Fertiliser Corporation Of India Ltd. v. Ravi Kumar Ohri Opposite Party.

1. The Fertiliser Corporation of India (hereinafter referred to as ‘the Corporation’) is a company incorporated under the Companies Act and it has its branch office at Talcher in the district of Dhenkanal. For construction of its factory at Talcher, tenders were invited for supply of 175 lakhs of kiln burnt bricks and the opposite party was one of the tenderers. After negotiation, his tender was accepted and supply thereunder was to be completed by 30th of June, 1975. The opposite' party filed a petition under Section 8(2) read with Section 8 of the Arbitration Act in the court of the Subordinate Judge, Bhubaneswar. The said petition was allowed and one retired District Judge was appointed as arbitrator. The present revision is directed against that order.

2. Opposite party was the petitioner in the court below. His case was that after negotiation, tender for supply of 175 lakhs of kiln burnt bricks was accepted and supply was to be completed within eighteen months from 22-8-73. It was further fixed that supply of 72,00,000 bricks would be made by 30-6-74 and 15,00,000 bricks were to be supplied by 30-9-74. The officers of the corporation did not fix the stacking ground till 24-12-73. Some quarters were constructed and for construction of those quarters, the corporation received 12,50,000 bricks by 6-3-74 and the stipulation was that no payment would be made on bricks at the kiln site. As huge number of bricks could not be lifted due to want of stacking ground, a large number of bricks of the opposite party was blocked, but the corporation assured him to compensate the loss sustained by him due to blocking of the area. The opposite party had to suffer a lot due to rise of prices on tyre, fuel etc. As per the terms of agreement, in case of dispute, the same should be referred to arbitration. The opposite party accordingly served notice under Section 8(1) of the Arbitration Act to the arbitrator which was received on 31-3-76. The corporation did not act in spite of that notice and instead of being impartial and judicious, the General Project Manager became biased. So, the opposite party prayed for leave to revoke the authority of the General Project Manager and to appoint another person as arbitrator.

3. The corporation in its counter contends that non-availability of stacking ground at the kiln site was of no concern to the petitioner (corporation) as per the agreement. The rate regarding supply of bricks is fixed and there is no scope for reduction (enlargement ?) of rate as per the contract. The corporation is not responsible for the alleged loss sustained by the opposite party. The allegation of bias has been refuted and it is stated that if there would be a question for arbitration, then it is only the General Project Manager, or some other person to be appointed by him, to act as arbitrator.

4. The learned Subordinate Judge has held that there was due notice to the arbitrator as per the stipulation in the agreement. The question of limitation raised by the corporation is to be decided by the arbitrator. Even if the present opposite party has accepted the final bill, that would not debar him to file the present petition. There was a dispute and it has been properly referred to. He also held that there was reasonable grounds for apprehension in the mind of the present opposite party that he would not get proper justice. Accordingly, he allowed the petition and revoked the authority of the General Project Manager and appointed Shri J.C Tripathy, a retired District Judge as arbitrator. It is contended by Mr. Mohanty the learned counsel for the petitioner, that without complying with the requirements of clause 64 of the contract, the opposite party cannot take recourse to clause 65. Clause 64 is general term and condition of the contract. Clause 65 particularly relates to reference to arbitration. After going through both the clauses in the contract, it does not appear that compliance of clause 64 is a condition precedent to action under clause 65 of the contract. Moreover, such a plea has not been taken in the counter by the corporation. In the present revision petition it has been stated that it is obligatory for the contractor to first give notice of the dispute to the company as required under clause 64. Whether a particular claim is untenable by the arbitrator on the ground that notice of the claim has not been given to the corporation and whether the same is time-barred or not, are all matters for examination by the arbitrator and not by the court while exercising its jurisdiction under Section 8 of the Arbitration Act.

5. Documents were produced by both sides and counsel for both sides based their arguments on those documents. No objection was taken at that stage by either party about the documents. Mr. Mohanty contends in this court that there was no sufficient opportunity as the corporation who is petitioner in this court did not raise any objection at that stage and based arguments on those documents. This contention cannot be entertained here. The letter of the opposite party dated 6-3-74; the letter dated 29-3-76 requesting for enhancement of rate of bricks; the letter dated 2-4-75 of the corporation to the opposite party that it cannot enlarge the rate; the letter for enhancement of rate dated 19-5-75 and the letter dated 1-9-75 by the corporation repudiating the claim, clearly show that notice of the dispute was given to the corporation as required under cl. 64 before taking action under Section 8 of the Act.

6. In this revision the scope for consideration is whether the Subordinate Judge committed any error of jurisdiction or any illegality in the exercise of jurisdiction by appointing a retired District Judge as the sole arbitrator.

