Bombay High Court
M/S.Navkar Corporation Limited vs Divisional Railway Manager on 9 December, 2013
Bench: R.D. Dhanuka
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13-ARBAP190.12
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION APPLICATION NO. 190 OF 2012
M/s.Navkar Corporation Limited )
a Company incorporated under the )
laws of India having its registered office )
at Somathane Village, Kon Savla Road, )
Panvel, Raigad, Maharashtra - 410 206. ) ..... Applicant
VERSUS
1. Divisional Railway Manager, )
Mumbai Division, Central Railway, )
400 001
Chhatrapati Shivaji Terminus, Mumbai- )
)
2. General Manager, )
Mumbai Division, Central Railway, )
Chhatrapati Shivaji Terminus, Mumbai- )
400 001 ) ..... Respondents
Mr. Vikram Nankani, a/w. Mr.Amit Vyas, i/b. Mr.M.R.Baya for the Applicant.
Mr.R.V.Desai, Senior Advocate, a/w. Ms.Sangeeta Yadav, i/b. Mr.Suresh Kumar
for the Respondent.
CORAM : R.D. DHANUKA, J.
DATED : 9th DECEMBER, 2013
JUDGMENT
By this application filed under section 11(6) of the Arbitration and
Conciliation Act, 1996 (for short 'Arbitration Act'), the applicant seeks
appointment of arbitrator to determine the dispute that has arisen between the
parties under the land licencing agreement. Some of the facts for the purpose of
deciding this application are as under :-
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2. On 31st March, 2011, respondent no.1 entered into an agreement with the
applicant granting licence of original owned land admeasuring 25636.16 sq.mtrs.
for the purpose of developing/laying railway siding between 72.930 km from CST
on Panvel Roha section for proposed Rail Linked Container Freight Station.
Clause 17 of the said agreement provides for settlement of dispute by arbitration.
Relevant portion of the said clause reads as under :-
17. Settlement of Disputes -
1. Matters finally determined by Railway :- All disputes and
difference of any kind whatsoever arising out of or in
connection with the contract, whether during the progress of
the work of after its completion and whether before or after
the determination of the contract shall be referred by the
Contractor to the Central Railway and the Railway shall
within 120 days after receipts of the Contractor's
representation make & notify decision on all matters for which
provision has been made in clauses 8(a), 18, 22(5), 39, 43(2),
45(a), 55, 55-A(5), 57, 57A, 61(1), 61(2) and 62(1) (b) of
General Conditions of the contract or in any clauses of the
special conditions of the contract shall be deemed as
'excepted matters' shall stand specially excluded from the
purview of the arbitration clause and not referred to
arbitration.
17(2) (3) (a) (i) In cases where the total value of all claims
in question added together does not exceeds Rs.10,00,000/-
(Rupees Ten Lakhs only) the Arbitral Tribunal consist of a sole
arbitrator who shall be either the General Manager or a
Gazetted Officer of Railway not below the grade of J.A. Grade
nominated by the General Manager in that behalf. The sole
arbitrator shall be appointed within 60 days from the day when
a written and valid demand for Arbitration is received by
Railway.
(ii) In cases not covered by clauses 64(3) (a) (i), the Arbitral
Tribunal shall consist of a panel of three Gazetted Railway
Officers not below J A Grade, as the Arbitrators. For this
purpose, the railway will send a panel of more than 3 names of
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Gazetted Railway Officers of one or more Departments of
Railway to the contractor who will be asked to suggest to
General Manager up to 2 names out of the panel for
appointment as contractor's nominee. The General Manger
shall appoint at least one out of them as the contractor's
nominee and will also simultaneously appoint the balance
number of arbitrators either form the panel or from outside the
panel, duly indication the presiding Arbitrator from amongst
the 3 arbitrator so appointed. While nominating the
Arbitrators it will be necessary to ensure that one them is from
Accounts Department. An officer of Selection Grade of the
Accounts Department shall be considered of equal status to the
officers in SA grade of other departments of the railway for
the purpose of appointment of Arbitrators.
3.
It is not in dispute that clause 17(2) (3) (a) (ii) would be applicable to this
case.
