The Judgment of the Court was delivered by

Surinder Singh Nijjar, C.J:— This Letters Patent appeal has been filed challenging the judgment of the learned Single Judge dated 18th of December, 2007 whereby the learned Single Judge rejected the challenge to the award on the ground of lack of jurisdiction of the arbitrator in making the arbitration award and accepting the challenge to the award of interest.

At the outset we may notice that the challenge to the judgment of the learned Single Judge is limited to the findings on the issue of jurisdiction of the Arbitrator based on Clause 63(3)(a)(iii) of the General Conditions that governs railway contract.

We may notice here the relevant facts as pleaded in the arbitration petition. A tender enquiry was floated inviting tenders from various job contractors for execution of various jobs relating to Eastern Railways. The respondent participated in the tender and was duly awarded the contract. The tender submitted by the respondent was accepted after negotiations. A formal agreement entered into between the parties on 2nd November, 2000. It is not disputed before us that the contract was governed by General Conditions of Contract, 1969 together with up to date correction slips. The contract specifically provided as follows:

“The Genl. Conditions of contract will mean the Genl. Conditions of contract as amended and or corrected from time to time as mentioned in clause 15 under condition of tender. It shall be the responsibility of the contractor before submitting his tender to ascertain all amendments and/or corrections made to the general conditions of contract.”

It appears that innumerable Correction slips have been issued by the Railway Authority which are deemed to be incorporated in terms of General Conditions of Contract, 1969.

It is not disputed before us that the total value of the job work/contract was Rs. 25,71,838.63/- and the stipulated period of completion was six months form the date of issue of letter of acceptance. The period of time was extended at the request of respondent. It is also claimed that respondent failed to complete the job work and, therefore, the petitioner was compelled to close the contract under Clause 60(1) of the General Condition of Contract, 1969 as amended and updated from time to time (herein after referred to as GCC). The petitioner claims that the respondent failed to participate in final measurement/assessment of the work and instead raised various false, fictitious claims. In spite of not completing the job the respondent made repeated claims for compensation on the ground of alleged loss suffered by it by reason of the wrongful closure of the contract by the petitioner. Disputes having arisen between the parties respondent demanded adjudication by arbitration in terms of Clauses 63 and 64 of the GCC. The petitioner declined to make the reference claiming that closure of contract under Clause 60(1) was within the “excepted matters.” The matters with regard to measurement issues fell within Clauses 45 and 45(a) of GCC and were also covered under “the excepted matters”.

The dispute not having been referred to arbitration by the petitioner, the respondent moved an application under Section 11 of the Arbitration and Conciliation Act, 1996 (1996 Act for short) in this Court for appointment of an Arbitrator. The arbitration petition was contested by the Railway Authority. By an order dated April 26, 2002, the application was allowed and the matter was referred to the Chief Justice for appointment of Arbitrator. By order dated September 26, 2002 the Chief Justice appointed Mr. S.K Ghosh, engineer, as Arbitrator.

Notice of appointment was given by the sole Arbitrator to both the parties by letter dated 3.10.2002 Statement of claim was filed before the Arbitrator by the respondent on 20.11.2002 Counter-statement of facts and counter-claim was duly filed by the appellant on 9.1.2003 In spite of the objection having been raised to the lack of jurisdiction, the Arbitrator continued with the proceedings and made an award on 30 of June, 2004.

The award was challenged by the Eastern Railways in a petition under Section 34 of the 1996 Act. The petitioner claims :

(1) The contract had been duly closed under Clause 60(1) of GCC.

(2) The issues with regard to measurement, Clauses 45 and 45A and closure, Clause 60, fell within the “excepted matters”. These are excluded from the purview of the arbitration proceedings.

(3) With regard to Quorum-Non-juris the grounds taken are as under :-

“(IX) For that Mr. S. K. Ghosh being the sole Arbitrator in the matter not being or having been a Gazetted Railway Officer the composition of the arbitral tribunal is bad.

(X) For that such an Arbitral Tribunal is non est in the eye of law since under the Arbitration Agreement in question no such dispute in such circumstances may be referred to arbitration at all.

(XI) For that this being essential a case of quorum non juris the purported award is a nullity for want of inherent lack of jurisdiction.”

In the affidavit-in-opposition the respondent has controverted the case pleaded by the appellant with regard to the ground of jurisdiction. It is stated that the ground of jurisdiction was rejected by the Arbitrator on due consideration. The respondent participated in the arbitration proceedings and also made a counterclaim. Therefore, they cannot be permitted to raise the issue of jurisdiction at this stage. It is stated in the affidavit-in-opposition that :

(1) In the counter-statement of facts, the petitioner alleged “that Clause 64(3)(a)(ii) provides for qualification of the Arbitrator and that he should be a “Gazetted Railway officer.” The Arbitrator not being a Gazetted Railway Officer, the Arbitral Tribunal was not properly constituted.

(2) “No point was taken by the petitioner regarding Clause 63(3)(a)(iii) of the General Conditions of Contract before the Learned Arbitrator as is sought to be alleged now. The petitioner did not file any application under Section 16 of the said Act challenging the composition of the Arbitral Tribunal and as such shall be deemed to have waived its right to object. In any event, the point raised by the petitioner in the Counter-Statement of Facts regarding Clause 63(3)(a)(ii) of the G.C.C has been considered by the learned Arbitrator by interpreting and construing the Clause 11(6), Clause 11(8)(a) and (b) along with it and the learned Arbitrator held that the Arbitral Tribunal was properly constituted.”

In the affidavit-in-reply it is stated that there was no arbitrable dispute and, moreover, the appointment was beyond the scope of GCC 1969 and the specific Clause contained being Clause 63(3)(a)(iii). The Arbitrator appointed beyond the scope of the agreement was a Quorum-Nonjuris. This preliminary objection was specifically raised before the Arbitrator. It was not decided by the Arbitrator on the ground that the Chief Justice had the discretionary power to appoint Arbitrator.