7. The contention of the petitioner is that the opposite party having received the final bill, in full and final settlement, on 10-5-76, his claims are extinguished by satisfaction and the question of making any reference does not arise. The petition was filed in court on 3-5-76. Under Section 8 of the Arbitration Act, the court does not make any reference to any dispute. Its powers are limited only to the appointment of arbitrator or an umpire, as the case may be, if there is an arbitration agreement between the parties and there is no appointment or concurrence despite notice under Section 8(1) of the Act. After the appointment is made, it is for the parties to file their claims before the arbitrator who is to decide the same on merits. There is a clear distinction between the provisions of Section 8 of the and Section 20 of the Act.

8. Under S. 20, the court has to decide where disputes or differences have arisen and after directing the parties to file the agreement, the court has to make a reference of the disputes to the arbitrator. The present application is only under Section 8 and so the question of determining the dispute or making any reference of the dispute to the arbitrator does not arise. The court has to see if the conditions laid down under Section 8 of the are satisfied, so as to make appointment of an arbitrator as provided under Sub-Sec. (2) of Section 8 of the Act. Under cl. 65 of the agreement, both the parties agreed that the General Project Manager of the corporation at Talcher would be the sole arbitrator. There was no question of any consent of any of the parties for appointment of an arbitrator. This principle was clarified in Surendranath Paul… v. Union Of India…., AIR 1965 Cal 183, and Union Of India… v. D.P Singh…Opposite Party., AIR 1961 Pat 228. The aforesaid principle laid down by the Calcutta High Court and the Patna High Court has also been accepted by this Court in State of Orissa v. Govinda Choudhury, (1969) 35 Cut LT 630 : (AIR 1969 Orissa 280). Also in Union Of India v. Shri Om Prakash, (1976) 4 SCC 32 : AIR 1976 to 1745, it has been held that the validity of the order of reference depends upon the scope of S. 8 which deals with the power of the court to appoint an arbitrator or umpire. Sub-Sec. (1) of Section 8 of the provides that if any appointed arbitrator is incapable of Acting, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, any party to the agreement may serve the other parties with a written notice to concur in supplying the vacancy. Sub-Sec. (2) of Section 8 of the lays down that if no appointment is made within 15 days after the service of the said notice, the court may, on the application of the party who gave the notice and after giving the other parties an opportunity of being heard, appoint an arbitrator or arbitrators who shall have like powers to Act in the reference and to make an award as if he or they had been appointed by consent of all parties. An agreement to submit differences to arbitration implies an agreement to refer the differences to the arbitrator. Sec. 8 only empowers the court to appoint an arbitrator where the parties do not concur in the appointment. S. 20 confers power on the court to order the agreement to be filed and, further, to make an order of reference to the arbitrator the or, where the cannot agree upon an appointment, to an arbitrator appointed by the court. Thus, it would be seen that the parties had already agreed upon appointment of the arbitrator and provisions of S. 8 had been complied with and the court had no other option than to appoint the arbitrator. It has no jurisdiction to see whether there is really any dispute. That question is to be gone into by the arbitrator. On this very principle also the question whether that payment of final bill constitutes a complete discharge of all obligations under the contract, is a matter which has to be decided by the arbitrator and not by the court. The court is only to examine if there is an arbitration agreement at all. The existence or the validity of the claims and disputes are matters within the jurisdiction of the arbitrator. Relying on the decision in Damodar Valley Corporation v. K.K Kar, (1974) 1 SCC 141 : AIR 1974 SC 158, this Court held in Brajabehari Das v. Chief Engineer (Project), (1976) 1 Cut WR 261, that whether the obligations under the contract have been fully satisfied as claimed by the Department is a question which relates to the contract itself and comes within the arbitration clause therein. A question was raised in that case, as in the instant case, that there being a full and final settlement, there was no dispute to be referred. After discussing the decision of the Supreme Court in Damodar Valley case (referred to above), it was held that the position of law emerging from the decision is that an accord and satisfaction which is concerned with the obligations arising from the contract does not affect an arbitration clause. Whether the obligations under the contract have been fully satisfied as claimed by a party is a question which relates to the contract itself and comes within the arbitration clause therein and this has to be referred for decision of the arbitrator. Therefore, the submission on behalf of the petitioner that there being full satisfaction of the bill, nothing was left for reference, is not sustainable.

9. It is contended by Mr. Mohanty that there was no notice under Section 8(1) of the Arbitration Act. Parties had already agreed as to the person to whom reference is to be made. The General Project Manager is not an outsider, but admittedly is principal administrative officer of the corporation. Notice to the General Project Manager can be construed as notice to the corporation itself because he is the principal officer at Talcher Project. Notice having been issued to him and he having been already named by the parties in the agreement to be arbitrator, amounts to notice contemplated under Section 8 of the Act. I have already held that there is nothing in clause 65 of the agreement to show that unless the conditions or cl. 64 are complied with, no action can be taken uncle cl. 65. It is admitted by the that the notice has been received by the corporation. Therefore, the corporation cannot challenge the question of notice at this stage.