4. Dispute arose between the parties. On 12th March, 2012 the applicant issued
a notice invoking arbitration agreement and called upon respondent no.2 to refer
the matter to arbitration after expiry of 120 days from 20 th December, 2011 and
12th January, 2012 and to send list of gazetted railway officers within 30 days from
the receipt of the said notice, from which the applicant would select names of two
arbitrators, pursuant to clause 17(2) (3) (a) (ii) of the licence agreement. Inspite of
the said notice, respondent no.2 did not give any reply nor sent a list of gazetted
railway officers within 30 days from the date of receipt of the said notice. On 9 th
July, 2012, applicant filed this petition under section 11(6) for appointment of an
arbitrator.
5. On 28th August, 2012 this application appeared before the learned
Judge designated by the Hon'ble Chief Justice. It is the case of the
respondents that in compliance of oral order, respondent tendered the list of
officers from the panel of arbitrators and out of which four arbitrators' names were
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submitted by the respondents vide letter dated 14th August, 2012.
6. Respondents have filed affidavit in reply on 31 st August, 2012 opposing this
application under section 11(6) of the Arbitration Act.
7. Mr.Nankani, learned counsel appearing for the applicant submits that under
clause 17(2) (3) (a) (ii), respondents were required to send a panel of more than
three names of the gazetted railway officers to the applicant to enable the applicant
to suggest to the General Manager upto two names out of the panel as applicant's
nominee. The General Manger was required to appoint atleast one out of them as
an applicant's nominee and simultaneously appoint balance number of arbitrators
either from the panel or from outside the panel including the presiding arbitrator. It
is submitted that admittedly respondents did not send any such list within 30 days
from the date of receipt of the notice invoking arbitration agreement by the
applicant and in any case before filing of this arbitration application by the
applicant on 9th July, 2012. It is submitted that respondents have thus forfeited
their right to appoint any arbitrator in terms of arbitration agreement and the Chief
Justice or his designate alone has power to appoint the arbitrator under section
11(6) of the Arbitration Act.
8. Learned counsel placed reliance on the judgment of the Supreme Court in
case of Deep Trading Company vs. Indian Oil Corporation and others reported
in (2013) 4 SCC 35 and submits that since the respondents have forfeited their
rights to appoint arbitrator in terms of the arbitration agreement, list of arbitrators
subsequently sent after filing of this application by the applicant cannot be
considered by the Judge designated by the Chief Justice. It is submitted that
applicant has thus become entitled to seek appointment of the arbitrator by the
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Hon'ble Chief Justice or his designate under section 11(6). Reliance is placed on
paragraphs 5, 7, 8, 9, 12, 14 to 20 of the said judgment of the Supreme Court
which read thus :-
5. On 09.08.2004, the dealer made a demand to the
Corporation by a written notice to refer the disputes between
the parties to the arbitrator under the terms of the agreement.
In the demand notice, it was also stated by the dealer that if the
Corporation fails to appoint the arbitrator, the dealer may be
constrained to approach the court under Section 11 of the 1996
Act.
7. On or about 06.12.2004, the dealer moved the Chief
Justice of the Allahabad High Court under Section 11(6) for
the appointment of an arbitrator as the Corporation had failed
to act under the agreement. While the said proceedings were
pending, on 28.12.2004, the Corporation appointed Shri B.
Parihar, Senior Manager, (LPG Engineering) of its U.P. State
Office as the sole arbitrator.
8. When the above application came up for consideration,
the Chief Justice found no reason to appoint the arbitrator, as
sought by the dealer, since the arbitrator had already been
appointed by the Corporation. The brief order dated
06.12.2007, by which the dealer's application under Section
11(6) was dismissed by the Chief Justice of the Allahabad High
Court, reads as under:
1. Heard Mr. Siddharth Singh, in support of this application and
Mr. Prakash Padia, Learned Counsel appearing for the Respondents.
2. The dispute in this matter is regarding suspension of the
Petitioner's agency as a kerosene dealer for sometime. The applicant
applied for appointment of an arbitrator by writing a letter in March,
2004, but filed the present proceeding on 06.12.2004. An Arbitrator
was appointed by the Respondents on 28.12.2004. Earlier arbitrator
has been replaced by another arbitrator.
3. The contract of the applicant is continuing with the
Respondents in view of an injunction granted by the Civil Court.
4. The submission of the applicant is that the Respondents ought
to have moved within thirty days from the date of a request being
made. In any case arbitrator has been appointed within thirty days
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from the filing of the application. Mr. Siddharth Singh, says that the
arbitrator conduct should have been appointed after filing of an
application under Section 11 of the Arbitration and Conciliation Act.
5. In my view, there is no reason to appoint any fresh arbitrator,
as sought by the applicant.
