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State Of Orissa And Another v. Govinda Choudhury Opp. Party.
Structured Summary of the Opinion (G.K. Misra, J.)
Factual and Procedural Background
Govinda Choudhury (the opposite party) filed an application before the Subordinate Judge, Bhubaneswar, seeking that the State of Orissa and the Executive Engineer, Bhubaneswar Division (the petitioners) be directed to file the agreement, the notice under section 8 of the Indian Arbitration Act and other documents relating to the dispute, and that an arbitrator be appointed to give an award. The dispute arose from construction of a high level bridge over the river Bhargabi on the Pipili-Konark Road; the matter had been pending since 30-5-1962, and a notice under section 8 of the Act was served and received by the petitioners on 7-4-1966.
Clause (23) of the contract prescribed that disputes "shall be referred to the sole arbitration of a Superintending Engineer of the State Public Works Department unconnected with the work at any stage nominated by the concerned Chief Engineer" and, if no such Superintending Engineer existed, to the Chief Engineer. The clause stated that it would be no objection that the arbitrator is a Government servant and that the award shall be final and binding.
The opposite party suggested names of several Superintending Engineers as arbitrators in successive filings. On 6-10-1967 the Subordinate Judge appointed Shri Mamtaj Ali (Additional Chief Engineer) as arbitrator. Shri Mamtaj Ali later wrote (22-4-1968) expressing inability to act due to work and suggested a retired Chief Engineer, Shri S.K. Palit. On 4-5-1968 the Court cancelled Shri Mamtaj Ali's appointment and appointed Shri S.K. Palit as arbitrator with the endorsement that advocates for both parties had consented. Subsequently Shri Mamtaj Ali attempted to withdraw his earlier consent, stating he was unaware that an award by Shri S.K. Palit in another matter had been challenged in the High Court. The Subordinate Judge refused to cancel Shri S.K. Palit's appointment on 7-10-1968, and the petitioners instituted this Civil Revision against that refusal.
Legal Issues Presented
- Whether Section 8(1)(a) of the Indian Arbitration Act applies where an arbitration clause vests apparent discretion in one party (the concerned Chief Engineer) to nominate an arbitrator — i.e., can consent be implied so as to enable court appointment under section 8(1)(a)?
- Whether the appointment of Shri S.K. Palit (a retired Chief Engineer who does not strictly meet the contract's description of a serving Superintending Engineer or Chief Engineer) was valid or was a nullity because it contravened the arbitration clause.
- If the appointment was treatable as valid, whether the Court should exercise its discretion to cancel the appointment and substitute another arbitrator after substantial progress had been made by the appointed arbitrator.
Arguments of the Parties
Petitioners' (State) / Government Advocate's Arguments
- Section 8 of the Arbitration Act does not apply to this case because the arbitration clause does not provide for appointment by consent of the parties; rather it vests unilateral discretion in the concerned Chief Engineer.
- The appointment of Shri S.K. Palit was in violation of the arbitration clause (he was retired and not a Superintending Engineer nor the concerned Chief Engineer) and therefore the appointment is without jurisdiction and a nullity.
- Given the above, there is no question of reviewing the earlier appointment order in favour of Shri S.K. Palit.
Opposite Party's Position / Actions (as reflected in the opinion)
- The opposite party served notice under Section 8 of the Act requesting appointment of an arbitrator in accordance with the arbitration clause and pressed for early disposal of the claim.
- The opposite party proposed several names of persons to act as arbitrator(s) in successive filings and consented (through endorsing advocates) to the appointment of Shri S.K. Palit after Shri Mamtaj Ali expressed inability to act.