10. A similar question arose in Union Of India… v. D.P Singh…Opposite Party., AIR 1961 Pat 228. In that case, there was provision in the agreement that in the event of any dispute or difference of opinion between the Railway Administration and the contractor, such dispute or difference of opinion shall be referred to the sole arbitration of an officer who shall be nominated for the purpose by the General Manager, Northern Railway, and his decision shall be final, conclusive and binding. It was held that consent of the parties was implied and concurrence to the nomination of the arbitrator, whoever he may be, in terms of the arbitration agreement had already been given. In that case, notice was given to the General Manager asking him to appoint an arbitrator in terms of the arbitration agreement. But in spite of receiving notice, no appointment was made. The General Manager even did not send any reply to the notice. After a lapse of fifteen days, as required under Section 8(2) of the Act, application was made to court under S. 8(2) for appointment of arbitrator. It was held (at p. 231):—

“When such an application is made, there is no provision in the Act which requires the Court to give an opportunity to the defaulting party to make an appointment before making its own appointment. Section 8 nowhere says that the Court, in the first instance, shall ask the party in default to nominate an arbitrator, and, then, and then only on his failure to do so, the Court win get jurisdiction to appoint an arbitrator itself under Section 8(2) of the Act.

What S. 8(2) provides is that if the party who has to make an appointment does not do so, as here, in spite of the notice having been given as contemplated by S. 8(2), the party giving the notice may then apply to the Court, after the expiry of fifteen days, within which the party served with the notice has to make the appointment under Section 8(2) of the Act for appointment of an arbitrator, and, thereupon, the Court after giving an opportunity to the other party to be heard, shall appoint an arbitrator. The discretion, therefore, has been given to the Court to make its own appointment. There is no duty cast on the Court to consult the defaulting party and ask him first to make the appointment, before itself making the appointment.”

11. The facts and circumstances of the Patna case are on par with the facts and circumstances arising in the instant case. A similar question was also raised in this Court in Union of India v. Builders Union Engineers and Contractors, (Misc. Appeal No. 250 of 1977 and Civil Revn. No. 438 of 1977, decided on 5-4-1978) and this Court held as has been held by the Patna High Court. This Court also in Union of India v. Allied Construction Co. (Misc. Appeals Nos. 9 and 10 of 1977 and Civil Revn. Nos. 22 and 23 of 1977, decided on 6-7-1977) has reiterated the views reported in 35 Cut LT 630 : (AIR 1969 Orissa 280) and AIR 1961 Pat 228 (supra) as well as the views reported in Surendranath Paul v. Union of India, AIR 1965 Cal 183, and has held that if the appointment under the arbitration clause is not made within fifteen clear days after service of the notice, the court is entitled on the application of the party who gives the notice and after giving the other parties an opportunity of being heard, to appoint an arbitrator. It was ultimately held in that case that the party having failed to make the appointment as contemplated under the arbitration clause forfeited its right to claim that the dispute should be referred to the arbitrator to be appointed by the named authority. In the case of Builders Union Engineers (referred to above), notice under Section 8 of the Act was given by the contractor to the Engineer-in-Chief, Army Headquarters who was authorised under the agreement to nominate the arbitrator. It was contended that notice should have been given to the Chief Engineer, Bengal Zone who was the contracting party as required under Section 8(1) of the Act. But this Court held that by virtue of cl. 70 of the contract, by consent of parties the person to appoint arbitrator has been accepted. Section 8(1) of the Act does not require any further notice to be given. In these circumstances, I hold that the contention of the petitioner is not tenable.

12. The next question for consideration is whether the General Project Manager named in the agreement is to be appointed by the court as the sole arbitrator. Notice under Section 8(1) of the Act was issued personally to the General Project Manager. He did not enter upon the reference, nor nominated any person as arbitrator. The notice was issued in his name. But he did not care to send any reply. The reply dated 3-7-76 repudiating the claim was issued only by the Additional Chief Engineer. So also the letter dated 9-11-76 sent by the advocate for the opposite party was addressed to the General Project Manager requesting to nominate a retired Chief Engineer and no reply was sent by the General Project Manager. But the Additional Chief Engineer declined to accept the request saying that it was within the option of the General Manager to nominate the arbitrator. The General Project Manager also did not intimate the court during pendency of the case that he was agreeable to Act as arbitrator. Thus he failed to act in terms of the statutory requirement and has disabled himself from subsequently projecting his case for appointment as the sole arbitrator. It is contended that most probably the Additional Chief Engineer did not place the matter before the General Project Manager, and the court below has not considered this fact. If any laches have been committed by the Additional Chief Engineer, the corporation cannot claim benefit out of it. On the other hand, this is a matter between the corporation and the Additional Chief Engineer. The Additional Chief Engineer has also filed affidavit in this Court on 30-6-78 and it is contended therein that the General Project Manager was always agreeable to act as sole arbitrator. It is for the General Project Manager to express his willingness or not. The Additional Chief Engineer cannot act as his agent in Court.