6. The application is dismissed.
9. Clause 29 of the agreement dated 01.11.1998 provides
as under:
" 29. Any dispute or difference of any nature whatsoever
or regarding any right, liability, act, omission on account
of any of the parties here to arising out or in relation to
this Agreement shall be referred to the sole arbitration of
the Director (Marketing) of the Corporation, or of some
Officer of the Corporation who may be nominated by the
Director (Marketing). It is known to the parties to the
Agreement that the arbitrator so appointed is a share
holder and employee of the Corporation. In the event of
the arbitrator to whom the matter is originally referred
being transferred or vacating his office or being unable to
act for any reason, the Director (Marketing) as aforesaid
at the time of such transfer, vacation of office or inability
to act, shall designate another person to act as arbitrator
in accordance with the terms of the Agreement. Such
person shall be entitled to proceed with the reference
from the point at which it was left by his predecessor. It is
also a term of this contract that no person other than the
Director (Marketing) or a person nominated by such
Director (Marketing) of the Corporation as aforesaid shall
act as arbitrator hereunder. The award of the arbitrator so
appointed shall be final conclusive and binding on all
parties, to the Agreement, subject to the provisions of the
Arbitration and Conciliation Act, 1996 or any statutory
modification of or reenactment thereof and the rules
made thereunder and for the time being in force shall
apply to the arbitration proceeding under this clause.
The award shall be made in writing within six months
after entering upon the reference or within such extended
time not exceeding further four months as the sole
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arbitrator shall by a writing under his own hands
appoint."
12. The three basic facts are not in dispute, namely, (i) on
09.08.2004, the dealer called upon the Corporation by a
written notice to appoint an arbitrator in accordance with the
terms of Clause 29 of the agreement; (ii) the dealer made an
application under Section 11(6) for appointment of the
arbitrator on 06.12.2004; and (iii) the Corporation appointed
the sole arbitrator on 28.12.2004 after the application under
Section 11(6) was already made by the dealer.
14. Mr. Abhinav Vashishta, learned senior counsel for the
Respondents, on the other hand, relied upon a decision of this
Court in Northern Railway Administration, Ministry of
Railway, New Delhi v. Patel Engineering Co. Limited
MANU/SC/7953/2008 : (2008) 10 SCC 240 and submitted
that while considering application under Section 11(6) for
appointment of arbitrator, the Court must keep in view twin
requirements of Section 11(8) and, seen thus, the view of the
learned Chief Justice in the impugned order does not call for
any interference.
15. In Datar Switchgears Ltd. v. Tata Finance Ltd. and Anr.
MANU/SC/0651/2000 : (2000) 8 SCC 151, a two-Judge
Bench of this Court considered the scheme of Section 11,
noted the distinguishing features between Section 11(5) and
Section 11(6) and then considered the question whether in a
case falling under Section 11(6), the opposite party cannot
appoint an arbitrator after the expiry of thirty days from the
date of demand. This Court held that in cases arising under
Section 11(6), if the opposite party has not made an
appointment within thirty days of the demand, the right to
make appointment is not forfeited but continues, but such an
appointment has to be made before the first party makes
application under Section 11 seeking appointment of an
arbitrator. If no appointment has been made by the opposite
party till application under Section 11(6) has been made, the
right of the opposite party to make appointment ceases and is
forfeited.
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16. In Punj Lloyd Ltd. v. Petronet MHB Ltd. , the agreement
entered into between the parties contained arbitration clause.
The disputes and differences arose between the parties. Punj
Lloyd (Appellant) served a notice on Petronet (Respondent)
demanding appointment of an arbitrator and reference of
disputes to him. Petronet failed to act. On expiry of thirty
days, Punj Lloyd moved the Chief Justice of the High Court
for appointment of the arbitrator under Section 11(6). Petronet
had not made appointment till the date of moving the
application. The designate Judge refused to appoint the
arbitrator holding that the remedy available to it was to move
in accordance with the agreement. Aggrieved by the said
order, a writ petition was filed which was dismissed and the
matter reached this Court. A three-Judge Bench of this Court
referred to Datar Switchgears Ltd. v. Tata Finance Ltd. and
Anr. MANU/SC/0651/2000 : (2000) 8 SCC 151 and held that
the matter was covered squarely by that judgment and the
view taken by the designate Judge in dealing with the
application under Section 11(6) and the Division Bench was
not right. This Court restored the application under Section
11(6) before the Chief Justice of the High Court for fresh
consideration and appointment of the arbitrator in accordance
with Section 11(6).