- The opposite party proceeded with arbitration hearings before Shri S.K. Palit, who heard the parties on multiple dates and conducted local investigations.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Union of India v. Banka Behari Das, 31 C.L.T. 1026 | Consideration of whether consent of both parties can be implied in an arbitration agreement where the clause is not in explicit terms of appointment by consent. | The court noted that in that case the arbitration clause differed, but the court examined implied consent and the decision helped frame the "crucial test" (whether any discretion remained to one party to object to the arbitrator's selection). The Court distinguished that case on its facts while relying on its examination of implied consent. |
| Union of India v. D.P. Singh, A.I.R. 1961 Pat. 228 | Authority on the circumstances in which consent to appointment might be implied in an arbitration agreement. | The opinion states that the correctness of this decision was accepted in the Banka Behari Das case and consequently accepted for the purpose of applying the implied-consent test to the present contract clause. |
| Surendranath Paul v. Union of India, A.I.R. 1965 Cal. 183 | Also addressed the concept of implied consent and related distinctions in arbitration clause construction. | The court accepted the correctness of this decision (as recognized in Banka Behari Das) and used the principles to determine whether implied consent existed under the present arbitration clause. |
Court's Reasoning and Analysis
The court's analysis proceeded in identifiable steps, applying statutory text and precedent to the facts:
- The court observed that prima facie the appointment of Shri S.K. Palit contravened the literal terms of clause (23) of the contract because Shri S.K. Palit was retired and thus did not satisfy the clause's description of a serving Superintending Engineer or, alternatively, appointment by the concerned Chief Engineer. If that were the only issue, the appointment could not stand.
- The court then framed the central legal question: whether the court has power under section 8(1)(a) of the Indian Arbitration Act to appoint an arbitrator when no arbitrator had been appointed in accordance with the arbitration clause.
- The court examined Section 8(1)(a) (quoted in the opinion) which enables a party to serve a written notice to concur in appointment where an arbitration agreement provides for appointment by consent and the parties do not concur after differences arise.
- Relying on prior authorities (including Union of India v. Banka Behari Das and the accepted correctness of Union Of India v. D.P. Singh and Surendranath Paul), the court identified the "crucial test" from those decisions: whether any discretion is left to one of the parties to object to the actual selection of the arbitrator when the option is exercised. If there is an absolute and uncanalised discretion exclusively vested in one party, implied consent cannot be found; if not, implied consent may exist.
- Applying that test to the present clause, the court concluded that there was an implied consent between the parties that the concerned Chief Engineer would make the selection from the two groups referred to in the arbitration clause. In other words, the clause did not vest an absolute, unfettered discretion preventing implication of consent; hence the agreement fell within the ambit of section 8(1)(a).
- Because the opposite party had served notice under Section 8(2) (sic; the opinion references serving notice under Section 8) and no arbitrator was appointed in terms of the clause, the court held that the Subordinate Judge had jurisdiction to appoint an arbitrator to settle the dispute. This jurisdiction supported the appointment of Shri S.K. Palit by the Subordinate Judge.
- Once the court had validly appointed Shri S.K. Palit (whether by apparent consent or by court appointment under section 8), the question of reviewing that appointment did not readily arise. The court emphasized discretionary considerations: Shri S.K. Palit had already conducted hearings on about ten dates and made local investigations in the presence of both parties. Given the substantial progress of the arbitration, there was no justification for cancelling the appointment at that stage. The court framed this as a matter of judicial discretion rather than mere acquiescence.
- The court also noted that the Subordinate Judge's order rejecting cancellation did not elaborate the law in detail and rested on a slender ground (that if an arbitrator had been appointed with consent, review should not be allowed). Nonetheless, the more decisive basis was that the Court had jurisdiction to appoint and the discretionary refusal to change the arbitrator after extensive progress was justified.
Holding and Implications
Holding: The Civil Revision was dismissed. The court held that the Subordinate Judge had jurisdiction under Section 8 to appoint an arbitrator despite the contract clause appearing to vest nomination power in the concerned Chief Engineer, because an implied consent to appointment by selection from specified groups existed. The appointment of Shri S.K. Palit was supported by the Court's jurisdiction and by discretionary considerations given the substantial progress he had made in the reference.
Direct Implications for the Parties:
- The petitioners' challenge to the appointment of Shri S.K. Palit failed and the revision was dismissed.
- There will be no order as to costs in the circumstances described in the opinion.
Broader implications: The opinion rests on existing authorities and an application of the "implied consent" test to the particular arbitration clause. The decision affirms the court's power under Section 8 to appoint an arbitrator where an arbitration clause permits implied consent to the method of appointment; the opinion does not state that it establishes a novel precedent beyond applying cited authorities to the facts of this case.