13. It is contended by the petitioner that the opposite party had approached the General Project. Manager on 9th Nov., 1976, during the pendency of the proceeding in court, to act as arbitrator, and, as such, the opposite party did not object to the appointment of the General Project Manager as arbitrator. Reliance has been placed on the correspondence relating to this fact. In the body of the letter, specific suggestion has been made for appointment of some retired Chief Engineer and to be nominated by the General Project Manager. This suggestion was not acted upon. The General Project Manager even did not send any reply or intimation to the opposite party, or even to the Court that he was inclined to take up the arbitration. In the letter sent by the Additional Chief Engineer the opposite party was asked to send his acceptance of the General Manager to appoint the arbitrator as per his discretion. This indicates that instead of nominating one of the persons named in the letter dated 9-11-77, the General Manager wanted to nominate some other person of his choice. This would show that either the opposite party or the corporation did not agree in course of discussion to the arbitration by the General Project Manager and the negotiation centered round the question whether the General Project Manager should nominate one of the persons suggested by the contractor or nominate someone else of his own choice. This also indicates that the General Project Manager was reluctant to take up the responsibility imposed on him by the agreement. It is contended that sufficient time was not given to the General Project Manager for reply to the notice sent by the opposite party. The statutory time as provided in S. 8(1) is clear 15 days and unless action is taken within these 15 days, the court assumes jurisdiction to make the appointment. Notice was sent on 29-3-76 in the address of the General Project Manager. The corporation was also impleaded as a party through its General Project Manager in the court below. The opposite party also sent another letter on 9-11-77 to the General Project Manager. But at no stage the General Project Manager showed any inclination to take up the arbitration. Therefore, the question of time is of no consideration in this case.

14. The next question for consideration is whether after removal of the General Project Manager, any option is to be given to nominate another arbitrator by him. After the arbitrator is removed, the matter remains with the court and under Section 12 of the Act, either the court can appoint a new arbitrator or supersede the reference itself. The Court cannot surrender its power and delegate the same to an officer however highly placed he be-vide Mohinder Singh and Co. v. Union of India, AIR 1972 J and K 63. The same view has also been taken in the Union of India v. Mangaldas N. Varma, Bombay, AIR 1958 Mad 296 and AIR 1961 Pat 228 (referred to above). This Court was of the same view in the Civil Revisions and Misc. Appeals of Builders Union and Allied Construction, referred to above. In the case of Allied Construction, it has been held that the defendants having failed to make the appointment as contemplated under the arbitration clause, forfeited their right to claim that the dispute should be referred to the arbitrator to be appointed by the named authority. In the Builders Union case also the same view was taken.

15. In the case reported in 35 Cut LT 630 : (AIR 1969 Orissa 280) (referred to above), it was also held that 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 the 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. In the present case, no allegation has been made against the retired District Judge appointed by the Court that he is either biased or otherwise incompetent to deal with the matter and so the question of cancelling the appointment does not arise.

16. It is contended by Mr. Mohanty that the allegation of bias against the General Project Manager is vague and not tenable. The possibility of bias or apprehension thereof is enough to exclude a person from consideration.

17. From the total silence of the General Project Manager and his subsequent repudiation of the allegation of the opposite party in his notice, apprehension in the mind of the opposite party cannot be ruled out that the General Manager may not conduct himself impartially. Once such a situation is found, it is not necessary that the same arbitrator must be permitted to handle the proceeding. The Court cannot be said to be helpless in the matter. It has to meet the situation immediately in exercise of its inherent power vested in it for doing justice and to uphold fair play in judicial proceedings - vide State of Orissa v. Modern Construction Co., AIR 1972 Orissa 219. The Corporation has been impleaded in this case through its General Project Manager. But the General Project Manager by opposing the proceeding and disputing the claim has displayed an attitude which is enough to be said that he is biased and it would create an apprehension that he would not act justly and fairly in adjudicating the claims and disputes and will not act in a disinterested manner.

18. On the aforesaid analysis, I hold that the contentions raised by the petitioner fail and the revision is to be dismissed.

19. In the result, the revision is dismissed. In the circumstances of the case, I make no order as to costs.

20. Revision dismissed.