sole arbitration of some other person appointed by the Chairman and Managing Director of NTPC Ltd. NTPC, Kayamkulam forwarded the file to General Managing (Law), Corporate Centre, New Delhi as the General Manager, Kayamkulam expressed his inability to act as the Arbitrator. On 16-3-2004, Sr. Manager (Law) Corporate Centre has initiated note for appointment of Arbitrator. Accordingly, the Chairman and Managing Director, appointed Shri P.K Mishra, Retd. Secretary to Govt. of India, Ministry of Coal as per notice dated 19-3-2004. The intimation was sent to said P.K Mishra on 22-3-2004. This respondent received notice from the Hon'ble Court in respect of the above Arbitration request on 24-3-2004.”
P.K Mishra later relinquished the charge as the sole Arbitrator and hence S. Banerjee, IPS (Retd.) has been substituted as the sole Arbitrator by the Chairman and Managing Director. Banerjee entered upon reference as the sole Arbitrator and intimated that the first hearing would be held at 16.00 hrs. on 10-8-2004 at NTPC, New Delhi.
3. Learned Judge before whom the arbitration request has been placed however took the view that appointment were effected subsequent to the filing of the Arbitration Request and far later than the time limit provided under Section 11(4) of the Act. Further learned Judge also took the view that taking into consideration the nature of the contract and volume of work involved, it is also fair that a person having judicial background be appointed in the case rather than a person retired from Indian Police Service. NTPC is aggrieved by the said direction of the learned single Judge and has filed this writ petition.
4. Sri K. Anand, counsel appearing for the writ petitioner, submitted that the learned single Judge was not justified in appointing a person who was not nominated by clause 56 of the agreement. Counsel submitted that NTPC has already initiated steps to appoint the arbitrator as per clause 56 even before the respondent had approached this Court with the arbitration request. Arbitration request was preferred only on 1-3-2004. NTPC has already initiated note 1 for appointing the arbitrator. File was forwarded to the General Manager (Law), Corporate Office, New Delhi. Since General Manager expressed the inability to act as arbitrator on 16-3-2004 Senior Manager (Law) has sent another note for appointment of an arbitrator and consequently Chairman and Managing Director appointed P.K Mishra, Retd. Secretary to Government of India, Ministry of Coal as per note dated 19-3-2004. Counsel submitted that since steps have already been initiated before the request was made before the learned single Judge, learned judge was not justified in appointing a person not nominated by the NTPC as arbitrator. In any view of the matter, counsel submitted that learned Judge should have taken necessary measures to secure appointment as per the agreement between the parties.
5. Counsel appearing for the respondent Sri Jacob Varghese on the other hand contended that since arbitrator was not appointed before the filing of the arbitration request, right conferred on NTPC as per the arbitration clause has ceased to have any effect and therefore learned single Judge was justified in appointing an arbitrator at his choice. Counsel also made reference to the decision of the Apex Court in Datar Switchgears Ltd. v. Tata Finance Ltd., (2000) 8 SCC 151: (2000 AIR SCW 3925) and submitted that in cases arising under Section 11(6) if the appointment is not made before the other side moves the Court under Section 11, he loses his right to effect appointment as per the arbitration clause.
6. In the light of the above mentioned facts, we may examine the scope of Section 11. Section 11 deals with appointment of arbitrators, which is extracted below for easy reference.
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) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.
(4) If the appointment procedure in sub-section (3) applies and—
(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party, or
(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment.
the appointment shall be made upon request of a party, by the Chief Justice or any person or institution designated by him.
(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.
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Interpreting the above mentioned clauses, conflicting views have been expressed by the various High Courts especially with regard to the powers of the Chief Justice under Section 11(6) of the Act. The Madhya Pradesh High Court in Subhash Projects and Marketing Ltd. v. Southern Coalfield Ltd., (1998) (Supp) 33 Arb LR 357: (AIR 1998 MP 276) dealing with the powers of the Chief Justice held as follows (Para 9 of AIR):
“As has been noticed above, under sub-sec. (6) where the agreement lays down a procedure for appointment of arbitrator referable to sub-sec. (2), the Chief Justice has merely to take necessary measures for enforcing the procedure laid down in the agreement for arbitration. Under sub-sec. (6), the Chief Justice or his designate. Has not to make any appointment but to enforce or compel the party to make the appointment in accordance with the agreed procedure.”