17. We are in full agreement with the legal position stated
by this Court in Datar Switchgears Ltd. v. Tata Finance Ltd.
and Anr. MANU/SC/0651/2000 : (2000) 8 SCC 151 which has
also been followed in Punj Lloyd Ltd. v. Petronet MHB Ltd.
18. Section 11(8) provides that Chief Justice or the designated
person or institution, in appointing an arbitrator, shall have due
regard to two aspects, (a) qualifications 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. In Northern Railway
Administration, Ministry of Railway, New Delhi v. Patel
Engineering Company Limited MANU/SC/7953/2008 : (2008)
10 SCC 240, a three-Judge Bench of this Court considered the
scheme of Section 11. Insofar as Section 11(8) is concerned,
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this Court stated that appointment of the arbitrator or
arbitrators named in the arbitration agreement is not a must,
but while making the appointment the twin requirements
mentioned therein have to be kept in view.
19. If we apply the legal position exposited by this Court in
Datar Switchgears Ltd. v. Tata Finance Ltd. and Anr.
MANU/SC/0651/2000 : (2000) 8 SCC 151 to the admitted
facts, it will be seen that the Corporation has forfeited its right
to appoint the arbitrator. It is so for the reason that on
09.08.2004, the dealer called upon the Corporation to appoint
the arbitrator in accordance with terms of Clause 29 of the
agreement but that was not done till the dealer had made
application under Section 11(6) to the Chief Justice of the
Allahabad High Court for appointment of the arbitrator. The
appointment was made by the Corporation only during the
pendency of the proceedings under Section 11(6). Such
appointment by the Corporation after forfeiture of its right is
of no consequence and has not disentitled the dealer to seek
appointment of the arbitrator by the Chief Justice under
Section 11(6). We answer the above questions accordingly.
20. Section 11(8) does not help the Corporation at all in the
fact situation. Firstly, there is no qualification for the arbitrator
prescribed in the agreement. Secondly, to secure the
appointment of an independent and impartial arbitrator, it is
rather necessary that someone other than an officer of the
Corporation is appointed as arbitrator once the Corporation
has forfeited its right to appoint the arbitrator under Clause 29
of the agreement.
9. Mr.R.V.Desai, learned senior counsel appearing for the respondents on the
other hand submits that though respondents did not send list of arbitrators in terms
of the arbitration agreement, Hon'ble the Chief Justice or his designate cannot
appoint any arbitrator other than the arbitrator from the panel of the respondents.
It is submitted that in any event, the arbitration agreement provides for the
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qualification of the arbitrator to the extent that one of such arbitrator shall be from
the Account Department. An officer from the selection grade of the Accounts
Department shall be considered of equal status to the officers in SA Grade of other
departments of railway for the purpose of appointment of the arbitrators. It is
submitted that none of the arbitrator suggested by the respondents in the list
forwarded, in any manner was connected with the work awarded to the applicant
in respect of which the dispute has arisen.
10. Learned senior counsel placed reliance on the judgment of the Supreme
Court in case of Northern Railway Administration, Ministry of Railway, New
Delhi vs. Patel Engineering Company Limited reported in (2008) 10 SCC 240
and in particular paragraphs 10 to 12 and 14 which reads thus :-
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 Sub-section (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
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designated by him to take the necessary measures" (underlined
for emphasis). This expression has to read alongwith
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.
14. In all these cases at hand the High Court does not
appear to have focussed 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.
11. A perusal of the record would indicate that respondents have not submitted
list of the arbitrators in terms of the arbitration agreement to the applicant within
30 days from the date of receipt of the notice. Respondents have not submitted
such list even before filing of arbitration application by the applicant. The list of
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some of the arbitrators from the panel of the respondents was forwarded only after
filing of this application by the respondents to the applicant.
12. Supreme Court in case of Deep Trading Company (supra) has considered
this aspect at length. In the matter before the Supreme Court in case of Deep
Trading Company (supra) admittedly there was no response to the notice issued
by the applicant for appointment of the arbitrator within 30 days from the date of
receipt of the notice. After filing of arbitration application under section 11(6) of
the Arbitration and Conciliation Act, 1996, respondents had appointed an officer as
a sole arbitrator. Chief Justice of Allahabad High Court rejected the said
application on the ground that the Corporation had already appointed an arbitrator
when the application under section 11(6) came up for consideration. Being
aggrieved by the said order passed by the Hon'ble Chief Justice of Allahabad High
Court, the applicant therein filed Special Leave Petition.