With these pleadings the matter came up before the learned Single Judge.

It was submitted before the learned Single Judge that Clause 2 of the tender form provides that the contract shall be governed by the GCC, 1969. The special conditions provide that the conditions of contract under which the contract is to be performed shall include the general conditions as a mandate from time to time. This was accepted by the contractor. The Arbitrator could only be appointed in terms of Clause 63(3)(a)(iii). This Clause provides that no person other than a Gazetted Railway Officer can act as an Arbitrator. In case it is not possible, the matter is not to be referred to arbitration at all. Since the Arbitrator has not been appointed in terms of this clause an objection was submitted in the counter-statement before the Arbitrator. However, due to a typographical error, Clause 63(3)(a)(ii) was printed instead of Clause 63(3)(a)(iii). Once the objection had been submitted, it was the duty of the Arbitrator to rule on its own jurisdiction under Section 16 sub-sections (3), (4) and (5) of the Arbitration Act, 1996.

It was also submitted that an objection was specifically taken that the arbitrator was quorum non juris even if the appointment of the Arbitrator was made by the Chief Justice under Section 11 of the Arbitration Act, 1996. The appointment could only be made by the Chief Justice having due regard to the qualifications required of the Arbitrator by the agreement of the parties.

It was further submitted that the objection with regard to the Arbitrator not possessing the necessary qualification was rejected on the ground that the appointment of only a Gazetted Railway Officer is not a qualification within the meaning of Section 11(8)(a) of the Act. It is a class of Railway Officer. The objection that as per the relevant clause only Gazetted Railway Officer is to be appointed as arbitrator, was wrongly rejected. The arbitrator wrongly concluded that if the appointing authority does not appoint an Arbitrator within 30 days from the date of demand, the right to appointment of arbitrator in terms of the relevant arbitration clause is forfeited once for ever.

Upon hearing the learned counsel, learned Single Judge has been pleased to hold that there is a substantial confusion created by the petitioner in its reliance on certain clauses of the General Conditions. The clauses referred to before the Arbitrator in the counter-statement appeared to be completely inapposite. “It does not appear that some of the clauses referred to bear any typographical mistake as the same reference is found in the minutes of the proceedings held before the Arbitrator and in the award.” Learned Single Judge made a reference to the counter-statement filed by the appellant before the Arbitrator wherein the objection with regard to jurisdiction was taken as follows :-

“Para A-1: Arbitral jurisdiction is governed by arbitral agreement as per section 28 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘Act’) and such agreement exists in the present case as per the contract. The General Condition of Contract of Eastern Railway of 1969, subsequently updated and published during 2001 (hereinafter referred to as the ‘GCC’) forms integral part of the contract. The arbitral agreement is detailed under clause 63 and 64 of the said GCC. The Claimant was required to submit details of his disputes/claims for consideration of the Respondent within 120 days of such submission before formally demanding appointment of arbitrator from the General Manager of the Eastern Railway as per clause 64(1)(i) of the said GCC. However, the Claimant approached the Hon'ble Calcutta High Court for appointment of arbitrator under section 11 of the said Act. Consequently, you, the Learned Arbitrator, were appointed as the Sole Arbitrator by the Court in contravention of the arbitral agreement and in contravention of section (s) 11(2), 11(6)(a) and 8 of the said Act. Moreover, since the claim amount in the present case is more than Rs. 10 lakh, a panel of arbitrators should have been appointed as per clause 64(3)(a)(ii) of the said GCC and section 10 of the said Act. However, you have been appointed as the Sole Arbitrator in contravention to the above. Similarly, the arbitral agreement provides for qualification of arbitrator as per clause 64(3)(a)(ii) of the said GCC but you do not possess such qualification. The Court did not consider this in contravention of section 11(8) of the said Act, while appointing you, the Learned Arbitrator. In view of above, your appointment is illegal and you are, therefore, requested to adjudicate on the above issues under section 12 of the said Act.”

The learned Single Judge also observed as follows:-

“……the railways referred to the updated version of the 1969 edition of the GCC and cited Clauses 64(1)(i) and 64(3)(a)(ii) of the GCC in objecting to the Arbitrator appointed by the Chief Justice taking up the reference. It also appears from some of the minutes before the Arbitrator, that it was 64(3)(a)(ii) that was pressed. There is a serious departure from the clause referred to in the counter-statement and the clause now relied upon at paragraph 43 of the petition which reads as follows :-

“43. Your petitioner states that contends that composition of the purported Arbitral Trial was not in accordance with the Arbitration Agreement of the parties. The Arbitration Agreement incorporated in Clause 63 of the General Conditions of Contract expressly provides, inter alia, as follows :-

“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…..”

(It is of some significance that there is an overwriting in the petition and what was originally printed as clause 64 has later been corrected by hand to clause 63.)”

The learned Single Judge also appreciated the nature of the challenge made by the petitioner in the counter-statement before the Arbitrator in the following words:-

“It is first required to appreciate the nature of the challenge made by the petitioner before the arbitrator. The first assertion in paragraph A-1 of the counter-statement is the expression of a legal principle and is irrelevant. The next assertion is that the GCC of 1969 was updated in 2001 and contained the arbitration agreement, and the procedure to be followed, in clauses 63 and 64 of the updated GCC. The petitioner then suggested that the contractor was required to submit its claims to the railways and wait for a period of 120 days before seeking the appointment of an arbitrator from the general manager of the Eastern Railway. The railways urged that the contractor approached the High Court for appointment of an arbitrator under Section 11 without following the procedure laid down in clauses 63 and 64, as a consequence whereof the appointment of the arbitrator in such proceedings was in contravention of Sections 11(2), 11(6)(a) and 8 of the Act. The next ground of protest was that since the claim exceeded Rs. 10 lakh, a panel of arbitrators should have been appointed in terms of clause 64(3)(a)(ii) of the GCC and Section 10 of the Act. The final ground of challenge was that the arbitral agreement provided for the qualification of an arbitrator in terms of clause 64(3)(a)(ii) but the Court was unmindful of Section 11(8) of the Act in making the appointment. On such grounds it was urged that the appointment was illegal and the arbitrator was requested to adjudicate on the above issues under Section 12 of the Act.”