G.K Misra, J.:— Govinda Choudhury, opposite pary, filed an application before the Subordinate Judge, Bhubaneswar, making a prayer that the petitioners (State of Orissa and the executive Engineer, Bhubaneswar Division) should be directed to file the agreement, the notice under section 8 of the Indian Arbitration Act (hereinafter referred to as the Act) and other papers relating to dispute, and to appoint an arbitrator for giving an award. It is not necessary to give the detailed terms of the agreement. Clause (23) of the agreement, so far as relevant, runs thus:—
“Except where otherwise provided in the contract all questions and disputes…………….shall be referred to the sole arbitration of a Superintending Engineer of the State Public Works Department unconnected with the work at any stage nominated by the concerned Chief Engineer. If there be no such Superintending Engineer it should be referred to the sole arbitration of the Chief Engineer concerned. It will be no objection to any such appointment that the arbitrator so appointed is a Government servant. The award of the arbitrator so appointed shall be final, conclusive and binding on all parties to these contraot.”
2. The opposite party took up construction of high level bridge over the river Bhargabi at 3rd mile on the Pipili-Konark Road. He filed a claim and and wanted early disposal. The matter is pending from 30-5-1962. The opposite party served a notice under section 8 of the Act and the petitioners received the same on 7-4-1966. A counter was filed on behalf of the opposite party wherein the names of 3 Superintending Engineers Shri M.M Bhanj, Shri P. Patnaik and Shri N. Misra were mentioned to be arbitrators. The opposite party filed a subsequent application wherein the names of Shri Mamtaj Ali, Shri B.N Sahu and Shri A.B Mohanty were mentioned as persons who should be appointed as abitrators. On 6-10-1967 the learned Subordinate Judge, Bhubaneswar appointed Shri Mamtaj Ali, Additional Chief Engineer as the arbitrator. Obviously Shri Mamaj Ali must have the status of a Superintending Engineer not connected with the work. At any rate, no objection was raised before the Court that Shri Mamtaj Ali was not a person coming within the ambit of the arbitration clause. It appears from the order dated 29-4-1968 that Shri Mamtaj Ali wrote a letter on 22-4-1968 expressing his inability to act as arbitrator. He wrote thus:—
“Due to pressure of work I have not been able to attend to the said cases, as in the the meantime I have been appointed as Chief Engineer, R & B, Bhubaneswar. There is hardly any time for me to attend to the case work. Therefore I seek the Court's permission to submit that a retired Chief Engineer like Shri S.K Palit may be appointed and on intimation I shall submit the records.”
3. On 4-5-1968 the Court passed the following order:—
“Advocates for both the parties have already given their consent as per endorsement made in the remarks column regarding appointment of Shri S.K Palit as arbitrator. As the appointed arbitrator is unwilling to act and both the parties have agreed to the appointment of Shri Palit in his place, it is ordered that the appointment of Shri Ali is cancelled and Shri Palit, retired Chief Engineer, is appointed as arbitrator.”
4. On 25-7-1968 Shri Mamtaj Ali wrote another letter to the learned Subordinate Judge making a request that the appointment of Shri S.K Palit as the arbitrator should be cancelled. The letter runs thus:—
“I am to say that my willingness given to appoint Shri S.K Palit, retired Chief Engineer, as arbitrator in the above letter may kindly be treated as cancelled as I was not in the know of the fact that the award of Shri S.K Palit in another case has been challenged by the State and an appeal has been filed in the High Court………….”
This letter was followed by a petition to the same effect. The matter came up for consideration on 7-10-1963. The learned Subordinate Judge rejected the prayer of Shri Mamtaj Ali. The substantial grounds in support of the order are to be found in paragraph 2. Against this order of the learned Subordinate Judge refusing to cancel the appointment of Shri S.K Palit as the arbitrator, this Civil Revision has been filed.
5. The learned Government Advocate in support of the application urges that section 8 of the Act has no application to this case, and as the appointment of Shri S.K Palit was in violation of the terms of the arbitration clause the appointment is without jurisdiction, is a nullity and is to be ignored, and there is no question of reviewing the earlier order.