The Andhra Pradesh High Court in Deepak Galvanising & Engg. Industries Ltd. v. Government of India, (1997) (Supp) 30 Arbi LR 635, Delhi High Court in Continental Construction Ltd. v. N.H.P.C Ltd., (1998) 1 Arb LR 534 and Bombay High Court in R.P Souza & Co. by its partners v. The Chief Engineer P.W.D, (1999) 3 Arb LR 495: (AIR 2000 Bom 74) however, took a contrary view. It was held that the Court has to appoint an independent arbitrator when the opposite party has failed to appoint the named arbitrator in accordance With the agreement between the parties as the opposite party should be deemed to have abdicated their authority and forfeited their right to appoint the arbitrator as per the arbitration clause and thereby the Court was entitled to appoint an independent arbitrator of its choice to decide the dispute between the parties. Learned single Judge of this Court in Bel House Associates (P.) Ltd. v. G.M.S.R, (2001) 1 Ker LT 579: (AIR 2001 Ker 163) disagreed with the above views and accepted that of the Madhya Pradesh High Court and held as follows (para 6 of AIR):
“I respectfully disagree with the above approach taken by the above High Courts and I am included to accept the approach made by the learned Judge of the Madhya Pradesh High Court. Sub-sections (4) and (5) authorises the Chief Justice to appoint an arbitrator whereas the wording in sub-sec. (6) is different where the Chief Justice has to take necessary measures for securing the appointment. The difference in the language used in the above sub-section would reveal the difference in the approach to be made by the Chief Justice in the appointment of the arbitrator.”
Sub-sections (1) to (5) of Section 11 would indicate in the absence of an agreed procedure between the parties. Section 11(2) says that the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. Failing any agreement referred to in sub-section (2) of Section 11, the parties can follow the procedure laid down in sub-section (3). Sub-section (4) deals with a situation where the appointment procedure laid down under sub-section (3) applies and a party fails to follow that procedure within thirty days, upon a request of other party. Chief Justice or any person designated can make the appointment.
7. Section 11(6) deals with cases where there is an appointment procedure agreed to between the parties. If a party fails to act as required under that procedure party may request the Chief Justice or any person or institution designated by him to take necessary measure for securing the appointment. So also under sub-section (4) of Section 11, if two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, then also the Chief Justice upon the request of a party or any person designated by him can make appointment. In sub-section (5) of Section 11, the wording used is appointment by the Chief Justice. However by sub-section (6) of Section 11 the Chief Justice has to take necessary measure for securing the appointment. If the party fails to act as required under that procedure and if any party requests the Chief Justice or any person or institution designated by him to take the necessary measure, the Chief Justice or any person or institution has to take necessary measures for securing appointment. So also the parties or the two appointed arbitrators fail to reach an agreement expected of them under that procedure, a party may request the Chief Justice to take necessary measures for securing appointment. The expression “necessary measures” and the expression “securing appointment” are absent in a case where there is no agreed procedure. In a case where there is no agreed procedure the Chief Justice can make an appointment. In a case where there is agreed procedure the Chief Justice or the person or institution designated by him has to take necessary measures so as to secure appointment as per the agreed procedure. In our view endeavour must be to give effect to that procedure and not to annihilate it. Only in cases where that endeavour to secure the appointment does not succeed, the Chief Justice or the person designated would go for an independent arbitrator.
8. Arbitration agreement itself is a contract and parties enter into solemn agreement agreeing on a procedure for appointing an arbitrator. The mere fact that a party has failed to follow that agreed procedure does not mean that the Chief Justice or the designated person shall not take any measure to give effect to the agreed procedure. Looking at the statutory provisions we may point out that the time limit of thirty days would apply to a party only in cases where the appointment procedure under sub-section (3) of Section 11 applies, not where there is an appointment procedure agreed to between the parties under sub-section (6) of Section 11. The decision in Datar Switchgears Ltd.'s case, (2000 AIR SCW 3925) (supra) has been cited by the counsel for the respondent to contend that under Section 11(6) the time limit of thirty days would apply and if a party fails to exercise that right the right to appoint ceases.