The learned Single Judge upon consideration of the entire matter observed as follows:-

“……the principle challenge now put forth under Clause 63(3)(a)(iii) did not find mention in the counter-statement at all. Even if the technicality is overlooked, it is evident form the counter-statement that the ground of challenge now being canvassed was not urged before the arbitrator.

…… …… …… …… …… ……… …… …… ……

The point as to complete lack of jurisdiction was not urged and in spite of the challenge to the Arbitrator's authority on the grounds of irregularity, the railways unreservedly pressed a counter claim.”

The learned Single Judge also noticed that the Arbitrator had rejected the objection with regard to lack of qualification based on Clause 64(3)(a)(ii) of the General Conditions of Contract with the observation:-

“……that in making appointment, the Hon'ble Chief Justice had to keep into consideration fundamental aspect of independent and impartial Arbitrator and that apart the description of the person as gazetted railway officer is not a qualification.”

Learned Single Judge held that if the arbitrator's authority was questioned on the point of complete lack of jurisdiction, the petitioner's subsequent participation in the reference may have been irrelevant. Learned Single Judge further held that since the objection was not made, arbitration jurisdiction being consensual, the initial lack can subsequently be made good by conduct amounting to acceptance or acquiescence. The petitioner not having pressed the objection with regard quorum non juris, consented to the arbitration, waiving to its objection as to qualification. The learned Single Judge also observed that the objection raised in the counter-statement shows that the challenge to the authority of the Arbitrator was only under Section 12 and not as to the existence of the arbitration agreement under Section 16. The objection that the arbitration agreement stood extinguished was not an assertion that could be culled out from the counter-statement even if it were to be generously read. The learned Single Judge held that the judgments cited by the petitioner were of no assistance.

These findings of the learned Single Judge are challenged by the Railway Authorities in the instant Letters Patent Appeal.

We have heard the learned counsel for the parties. Mr. Pradip Dutta, learned senior counsel for the appellant, submits that the arbitration clause is specific as to who can be appointed as arbitrator. The Learned counsel further submits that the learned Single Judge has proceeded on the basis that the objection with regard to the arbitrator being quorum non juris was not raised before the arbitrator. The learned Single Judge has also erred in proceeding on the basis that there was confusion in the pleading of the appellant. Even otherwise the objection with regard to the jurisdiction of the arbitrator goes to the root of the matter. It can even be raised for the first time in a petition under Section 34 for setting aside the arbitral award. The learned Single Judge erred in law in rejecting the objections of the appellant on the ground of acquiescence and waiver.

In support of these submissions, the learned counsel relies on the following judgments of the Supreme Court in the case of Union of Indian v. Krishna Kumar [Civil Appeal No. 6324 of 2004 decided on 19.7.2007] Union of India v. M.P Gupta [2004 (10) SCC 504], Union of India v. Sohan Lal Puglia [(2004) 1 SCC 768]; and A. Mohammad Yunus (dead) by LRs v. Food Corporation of India [(2000) 7 SCC 722].

On the other hand, Mr. Basu, learned counsel appearing for the respondent i.e the contractor submitted that the contractor submitted a claim for compensation on 20 June, 2001. Since no action was taken by the appellant, a demand was made through letter dated 1.8.2001 for reference of disputes for adjudication as per provisions of GCC, 1969. This letter was received by the appellant on 5.8.2001 No steps were taken by the appellant for reference of the disputes to the arbitrator. Therefore, on 19.9.2001, the respondent moved the necessary application under Section 11(6) of the Act of 1996. The only objection raised by the appellant before the learned Single Judge was that this court had no jurisdiction to receive, try and determine the application because the cause of action arose wholly outside the jurisdiction of this court. This objection was rejected by order dated 26.4.2002 Thereafter the matter was placed before the Chief Justice for appointment of an arbitrator. By order dated 26.9.2002, the Chief Justice appointed S.K Ghosh, an engineer as the arbitrator. In the counter-statement of facts, the appellant challenged the appointment of arbitrator on only two grounds, namely, 1) Panel of arbitrators should have been appointed, 2) arbitrator does not possess the necessary qualification. This objection was on the basis of Clause 64(3)(a)(ii) of GCC. No objection was raised that the arbitrator has not been appointed in terms of Clause 63(3)(a)(iii). Even otherwise, the appellant vigorously participated in the arbitration proceedings even a counter claim was submitted and adjudicated. Therefore, the appellant had clearly waived the objection with regard to the competence of the arbitrator. It is also submitted that the appellant not having exercised his rights to appoint the arbitrator within 30 days has forfeited its right to appoint an arbitrator in terms of the agreement. When an appointment is made by the Chief Justice, only the provisions of Section 11(8) are to be given due regard to.

In support of these submissions the learned counsel relies upon the following judgments:-

(1) Datar Switchgears Ltd. v. Tata Finance Ltd. [(2008) 8 SCC 151]

(2) Punj Lloyd Ltd. v. Petronet Mhb Ltd.(2006) 2 SCC 638

(3) Union Of India v. Bharat Battery Manufacturing Co. (P) Ltd.(2007) 7 SCC 684

(4) Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company Limited [(2008) 10 SCC 240

(5) The State of Karnataka v. Ranganatha Reddy [AIR 1978 SC 215]

We have considered the submissions made by the learned counsel for the parties.