6. There can be hardly any doubt that the appointment of Shri S.K Palit is in direct contravention of the arbitration clause which prescribes that a Superintending Engineer of a State Public Works Department unconnected with the work as nominated by the conncerned Chief Engineer can be appointed as arbitrator. Shri S.K Paltit is not a Superintending Engineer. He has already retired from service. He does not therefore satisfy the first test. He does not also satisfy the second test where-under the arbitration would be to the Chief Engineer concerned. If this were the only matter to be decided in the case, the order of the learned Subordinate Judge cannot stand.
7. The question for coosideration, however, is whether the Court has got power to appoint an arbitrator in case no arbitrator is appointed in accordance with the arbitration clause. This necessitates an examination of the scope and ambit of section 8(1)(a) of the Act which runs thus:—
“8(1). In any of the following cases—
(a) where an arbitration agreement provides that the reference shall be to one or more artitrators to be appointed by consent of the parties and all the parties do not, after differences have arisen, concur in the appointment or appointments,
any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy.”
According to the contention of the learned Government Advocate, the arbitration clause does not provide that one or more arbitrators shall be appointed by consent of parties. The arbitration clause is one-sided and vests the entire discretion for choice in the concerned Chief Engineer. He accordingly contends that Section 8(1)(a) of the Act has no application to clause (23) of the agreement.
8. This question directly came up for consideration in Union of India v. Banka Behari Das . 31 C.L.T 1026., where the arbitration clause was completely different. But there this Court examined a contention that consent of both the parties can be implied in certain circumstances in the arbitration agreement. Though in that particular case it was held that the terms of the agreement did not mean implied consent from the very beginning, yet the correctness of the decisions reported in Union Of India… v. D.P Singh…Opposite Party. . A.I.R 1961 Pat. 228., and Surendranath Paul… v. Union Of India…. . A.I.R 1965 Cal. 183., was accepted. The essential distinction was brought out in para 6 of the judgment. It was observed therein:—
“The crucial test as to whether consent can be implied in the agreement itself is to find out if any discretion is left to one of the parties to the agreement to object to the actual selection of arbitrator when the option is exercised”
9. As in that particular case no absolute and uncanalised discretion had been vested in the selection of the second arbitrator, it was held therein that consent of the parties could not be implied from the very start. Applying the aforesaid test to the present case it would be clear that there was an implied consent amongst both the parties that the concerned Chief Engineer would make the selection out of the two groups referred to in the arbitration clause. The agreement accordingly comes within the ambit of Section 8(1)(a) of the Act.
10. As has already been stated, the opposite party served notice under Secction 8(2) of the Act that an arbitrator should be appointed in accordance with the arbitration clause and that the dispute should be settled. When no arbitrator was appointed in terms thereof, the Court got jurisdiction to appoint an arbitrator to settle the dispute. It is on this reasoning that the appoint mentment of Shri S.K Palit as arbitrator can be supported. Once he was appointed as an arbitrator by the Court whether by consent of parties or not, the question of reviewing that order does not arise, and at any rate the petitioners have no locus standi to question it with reference to the terms of the arbitration clause. Even if a case had been made out for reviewing on facts, such a discretion could not have been exercised in favour of the petitioners in the facts and circumstances of this case. Shri S.K Palit heard the parties on about 10 dates beginning from 26-7-1968 to 15-3-1969. He also made local investigation in prepence of both the parties. If at an earlier stage a request would have been made by the petitioners for changing the arbitrator, the Court might, in certain circumstances, have acceded to the request. But once the progress has been made very far, there is no justification why the appointment should be cancelled. This is not on the ground of acquiescence, but on the broader principle that when the appointment was initially justified in law, Court should not interfere in changing the arbitrator after a large part of the work had been done by him.
11. The order of the learned Subordinate Judge does not discuss the law on the point and merely rejects the application on the ground that once an arbitrator bad been appointed with consent of parties, the application for review should not be allowed. That is only a slender thread and might not stand. But the more formidable obstacle in the path of the petitioners is that the Court had jurisdiction to appoint an arbitrator in the facts and circumstances of this case, and once an arbitrator had been appointed it was again a question of discretion on the part of the Court whether the prayer to change him should be accepted or not. As has already been said by me there has been substantial progress in the case. In the result, the civil revision fails and is dismissed. But in the circumstances there will be no order as to costs.
12. Revision dismissed
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