9. We are of the view the said decision is inapplicable to the facts of this case especially in the nature of the arbitration clause in this case. However, we may refer to paragraph 19 of the decision which reads as follows:
19. 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 thirty days of the demand, the right to appointment does not get automatically forfeited after the 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.”
That was a case where the Apex Court upheld the arbitration agreement and stated that the respondent had made the appointment before the application was filed under Section 11(6) though it was beyond 30 days from the date of demand. The Court took the view that the appointment of the arbitrator by the respondent is valid and it cannot be said that the right was forfeited after the expiry of 30 days from the date of demand. All the same the Apex Court held as follows (2000 AIR SCW 3925, para 23):
“When parties have entered into a contract and settled on a procedure, due importance has to be given to such procedure. Even though rigor of the doctrine of “freedom of contract” has been whittled down by various labour and social welfare legislation, still the Court has to respect the terms of the contract entered into by parties and endeavour to give importance and effect to it. When the party has not disputed the arbitration clause, normally he is bound by it and obliged to comply with the procedure laid down under the said clause.”
Therefore, the Court has to give due importance to the procedure agreed to between the parties. When the party has not disputed the arbitration clause normally he is bound by it and obliged to comply with the procedure laid down under the said clause. In this connection we may refer to the decision of the Apex Court in Konkan Railway Corporation Limited v. Rani Construction Pvt. Ltd., (2002) 2 SCC 388: (AIR 2002 SC 778) where the Apex Court while dealing with the powers of the Chief Justice, held as follows (para 17 of AIR):
“Where an appointment procedure has been agreed upon by the parties but a party fails to act as required by that procedure or the parties or the two arbitrators appointed by them fail to reach the agreement expected of them under that procedure or a person or institution fails to perform the function entrusted to him or it under that procedure, a party may request the Chief Justice or his designate to nominate an arbitrator, unless the appointment procedure provides other means in this behalf.”
We may also refer to the recent decision of the Supreme Court in Dharma Prathishthanam v. Madhok Construction (P) Ltd.., (2004) 9 Scale 205: (AIR 2005 SC 214), wherein the Court held as follows (para 12 of AIR):
“If the arbitration clause names an arbitrator as the one already agreed upon, the appointment of an arbitrator poses no difficulty. If the arbitration clause does not name an arbitrator but provides for the manner in which the arbitrator is to be chosen and appointed, then the parties are bound to act accordingly. If the parties do not agree then arises the complication which has to be resolved by reference to the provisions of the Act. One party cannot usurp the jurisdiction of the Court and proceed to act unilaterally. A unilateral appointment and a unilateral reference both will be illegal. It may make a difference if in respect of a unilateral appointment and reference the other party submits to the jurisdiction of the arbitrator and waives its rights which it has under the agreement, then the arbitrator may proceed with the reference and the party submitting to his jurisdiction and participating in the proceedings before him may later on be precluded and estopped from raising any objection in that regard.”
10. In a case where party has approached the Chief Justice and made a request for appointment of an arbitrator other than the person agreed to between the parties, the Chief Justice or the designated Judge would make an effort to secure the appointment as per the agreed procedure not to bypass or annihilate it. Endeavour must be given to effect it failing which an independent arbitrator can be appointed. In our view, learned single Judge should have taken necessary measures for securing appointment on the basis of the appointment procedure. We may further indicate, as far as the present case is concerned, there is a further stipulation in the arbitration clause which reads as follows:
It is also a term of the contract that no person other than a person appointed by CMD NTPC Ltd. 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.
Therefore parties have agreed that no person other than a person appointed by CMD, NTPC should act as arbitrator and if for any reason that is not possible, the matter is not to be referred to arbitration at all, but then could be resolved only by a Civil Court. These are the terms and conditions agreed to between the parties and hence learned Judge was not justified in appointing third party as the sole arbitrator to resolve the dispute between the parties.
In such circumstances we are inclined to allow the writ petitions and set aside the order of the learned single Judge. We are informed that S. Banerjee has already been appointed as the sole arbitrator and he has already entered on reference.
Petition allowed.
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