We may now examine the ratio of law laid down in the judgments cited by the learned counsel for the parties.

In Krishna Kumar case (supra) the petitioner challenged the arbitral tribunal under Section 12(3)(b) of the Act on the ground that the arbitral tribunal, did not posses the qualification agreed to between the parties. This objection was rejected by the Arbitrator. The Arbitrator after holding 40 sittings, made the award. The award was challenged in the petition under Section 34 of the Act. The petition was allowed by the learned Single Judge. The award was set aside. It was observed as follows: -

“……The question now is whether the objection to the competence of the arbitral tribunal goes to the root of the matter. If it does, the award cannot be allowed to prevail. If it does not, the award should be allowed to stand...

……….. ……….. ……… ……… ……… ………. ……..

…I am of the view that the attention of the learned Chief Justice was not drawn to the qualification of the arbitrator laid down in the agreement between the parties and the arbitrator deliberately refused to take notice of the same when an application under Section 12(3)(b) of the Act was moved before him.

In the case of Rahcassi Shipping Co. S.A v. Blue Star Line Ltd. reported in 1967 (3) All E R 301 question arose whether an award passed by a lawyer could be allowed to prevail when the arbitration agreement between the parties provided that the arbitrator or the Umpire would be a commercial man and not a lawyer. To be precise, the relevant portion of the arbitration agreement which fell for decision in that case was “arbitrators and Umpire shall be commercial men and not lawyers”. Inspite of this, provision of the agreement a lawyer was appointed to act as the Umpire by the arbitrators. It was held “think that what happened here, arising through a regrettable and understandable, oversight in complete good faith by everyone concerned, vitiated Mr. LLOYD's original appointment, and that once Mr. LLOYD's original appointment had been wrongly made the error in the appointment had been wrongly made the error in the appointment of Mr. LLOYD cannot subsequently be cured by the subsequent appearances before him”.

This is a question of competence of the forum. If the forum is incompetent then it has no jurisdiction to decide the matter and this will go to the root of the matter. It is well settled that “even a right decision by a ‘wrong’ forum is no decision”. Reference may be made to the case of Pandurang v. State of Maharashtra, reported in (1986) 4 SCC 436.

For these reasons, the award cannot be sustained and is accordingly set aside………….”

This judgment was challenged before the Division Bench in appeal. It was allowed with the following observations:-

“With regard to the other contention as regards the meaning of the word qualification, we find that anything which qualifies a person is his qualification. In view of the factual background of the present case in the agreement between the parties when it is stated that the arbitrator must be a gazetted railway officer, it appears to be a qualification of the Arbitrator which was agreed to between the parties. We do not find any reason for accepting the contention of the appellant that the word qualification restricted only to the academic or professional qualification. A designation also can be a qualification of an Arbitrator. The same is the position with regard to pay scale. We also find that in a given case there can be reason for prescribing a designation of the Arbitrator particularly when dispute required to be resolved by such Arbitrator and involves an authority of the same organization and it is required to ensure that the Arbitrator should be a higher authority. We also take note of the fact that dictionary meaning of the word ‘qualification’ includes a standard necessary to do a job. Designation being one of such standard also come within the qualification. Therefore, the expression gazetted railway officer, in our opinion, is a qualification which the parties agreed to, as a requirement for an arbitrator. In view of such findings, the appellant's contention is not accepted.

But as we have already held hereinabove that the Hon'ble Chief Justice is not bound strictly to appoint an Arbitrator who must have a qualification as agreed to between the parties, and therefore, the learned Arbitrator appointed by the Hon'ble Chief Justice though is not having the said qualification, but his appointment has not been rendered invalid thereby.”

The Division Bench judgment was challenged before the Supreme Court. The appeal was allowed on 19.07.2007 with the observations that the matter was squarely covered by an earlier judgment of the Supreme Court in the case of Union of Indian v. M.P Gupta (supra). In M.P Gupta's case (supra), the Supreme Court considered the relevant arbitration clause. It was held that in view of the said clause, Justice P. K. Bahri could not have been appointed as the sole arbitrator. A direction was issued to appoint two Gazetted Railway Officers as arbitrators. In the case of A. Mohammad Yunus (supra), the Supreme Court has held that recourse to arbitration cannot be taken contrary to the agreed stipulation contained in the agreement between the parties. The Supreme Court was considering Clause 19 of the arbitration agreement. It was the admitted case of the parties that no arbitrator had been appointed in terms of the agreement. The Supreme Court, therefore, held that the award made in such circumstances, was by “a quorum-non-juris”. In the case of Sohan Lal Puglia (supra), the parties were directed to appoint arbitrator in terms of the arbitration agreement. From the above it appears that the objection with regard to the lack of jurisdiction cannot be cured by subsequent participation in the proceedings by the party taking the objection.

On the other hand, in Datar Switchgears Ltd. (supra), paras 19 & 20 it is clearly laid down that a party forfeits its right to appoint an Arbitrator in terms of agreement, upon an application being made under Section 11(6). But a party can still appoint in terms of the agreement, after thirty days, prior to the filing of application under Section 11(6).

In Punj Lloyd Ltd. (supra) (three-Judges), it was observed that “Admittedly, even till the date of moving of the application, the respondent had not made appointment consistently with the arbitration clause. The learned Judge designated by the Chief Justice of the High Court refused to appoint the arbitrator holding that the only remedy available to the appellant was to move in accordance with clause 14.1 abovesaid, whereupon the Functional Director would adjudicate upon the disputes as sole arbitrator.”