13. After adverting to the judgment of the Supreme Court in case of Datar
Switchgears Ltd. vs. Tata Finance Ltd. reported in (2000) 8 SCC 151 and in case
of Punj Lloyd Ltd. vs. Petronet MHB Ltd. reported in (2006) 2 SCC 638 and
judgment of the Supreme Court in case of Northern Railway Administration,
Ministry of Railway, New Delhi vs. Patel Engineering Company Limited reported
in (2008) 10 SCC 240, three Judges Bench of the Supreme Court has held that in
cases arising under section 11(6), if the opposite party has not made an
appointment within thirty days of the demand, the right to make appointment is not
forfeited but continues, but such an appointment has to be made before the first
party makes application under Section 11 seeking appointment of an arbitrator. If
no appointment has been made by the opposite party till application under Section
11(6) has been made, the right of the opposite party to make appointment ceases
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and is forfeited. Supreme Court in case of Deep Trading Company (supra)
followed the judgment of the Supreme Court in case of Datar Switchgears Ltd.
(supra) and Punj Lloyd Ltd.(supra). Supreme Court was pleased to set aside the
order passed by the Chief Justice of Allahabad High Court and restored the
arbitration application to file of the High Court of Judicature of Allahabad for fresh
consideration by the Chief Justice or the designate Judge, as the case may be, in
accordance with law.
14. In my view, since the respondents have not sent a list of arbitrators in terms
of the arbitration agreement within 30 days from the date of receipt of the notice
and before filing an application under section 11(6) by the applicant, respondents
have forfeited its rights to appoint arbitrators from their panel.
15. Mr.R.V.Desai, learned senior counsel however in my view is right in placing
reliance on section 11(8) of the Arbitration Act in support of his submission that
the Chief Justice or his designate in appointing the arbitrator shall have due regard
to any qualification required of the arbitrator by the agreement of the parties and
other considerations as are likely to secure the appointment of an independent and
impartial arbitrator. In so far as appointment of the officer from the panel of the
respondents is concerned, it is submitted by the learned senior counsel that none of
the names which were suggested by the respondents were in any manner
connected with the work in question.
16. A perusal of the arbitration agreement recorded in clause 17(2) (3) (a) (ii)
indicates that while nominating the arbitrator it would be necessary to ensure that
one of the arbitrator is from the Accounts Department. In my view,
MR.R.V.Desai, learned senior counsel is right in his submission that the said
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clause provides for the qualification in so far as appointment of one arbitrator out
of the Arbitral Tribunal of three arbitrators is concerned.
17. In my view, while appointing the arbitrator, the Chief Justice or his
designate has to give due regard to the qualification required by the agreement or
other consideration necessary to secure the appointment of the independent and
impartial arbitrator. I am respectfully bound by the judgment fo the Supreme
Court in case of Deep Trading Company (supra) and Northern Railway
Administration, Ministry of Railway, New Delhi (supra).
18.
I am not inclined to accept the submissions made by Mr.R.V.Desai that the
arbitrator on behalf of the applicant also be nominated from the panel of the
respondents and not an outsider. Respondents having forfeited its right to appoint
arbitrator, the Chief Justice of his designate is not bound to appoint an arbitrator in
accordance with the arbitration agreement except to the extent that appointment
shall be with due regard to any qualification as prescribed in the agreement and
other consideration as are likely to secure the appointment of an independent and
impartial arbitrator.
19. Respondent no.2 is directed to appoint an arbitrator who shall be from the
Accounts Department and who is not connected with the disputes in any manner
whatsoever between the parties within four weeks from the date of this order.
20. In so far as nominee arbitrator on behalf of the applicant is concerned,
Mr.Nankani, learned counsel appearing on behalf of the applicant has suggested
three names of the retired Judges of this Court and has requested to nominate one
of them as an arbitrator on behalf of the applicant. Shri Justice V.C.Daga, former
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Judge of this Court is accordingly appointed as an arbitrator on behalf of the
applicant.
21. The arbitrator to be nominated by the respondents and Shri Justice
V.C.Daga, former Judge of this Court shall appoint the Presiding Arbitrator in
accordance with the provisions of Arbitration and Conciliation Act, 1996 and
constitutes the Arbitral Tribunal.
22. Application is accordingly disposed of in the aforesaid terms. No order as to
costs.
[R.D. DHANUKA, J.]
