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Union Of India And Another v. M.P Gupta .
Factual and Procedural Background
The appellants and the respondent entered into a written contract on 17-8-1994 for the supply and stacking of hand-broken hard-stone ballast in connection with the JU-JSM Broad Gauge Conversion Project of Northern Railway. Clause 64 of the agreement contained an arbitration clause.
Disputes arose, prompting the respondent to file an application under Section 20 of the Arbitration Act, 1940 seeking appointment of an arbitrator in terms of Clause 64. A learned Single Judge of the High Court, by an ex parte order, appointed Justice P.K. Bahri as the sole arbitrator. The appellants’ intra-court appeal was dismissed by the Division Bench. The present appeal challenges those orders.
Legal Issues Presented
- Whether, in light of Clause 64 of the contract—which mandates that arbitration be conducted by two gazetted railway officers— the High Court could validly appoint Justice P.K. Bahri (a retired judge and not a gazetted railway officer) as the sole arbitrator.
Arguments of the Parties
Appellants' Arguments
- Clause 64(3)(a)(ii) and (iii) expressly require that disputes involving claims of ₹5,00,000 or more, or complicated issues, be referred to two arbitrators who are gazetted railway officers of equal status, failing which the matter is not to be referred to arbitration at all.
- Consequently, appointment of any person other than two gazetted railway officers violates the contractual arbitration mechanism, rendering the High Court’s appointment of Justice P.K. Bahri impermissible.
The opinion does not record specific arguments from the respondent.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court observed that Clause 64 of the agreement unequivocally stipulates that arbitration, where applicable, must be conducted by two gazetted railway officers of equal status. Sub-clause (iii) further adds that no person other than a gazetted railway officer may act as arbitrator or umpire, and if this is not possible, the dispute is not to be referred to arbitration at all.
Accepting the appellants’ contention, the Court held that the High Court’s appointment of Justice P.K. Bahri as sole arbitrator was contrary to the explicit contractual provision. On this narrow ground alone, the impugned orders were set aside insofar as they appointed Justice P.K. Bahri.
Holding and Implications
The appeal is allowed in part. The appointment of Justice P.K. Bahri as sole arbitrator is quashed. The appellants are directed to appoint two gazetted railway officers as arbitrators within 30 days; the arbitrators shall enter reference within a further month and deliver their award within three months thereafter. There is no order as to costs.
Implications are confined to the parties: arbitration must proceed strictly in accordance with Clause 64 of their contract, and a fresh arbitral tribunal is to be constituted. The opinion does not articulate broader legal repercussions.
Order
1. The appellants and the respondent herein entered into a written agreement on 17-8-1994 for execution of work for supplying and staking hand-broken (hard stone) ballast conforming to Northern Railway, Chief Engineer's Circular No. 170.P.Way along cess/toe from km 1/0 to km 50/0 and in ballast depot at Mandor as per Northern Railway Standard Specifications and Special Tender Conditions in connection with JU-JSM BG Conversion Project. It appears disputes and differences arose between the parties in relation thereto as a result whereof the respondent herein filed an application under Section 20 of the Arbitration Act, 1940 for appointment of the arbitrator in terms of clause 64 of the agreement. A learned Single Judge of the High Court allowed the said application and appointed Justice P.K Bahri as the sole arbitrator. It was an ex parte order. Aggrieved, the appellants preferred an appeal before the Division Bench of the High Court, which was dismissed. Against the said judgment and order, the appellants are in appeal before us.
2. Shri N.N Goswami, learned Senior Counsel appearing for the appellants urged that in view of clause 64 of the agreement which provides that only two gazetted railway officers of equal status are to be appointed as arbitrators, no person other than the two specified persons could be appointed as arbitrator. We find merit in this submission.
3. The relevant part of clause 64 runs as under:
“64. Demand for arbitration.—***
(3)(a)(ii) Two arbitrators who shall be gazetted railway officers of equal status to be appointed in the manner laid in clause 64(3)(b) for all claims of Rs 5,00,000 (Rupees five lakhs) and above, and for all claims irrespective of the amount or value of such claims if the issues involved are of a complicated nature. The General Manager shall be the sole judge to decide whether the issues involved are of a complicated nature or not. In the event of the two arbitrators being undecided in their opinions, the matter under dispute will be referred to an umpire to be appointed in the manner laid down in sub-clause (3)(b) for his decision.
(3)(a)(iii) It is a term of this contract that no person other than a gazetted railway officer should act as an arbitrator/umpire and if for any reason, that is not possible, the matter is not to be referred to arbitration at all.”
4. In view of the express provision contained therein that two gazetted railway officers shall be appointed as arbitrators, Justice P.K Bahri could not be appointed by the High Court as the sole arbitrator. On this short ground alone, the judgment and order under challenge to the extent it appoints Justice P.K Bahri as sole arbitrator is set aside. Within 30 days from today, the appellants herein shall appoint two gazetted railway officers as arbitrators. The two newly appointed arbitrators shall enter into reference within a period of another one month and thereafter the arbitrators shall make their award within a period of three months.
5. The appeal is allowed in part and to the extent indicated above. There shall be no order as to costs.
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