Clauses 14.1 to 14.4 of the contract were as under :-

“14.1 Disputes or differences arising out of or in relation to agreement/contract shall be referred to the Functional Director of the owner who may either act himself as sole arbitrator or nominate some officer of the owner to act as an arbitrator to adjudicate the disputes and differences between the parties (except those in respect of which the decision of any person is by the contract expressed to be final and binding).

14.2 The contractor shall not be entitled to raise any objection to the appointment of such officer of the owner as the sole arbitrator on the ground that the said officer is an officer of the owner or that he/she has to deal or dealt with the matter to which the contract relates or that in the course of duties as an officer of the owner he/she has/had expressed views on all or any of the matters in dispute or difference.

4.3 In the event of the arbitrator to whom the matter is originally referred to is transferred or vacates office, the Functional Director, aforesaid, shall nominate another officer of the owner to act as arbitrator.

14.4 Such officer nominated as sole arbitrator shall be entitled to proceed with the arbitration from the stage at which it was left by the predecessor. It is the term of this contract that no person other than the Functional Director or a person nominated by Functional Director of the owner shall act as arbitrator.”

In view of these Clauses the Supreme Court held:-

“5. Having heard the learned counsel for the parties, we are satisfied that the appeal deserves to be allowed. The learned counsel for the appellant has placed reliance on the law laid down by this Court in the case of Datar Switchgears Ltd. v. Tata Finance Ltd. [(2000) 8 SCC 151 (SCC p. 158, para 19) wherein this Court has held as under :

“[S]o 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 30 days of the demand, the right to appointment does not get automatically forfeited after 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.”

6. The case at hand is squarely covered by the abovesaid view of the law taken by this Court. The learned designated Judge of the High Court, as also the Division Bench were not right in taking a contrary view.”

In Bharat Battery Manufacturing Co. (P) Ltd. (supra) the Supreme Court was considering the following facts :-

“7. Having stated the brief facts in a nutshell, we may now note a few important dates, which are relevant for the purpose of proper adjudication of the present controversy:

(a) Notices of appointment of arbitrator were issued on 7-6-2005 and 2-1-2006 respectively, which were duly received by the appellant with acknowledgement.

(b) The appellant failed to appoint an arbitrator within 30 days from the date of receipt of request to do so from the respondent.

(c) On 30-3-2006, the respondent filed Section 11(6) petition before the High Court.

(d) The High Court, by the impugned order dated 26-5-2006, appointed Justice K.S Gupta, a retired Judge, Delhi High Court, as an arbitrator.

(e) On 15-5-2006, the appellant is said to have appointed one Dr. Gita Rawat as a sole arbitrator, purportedly in terms of Clause 24 of the agreement.”

In these facts Supreme Court held :-

9. We are unable to countenance the submission of the learned counsel for the appellant. Section 11(8) of the Act could have come to the aid of the appellant had the appellant appointed the arbitrator within 30 days from the date of receipt of request to do so from the respondent or the extended time, as the case may be. In the present case, as noticed above, Section 11(6) petition was filed on 30-3-2006 by the respondent. The appellant stated to have appointed one Dr. Gita Rawat on 15-5-2006 i.e after Section 11(6) petition was filed by the respondent on 30-3-2006, which is not permissible in law. In other words, the appellants are stopped from making an appointment of the arbitrator in terms of Clause 24 of the agreement after Section 11(6) petition is filed by the respondent. Once Section 11(6) petition is filed before the court, seeking appointment of an arbitrator, the power to appoint an arbitrator in terms of arbitration clause of the agreement ceases.”

Judgment in the case of M.P Gupta (supra) was distinguished on the ground that Justice P. K. Bahri has been appointed before the application was made under Section 11(6). The law laid down in Datar Switchgears Ltd. and Punj Lloyd Ltd. (supra) is reiterated in the following words :-

“12………..As already noticed, the respondent filed Section 11(6) petition on 30-3-2006 seeking appointment of an arbitrator. The appellant, thereafter, said to have appointed one Dr. Gita Rawat on 15-5-2006 as a sole arbitrator, purportedly in terms of Clause 24 of the agreement. Once a party files an application under Section 11(6) of the Act, the other party extinguishes its right to appoint an arbitrator in terms of the clause of the agreement thereafter. The right to appoint arbitrator under the clause of agreement ceases after Section 11(6) petition has been filed by the other party before the Court seeking appointment of an arbitrator.”

In Northern Railway Administration, Ministry of Railway, New Delhi, (supra) (Three Judges) the matter was placed before the Bench, in view of conflict between two decisions of the Supreme Court in the cases of Ace Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corpn. Ltd.. [(2007) 5 SCC 304] and Bharat Battery Manufacturing Co. (P) Ltd. (supra).

Since the ratio in Bharat Battery Manufacturing Co. (P) Ltd. (supra) has already been noticed earlier, we may extract here the law laid down by the Supreme Court in Ace Pipeline Contractors Pvt. Ltd. (supra).

In this case the Supreme Court considered the scope and ambit of the power of Section 11(6) and held as follows:

“18. In this connection a reference may also be made to a decision of this Court in Union of India v. M.P Gupta [(2004) 10 SCC 504]. In that case, arbitrator was appointed by the High Court directly, a judge of the High Court because no arbitrator was appointed by the Railway Authorities as per clause 64 of their agreement. Their Lordships after considering the matter observed that the appointment of arbitrator by the High Court under Section 20 of the Arbitration Act, 1940 cannot be upheld in view of clause 64 of the agreement because as per clause 64 of the agreement, two arbitrators have to be appointed who should be gazetted railway officers. Therefore, as per the terms of the agreement their Lordships held that the appointment of arbitrator by the High Court was not correct and set aside the order and directed the Railways to appoint arbitrators within 30 days.

