M.M Enterprisers v. Sachikant Routray And Ors.,

Dr. B.S Chauhan, C.J:— This application under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) for appointment of an arbitrator has been filed on 18.12.2007

2. The facts and circumstances giving rise to the case are that petitioner is a proprietorship firm and deals in the business of coal transportation by loading coal from Mahanadi Coal Fields Ltd. at Talcher and supplying the same at various places. Opposite party no. 2 entered into an agreement dated 26.09.2002 (Annexure 1) with the petitioner-applicant showing himself to be the representative of opposite party no. 1 for purchase of coal from the petitioner. The agreement also contained an arbitration clause. The said clause is set out below:

“Clause (h)—That in case of default by the second party in making payment to the first party and in case of default by the first party in supplying the coal to the second party or for any dispute arising thereof, the matter shall be referred to the sole arbitrator, namely, Mr. Dayanidhi Hota, former Registrar of Orissa High Court and Secretary to Government, Law Department having his residence at Sahid Nagar, Bhubaneswar.

Clause (i)—That the decision of the sole arbitrator shall be final and binding and the same cannot be challenged in any forum subject to the provisions of the Arbitration Act.”

3. Coal was purchased by opposite party no. 2, under the said agreement, however, payment was not made. Petitioner filed a Title Suit No. 423 of 2003 impleading opposite party nos. 1 and 2 for injuncting opposite party no. 1 for sale of bricks stacked in different kilns. Opposite party no. 1 had taken the defence that he had no knowledge of purchase of coal concerned and opposite party no. 2 had no authority to enter into an agreement on behalf of opposite party no. 1 as the opposite party no. 1 was the sole proprietor of concern. There may be misrepresentation by opposite party no. 2 for which opposite party no. 1 was not responsible. The court framed as many as ten issues and dismissed the suit on the ground and in view of the fact that the agreement contained an arbitration clause and, therefore, the suit was barred in view of Section 8 of the Act. This petition has been filed impleading all the necessary parties.

4. Sri Roy, learned counsel appearing for the applicant, submitted that there is an agreement in existence and it contains an arbitration clause. Notice was issued to the other parties. However, they have not appointed any arbitrator and, therefore, this court should appoint an arbitrator named in the agreement itself.

5. Opposite party no. 2 did not enter appearance in spite of notice. Opposite party nos. 1 and 3 have filed counter-affidavit taking the stand which had been taken by them before the civil court and denied any liability stating therein that they are in no way concerned with opposite party no. 2 so far as business is concerned. No power of attorney had ever been given to him to deal on behalf of the opposite party no. 1 and, therefore, they were not responsible as they are not parties to the agreement, they cannot be fastened with the liability of expenses before the arbitrator and of arbitration proceedings.

6. Ms. Mamata Tripathy entered appearance on behalf of opposite party no. 1.1 have considered the rival submissions made by the learned counsel for the parties.

7. Considered large number of documents filed by the parties. There is nothing on record to show that the opposite party no. 2 had any concern with the business of opposite party nos. 1 and 3. The opposite party no. 2 did not enter appearance in spite of notice and remains unrepresented. The stand taken by the opposite party nos. 1 and 3 had been the same which had been taken in the suit.

8. It is submitted by Ms. Mamata Tripathy that it was a agreement which had been entered into by opposite party no. 2 making a misrepresentation as the opposite party no. 1 had never authorized him to have any agreement so far as his business is concerned. There is no document on record to show otherwise.

9. In Rickmers Verwaltung Gmbh v. Indian Oil Corporation Ltd., (1999) 1 SCC 1 : AIR 1999 SC 504 : 1999 (1) Arb. LR 1 (SC) the Apex Court held that in order to make a reference to the arbitrator, the condition precedent is that there must be concluded and binding contract between the parties and in absence thereof the question of making reference to the arbitrator does not arise. The court held as under (para 13, p. 8 of Arb. LR):

“In this connection the cardinal principle to remember is that it is the duty of the court to construe correspondence with a view to arrive at a conclusion whether there was any meeting of mind between the parties, which could create a binding contract between them but the court is not empowered to create a contract for the parties by going outside the clear language used in the correspondence, except insofar as there are some appropriate implications of law to be drawn. Unless from the correspondence it can unequivocally and clearly emerge that the parties were ad idem on the terms, it cannot be said that an agreement had come into existence between them through correspondence. The court is required to review what the parties wrote and how they acted and from that material to infer whether the intention as expressed in the correspondence was to bring into existence a mutually binding contract. The intention of the parties is to be gathered only from the expressions used in the correspondence and the meaning it conveys and in case it shows that there had been meeting of mind between the parties and they had actually reached an agreement, upon all material terms, then and then alone can it be said that a binding contract was capable of being spelt out from the correspondence.”

10. The Constitution Bench of the Hon'ble Supreme Court in the case of S.B.P & Co. v. Patel Engineering Ltd., : AIR 2006 SC 450 : 2005 (3) Arb. LR 285 (SC) has elaborately dealt with the issue of powers of Chief Justice to appoint an arbitrator in a dispute where a party raises the grievance that he had never been a party to the agreement or likewise. The Apex Court held that while deciding such an issue under Section 11(6) of the Act, the Chief Justice or his designate has to decide whether there was an arbitration agreement, whether the applicant before him was a party to the agreement or whether the conditions for exercise of power had been fulfilled. The question in the context of sub-section (7) of Section 11 is, what is the scope of the right conferred on the arbitral tribunal to rule upon its own jurisdiction and the existence of the arbitration clause, envisaged by Section 16(1), once the Chief Justice or the person designated by him had appointed an arbitrator after satisfying himself that the conditions for the exercise of power to appoint an arbitrator are present in the case. Prima facie, it would be difficult to say that in spite of the finality conferred by sub-section (7) of Section 11 of the Act, to such a decision of the Chief Justice, the arbitral tribunal can still go behind that decision and rule on its own jurisdiction or on the existence of an arbitration clause.

11. The court held that on coming to a conclusion on these aspects, the Chief Justice has to enquire whether the conditions for exercise of his power under Section 11(6) of the Act exist in the case and only on being satisfied in that behalf, he could appoint an arbitrator or an arbitral tribunal on the basis of the request. When the party raises an objection that the conditions for exercise of the power under Section 11(6) of the Act are not fulfilled and the Chief Justice comes to the conclusion that they have been fulfilled, it is difficult to say that he was not adjudicating on a dispute between the parties and was merely passing an administrative order. Therefore, the order passed under the Act is a judicial order. An arbitration agreement was not merely a jurisdictional fact for commencing arbitration itself, but it was also a jurisdictional fact for appointing an arbitrator on a motion under Section 11(6) of the Act. The Chief Justice could appoint an arbitrator in exercise of his power only if there existed an arbitration agreement and without holding that there was an agreement, it would not be open to him to appoint an arbitrator saying that he was appointing an arbitrator since he has been moved in that behalf and the applicant before him asserts that there is an arbitration agreement. Therefore, the Chief Justice has to satisfy himself regarding the existence of the facts which alone would entitle him or enable him to accede to the request for appointment of an arbitrator and what was the nature of that process by which he came to the conclusion that an arbitral tribunal was liable to be constituted. In view of the above, I am of the considered opinion that since there is nothing on record to show the involvement of opposite party nos. 1 and 3 in the agreement and it was entered into only by opposite party no. 2, the petitioner may proceed only against the opposite party no. 2. Shri Dayanidhi Hota, former Registrar of Orissa High Court and Secretary to Government, Law Department is appointed as arbitrator.

12. The ARBP is accordingly disposed of.