19. Similar issue came up before this Court in Union of India v. V.S Engg. (P) Ltd [(2006) 12 Scale 144]. This Court after considering the decision in Union of India v. M. P. Gupta [(2004) 10 SCC 504] and Datar Switchgears Ltd [Datar Switchgears Ltd v. Tata Finance Ltd. [(2000) 8 SCC 151] directed that as per clauses 63 and 64 of the General Clauses of the Contract, only two gazetted officers of the Railways have to be appointed as arbitrators. However, it was observed that failure on the part of the Department to take a decision for appointment of arbitrators would not defeat the right of the party to approach the High Court for appointment of arbitrator. Direction was given to the Department for appointment of arbitrators within 30 days.

20. It may also not be out of place to mention that we are aware of the departmental lethargy in making appointment of arbitrators in terms of the arbitration clause. Therefore, mandamus can be issued by the courts in exercise of powers under Section 11(6) of the Act but the demand should be in the event of failure by the authorities to appoint arbitrators within the reasonable time. Courts are not powerless to issue mandamus to the authorities to appoint arbitrators as far as possible as per the arbitration clause. But in large number of cases if it is found that it would not be conducive in the interest of parties or for any other reasons to be recorded in writing, choice can go beyond the designated persons or institutions in appropriate cases. But it should normally be adhered to the terms of arbitration clause and appoint the arbitrator/arbitrators named therein except in exceptional cases for reasons to be recorded or where both parties agree for common name.

21. In the present case, in fact the appellant's demand was to get some retired Judge of the Supreme Court to be appointed as arbitrator on the ground that if any person nominated in the arbitration clause is appointed, then it may suffer from bias or the arbitrator may not be impartial or independent in taking decision. Once a party has entered into an agreement with eyes wide open it cannot wriggle out of the situation that if any person of the respondent BPCL is appointed as arbitrator he will not be impartial or objective. However, if the appellant feels that the arbitrator has not acted independently or impartially, or he has suffered from any bias, it will always be open to the party to make an application under Section 34 of the Act to set aside the award on the ground that arbitrator acted with bias or malice in law or fact.”

The Supreme Court in the case of Northern Railway Administration, Ministry of Railway, New Delhi, (supra) has interpreted the various provisions in Sections 11(6) and 11(8) as follows :-

10. The crucial sub-sections are sub-sections (2), (3), (4), (5) and (6). Sub-sections (3) to (5) refer to cases where there is no agreed procedure. Sub-section (2) provides that subject to sub-section (6) the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. Sub-section (6) sets out the contingencies when party may request the Chief Justice or any person or institution designated by him to take necessary measures unless the agreement on the appointment procedure provides other means for securing the appointment. The contingencies contemplated in subsection (6) statutorily are : (i) a party fails to act as required under agreed procedure; or (ii) the parties or the two appointed arbitrators fail to reach an agreement expected of them under that procedure; or (iii) a person including an institution fails to perform any function entrusted to him or it under the procedure. In other words, the third contingency does not relate to the parties to the agreement or the appointed arbitrators.

11. The crucial expression in sub-section (6) is “a party may request the Chief Justice or any person or institution designated by him to take the necessary measure”(underlined for emphasis). This expression has to be read along with requirement in sub-section (8) that the Chief Justice or the person or an institution designated by him in appointing an arbitrator shall have “due regard” to the two cumulative conditions relating to qualifications and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.

12. A bare reading of the scheme of Section 11 shows that the emphasis is on the terms of the agreement being adhered to and/or given effect as closely as possible. In other words, the Court may ask to do what has not been done. The Court must first ensure that the remedies provided for are exhausted. It is true as contended by Mr. Desai, that it is not mandatory for the Chief Justice or any person or institution designated by him to appoint the named arbitrator or arbitrators. But at the same time, due regard has to be given to the qualifications required by the agreement and other considerations.

13. The expression “due regard” means that proper attention to several circumstances have been focused. The expression “necessary” as a general rule can be broadly stated to be those things which are reasonably required to be done or legally ancillary to the accomplishment of the intended act. Necessary measures can be stated to be the reasonable steps required to be taken.

14. In all these cases at hand the High Court does not appear to have focused on the requirement to have due regard to the qualifications required by the agreement or other considerations necessary to secure the appointment of an independent and impartial arbitrator. It needs no reiteration that appointment of the arbitrator or arbitrators named in the arbitration agreement is not a must, but while making the appointment the twin requirements of sub-section (8) of Section 11 have to be kept in view considered and taken into account. If it is not done, the appointment becomes vulnerable. In the circumstances, we set aside the appointment made in each case, remit the matters to the High Court to make fresh appointments keeping in view the parameters indicated above.”

Thus, it would appear that the law laid down in Ace Pipeline Contractors Pvt. Ltd. (supra) has been reiterated, with slight modification.

From the above it becomes clear that the Chief Justice can ask the parties to comply with the procedure. But the Chief Justice is not bound to appoint any named Arbitrator. However, under Section 11(8) the appointment shall be made having due regard to the requirements of the arbitration agreement.

In the present case, the appellant had failed to act as required under the arbitration clause. Thus, a clear issue would arise under section 11(6)(a) of the Act. Therefore, the Chief Justice made the appointment of the arbitrator on the application made by the respondents. However, one Mr. S.K Ghosh was appointed the sole arbitrator. He was an engineer but was not a Gazetted Railway Officer. Therefore, the appointment had not been made in terms of the arbitration clause. The claim of the party was in excess of Rs. 10 lacs and, therefore, in terms of Clause 63(3)(a)(ii) two arbitrators who are Gazetted Railway Officers of equal status had to be appointed. The appointment of Mr. Ghosh was, therefore, contrary to clause 63(3)(a)(ii). The necessary objection had been taken, in substance, before the arbitrator in paragraph A(1) of the counter-statement filed by the appellant, although the relevant clause may have been wrongly quoted. The relevant paragraph has been extracted in the earlier part of the judgment. This objection was rejected by the arbitrator with the following observations:

“In the said Counter-statement of Facts, the Respondent contended that appointment of arbitrator in the instant case has been made in contravention of the relevant arbitration clause contained in the agreement and also in contravention of various sub-sections of Arbitration and Conciliation Act, 1996.

It was further contended by the Respondent that the Arbitrator in the instant case does not possess such qualification as required in terms of clause 64(3)(a)(ii) of the relevant GCC and the Hon'ble Court did not consider this aspect at the time of appointing arbitrator. According for the reasons as aforesaid.

The Claimant however, vehemently protested the contentions of the Respondent that the appointment of Arbitrator in the instant case was bad. It was asserted further by the Claimant that as no appointment was made by the General Manager of the Respondent, the Claimant had rightly made an application under Section 11 of the Arbitration and Conciliation Act, 1996 in the Hon'ble Calcutta High Court. As the Respondent lost its right to appoint arbitrator, Hon'ble Calcutta High Court rightly appointed arbitrator. Be it noted herein that the very fact that no appointment of Arbitrator was made by the Respondent before the application was filed nor before naming the arbitrator by the Hon'ble Calcutta High Court.

The aspect as to legality of appointment of Arbitrator in the instant case had been argued by the parties at length. Having considered the rival contentions of the parties, I am of the view that in making appointment, the Hon'ble Chief Justice had to keep into consideration, the fundamental aspect of independent and impartial arbitrator and that apart the description of the persons as Gazetted Railway Officer is not a qualification. It is a class of Railway Officer. It is not a qualification within the meaning of Section 11(8)(a) of Arbitration and Conciliation Act, 1996 (hereinafter 1996 Act). In any event, as I find, it is a discretionary power of the Chief Justice and he has exercise that power. According to me, the Chief Justice appointed a competent, independent and Impartial Arbitrator and there is total compliance of Sub-section 8 of Section 11 of 1996 Act.

The Respondent has raised a point before the Arbitrator that as per Clause 64 and Sub-Clauses thereunder of the Railway's Conditions of Contract, only Gazetted Railway Officers are to be appointed as the Arbitrator and according to the Respondents that being not done by the Hon'ble Chief Justice, there has been a violation of the condition of contract and the appointment of arbitrator is not proper, without jurisdiction an there is no valid reference.

In this context, it is of much relevance to note that the Hon'ble Supreme Court has already held that if the appointing authority do not appoint an arbitrator within 30 days from the date of demand, his right to appointment continues, if no application U/S. 11(6) has been filed by the other party. It has also been held by the Hon'ble Supreme Court that in the event the other party filed an application in the Hon'ble Court after expiry of 30 days then the right to make appointment of arbitrator in terms of the relevant arbitration clause is forfeited once for ever. In the instant case, the General Manager did not appoint Arbitrator within 30 days. The General Manager did not appoint arbitrator before the claimant filed the application in the Hon'ble High Court. Once the right of the General Manager is forfeited to make appointment, question of appointment of any Gazetted Officer of the Railway did not arise. As regards respondent's contention that appointment or Arbitrator was required to be made after 120 days of raising the claims and demand to be made within 60 days thereafter, Section 11(6)(b) of the 1996 Act is silent.

It is thus clear that while exercising the power under Section 11 of the Act, the Hon'ble Chief Justice is not required to decide the merit of the case as the Hon'ble Chief Justice is to discharge administrative function only in making the reference to arbitrator by selecting an arbitrator. The Hon'ble Chief Justice is required to take into consideration competence of the arbitrator to be nominated by him pursuant to the following:

“Any qualification required of the Arbitrator by the agreement of the parties and (b) other considerations as are likely to secure the appointment of an independent and impartial Arbitrator”.

Therefore, in making appointment, the Hon'ble Chief Justice had considered the fundamental aspect of independent and impartial arbitrator and the aspect as to the qualification in terms of the sub-clauses of Section 11 of 1996 Act has also been kept in view. In my view, appointment of Arbitrator in the instant case has rightly been made and there is no violation of either the arbitration clause contained in the contract or laws of the land.”

In our opinion, the aforesaid observations of the arbitrator leave no manner of doubt that all relevant objections with regard to appointment of the arbitrator being contrary to the arbitration clause had been taken. The arbitrator was fully aware that the authority of the arbitrator had been challenged on the ground of being Quorum-Non-juris. The arbitrator elaborately considered the issues and concluded that the appellant having failed to appoint the arbitrator within 30 days, “the right to make appointment in terms of relevant arbitration clause is forfeited once for ever”.

It was further held by the arbitrator that the term, “Gazetted Railway Officer”, occurring in the relevant clause of the arbitration agreement is not a qualification. It is a class of Railway Officer. It is not a qualification within the meaning of Section 11(8)(a) of the 1996 Act.

These findings of the Arbitrator are contrary to the law laid down by the Supreme Court in the case of Krishna Kumar (supra). In that case a retired Judge of this Court had been appointed as the sole Arbitrator. The arbitration clause provided that in claims more than 5 lakhs, the claims shall be adjudicated by two Arbitrators. It was also provided that no person other than a Gazetted Railway Officer should act as an Arbitrator/umpire. Taking note of this provision the learned Single Judge had concluded that the Arbitrator appointed by this Court did not possess the necessary qualifications. In appeal, the Division Bench clearly observed that a designation also can be a qualification of an Arbitrator. Therefore, the expression “Gazetted Railway Officer” is a qualification which could be prescribed as a requirement for an Arbitrator. The award was, however, upheld by the Division Bench on the basis that the Chief Justice was not bound strictly to appoint an Arbitrator who must have a qualification as agreed between the parties. It was held that even though the Arbitrator appointed by the Chief Justice did not have the qualification as agreed between the parties, his appointment has not been rendered invalid thereby. This finding of the Division Bench was set aside by the Supreme Court upon consideration of the relevant arbitration clauses. The Supreme Court held that the matter was squarely covered by the three-Judge Bench in the case of M.P Gupta (supra). The Supreme Court in Krishna Kumar case (supra) relied upon the observations contained in paragraph 4 of the judgment inM.P Gupta's case (supra) which are as follows :

“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.”

In the present case it is not disputed before us that under the relevant arbitration clause, two Arbitrators had to be appointed, both of whom were to be ‘Gazetted Railway Officers’. In view of the law laid down by the Supreme Court in Krishna Kumar's case (supra), the appointment of S. K. Ghosh was, therefore, clearly illegal.

The other objection raised by the appellants with regard to the qualification of the arbitrator in terms of the contract to be only that of a ‘gazetted railway officer’ on the basis of clause 63(3)(a)(iii), does find mention, in substance, in the counter-statement, although it makes a reference to clause 63(3)(a)(ii). In our opinion, the appellant clearly intended to take the objection on the basis of clause 63(3)(a)(iii), which was wrongly printed as 63(3)(a)(ii) in the counter-statement. It appears that Clause 63(3)(a)(iii) was incorporated in the GCC on 30 of March 1985 through Amendment and Correction Slip No. 29.

On 30 March, 1985, Addendum & Corrigendum Slip No. 29 provided as follows:

“Following sub-clause in the existing clause no. 63 of the General Conditions of Contracts, is added, as Clause 3(a)(iii) The existing clause 3(a)(iii) is renumbered as clause 3(a)(iv)

Clause 3(a)(iii)

‘it is a term of this contract that no person other than a Gazetted Railway Officer appointed by the General Manager as aforesaid, 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’.

Authority:- Board's letter No. 84.W1.CT/12-P dt. 30.3.85”

This was corrected by Addendum and Corrigendum Slip No. 31 dated 29 May, 1985 as follows:

“it has been decided by the Board that the words ‘appointed by the General Manager as aforesaid’ appearing in Sub Clause No. 63(3)(a)(iii) contained in the Addendum and Corrigendum Slip No. 29 to the Eastern Railway Engineering Department's Hand Book of ‘G.C.C & S.S (1969 Edition)’ should be deleted.

Accordingly the Sub Clause No. 63(3)(a)(iii) will now read as under:

63(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’.

(Authority Board's letter No. 84.W1.CT/12-P dt. 29.5.85).”

This position continued till issuance of the later edition of the General Conditions of Contract of Eastern Railway in February, 2001, which is not relevant to the instant case. At this juncture, we hasten to add that much of the confusion before the learned Single Judge was caused by the parties themselves, particularly the Railways, who ought to have brought all the relevant addendum and corrigendum slips, containing up-to-date amendments, to the Court's notice. We have had to undertake this exercise on our own, while researching on the subject matter, after reserving judgment.

In actual fact, in the counter-claim, the objection had been taken on the basis of both clauses 63(3)(a)(ii) and 63(3)(a)(iii). However, so far as clause 63(3)(a)(iii) is concerned, it was inadvertently printed as clause 63(3)(a)(ii).

The observations of the Arbitrator in his award also makes it clear that the authority of the Arbitrator has been challenged on the ground of complete lack of jurisdiction, as well as on the ground that the sole arbitrator could not be appointed, as the claim was over and above Rs. 10 lacs.

With due respect, we are, therefore, unable to agree with the learned Single Judge that the objection with regard to the lack of jurisdiction had not been taken before the Arbitrator.

Once it is accepted that the necessary objection with regard to quorum non juris had been taken before the arbitrator, then even according to the learned Single Judge, the issue would no longer be res integra, on the basis of the ratio in Krishna Kumar's case (supra). The aforesaid judgment had been distinguished by the learned Single Judge on the ground that there was a clear challenge in that case of the Arbitrator's authority at the initial stage. Since we are of the opinion that the necessary objection was raised at the earliest opportunity, the conclusion would seem to be irresistible that the appointment of Mr. S. K. Ghosh was liable to be set aside.

We are further of the opinion that the appointment of Sri S.K Ghosh cannot be protected under Section 11(8) of the Act in view of the law laid down in the cases of M.P Gupta; Krishna Kumar; and Northern Railways Administration (supra). As noticed earlier in M.P Gupta's case (supra) Supreme Court set aside the appointment of Justice P.K Bhari as the appointment was not in accordance with the relevant arbitration clause. The appointment was set aside on the short ground that a sole Arbitrator could not have been appointment. The aforesaid ratio of law was followed in Krishna Kumar case (supra). In Northern Railways Administration (supra), it has been held that the provisions contained in sub-section (6) of Section 11 have to be read along with sub-section 8. It has been laid down that although not mandatory the court may ask the parties to do what has not been done. It has also been held that a bare reading of the scheme of Section 11 shows that the emphasis is on the terms of the agreement being adhered to and/or given effect as closely as possible. The expression ‘due regard’ contained in Section 11(8) of the Act indicates that proper attention to several circumstances has been focused.

In our opinion, the appointment of Mr. S. K. Ghosh has been made contrary to the Arbitration Clause and cannot be protected even under Section 11(8). The objection with regard to the authority of the Arbitrator having been taken at the earliest possible opportunity, the matter will be squarely covered by the ratio of the judgment in Krishna Kumar (supra). The award made by the Arbitrator cannot be sustained and is hereby set aside.

Biswanath Somadder, J.

I agree.