M/S. V.K. Construction Works Ltd. vs Army Welfare Housing ...
1994 Latest Caselaw 829 Del

JUDGMENT

Vijender Jain, J.

1. This order shall dispose of OMP Nos. 70/93, 87/93 and 91/93 as these petitions raise similar question.

2. The petitioner has filed this petition under Sections 5, 11 and 12 of the Indian Arbitration Act, 1940. The petitioner is a public limited company. Respondent No. 1 is Army Welfare Housing Organisation. Respondent No. 1 awarded the work of construction of residential unit at Jaipur, Jalandhar and Ludhiana. The petitioner has, inter alia, prayed that the authority of the Arbitrator Maj. Gen J. S. Lamba be revoked after removing him and court may appoint another Arbitrator in place of the Arbitrator appointed by respondent No. 1.

3. Mr. Atul Jain, learned counsel for the petitioner has argued that in terms of the arbitration agreement once the respondent appointed an arbitrator and in the event of that arbitrator resigning, respondent No. 1 agreement to supply the vacancy of the arbitrator.

4. The case of the petitioner is that one Brig. W. S. Chona was appointed arbitrator and according to the petitioner he entered into reference on 24.12.1991 and if that date is disputed by the respondent then on 29.1.1992 the day when the said arbitrator directed the petitioner to participate in the measurement to be taken by both the parties. Mr. Jain has further contended that after the resignation of Brig. Chona the appointment of a new arbitrator by respondent No. 1 is not contemplated in the arbitration agreement to be appointed by respondent.

5. On the other hand, learned counsel for the respondent Mr. Tiwari has vehemently disputed the proposition enunciated by the petitioner and has argued that the arbitrator did not enter into reference as stated by the petitioner. Learned counsel for the respondent has also argued that in the arbitration clause if nothing is provided as to how a vacancy is to be supplied then it has to be construed that the respondent by virtue of the arbitration clause were competent to supply the vacancy caused on account of registration of Brig. Chona who could not continue as the arbitrator.

6. In support of their respective submission learned counsel for both the parties have cited various authorities at the Bar.

7. Mr. Jain has cited Wilson & Son and The Eastern Counties Navigation and Transport Company (1 Q.B. Division 81 (1891)), V. G. Ghawda Pvt. Ltd. v. Union of India , Jagdish Rai Jain v. Union of India, New Delhi (1955 NUC 6016) and East India Construction Co. (P) Ltd. v. Union of India in which the main point for consideration was that after a particular person was appointed as arbitrator who at initial stage has expressed his willingness to act, could the appointing authority again exercise its power to appoint another arbitrator, if subsequently the appointed arbitrator expressed his unwillingness to act. The court in East India Construction's case (supra) held :

"In my view the authority to appoint an arbitrator, once executed cannot be executed again unless of course the arbitration agreement itself provides such a situation. The power of appointing authority to appoint successive arbitrator cannot be lawfully exercised unless there is a special clause to that effect in the arbitration agreement itself. There must be some evidence to show that the parties have intended that, in such a case, the power of the appointing authority to appoint a new arbitrator is revived and the arbitration clause itself is the proper medium where such intention could find its expression. Further there are good reasons why the power of the appointing authority should be exceeded, once he has exercised that power. If the power is not exhausted, a difficult situation might arise, for instance, if the Union of India is not satisfied with the conduct of the appointed arbitrator, such arbitrator might be transferred by the Union of India to enable the appointing authority to have a substituted arbitrator an the plea of the first arbitrator's inability to continue as arbitrator.

8. Mr. Jain on the basis of the aforesaid decision has a argued that once Brig. Chona resigned as an arbitrator the authority to supply the vacancy does not vest in respondent No. 1. He has argued that in the absence of a provision in the arbitration clause for such an eventuality and in the event of there being no provision or specific power given to the respondent in the arbitration clause any appointment made by respondent No. 1 to supply the vacancy after the resignation of the first arbitrator is without jurisdiction. Another controversy which has been raised in this petition is the date when the arbitrator entered upon the reference. As I have observed earlier according to the petitioner the arbitrator entered upon reference on 24.12.1991 when Brig. Chona issued notice to both the parties and called upon both the parties to file their respective statement. The letter is Annexure 'F' filed by the petitioner. Mr. Jain in the alternative has also argued that if this court comes to a finding that the arbitrator did not enter into reference from the date of issuance of notice to the parties, then he has certainly entered into the reference when at the behest of respondent No. 1 the said arbitrator called upon the petitioner vide its letter dated 29th January, 1992 to take measurement, thus applied his mind to be disputes. The said letter is as under :

Registered A.D.

Army Welfare Housing Organisation South Hutments Kashmir House

Rajaji Marg, New Delhi-110011.

B/03020/Cont/CA-8-89/JAIPUR/AR/29 January, 1992 AWHO

Brig. W. S. Chona, Sole Arbitrator,

Dy. Dir Gen. Works (NAVY) Engineer-in-C's Branch,

Kashmir House DHQ PO, New Delhi-110011.

Contract Agreement Number; AWHO/Jaipur/08/89 For Construction of Residential Accommodation For Army Welfare Housing Organisation Ambabari, Vidhyadhar Nagar at Jaipur.

Dear Sir,

1. Reference your letter No. AWHO/Jaipur/08/89/ARB/2 dated 24 December, 1991.

2. The other party is putting up hindrances in preparation of inventories of incomplete works and materials/stores lying at site. Due to non-cooperation of the other party it has not been possible to finalise the measurements. Without finalisation of measurements and Risk and Cost tender thereafter, our claims cannot be evaluated and we have not been able to prepare our statement of case in regard to matter of dispute.

3. You are therefore, requested to direct the other party to come up for finalisation of measurements. We will thereafter submit our statement of case.

Yours faithfully,

Sd/-        

V. K. Kanitkar (Brig.)

Dy. Managing Director & Director Technical

for Managing Director

Copy to :

Registered/AD

M/s. V. K. Construction Works Limited 42 Community Centre, Friends Colony. New Delhi-110065.

9. On the basis of the aforesaid letter Mr. Jain has argued that the arbitrator has directed the petitioner to prepare the inventory of incomplete works/materials/stores lying at site after applying the mind to the disputes inter se between the parties as it was only after preparation of inventory of works the disputes could be adjudicated upon.

10. According to learned counsel for the petitioner this letter emanated from the arbitrator after the arbitrator had applied its mind and by no stretch of imagination can be construed as a ministerial act and, therefore, on these premises, has argued that from 29.1.1992 the arbitrator had entered upon the reference. He has tried to further fortify his arguments by inviting my attention to letter written by the arbitrator seeking extention of time dated 31.8.1992 wherein the arbitrator had sought extension/enlargement of period till 15.10.1992 apart from requesting to forward the statement of claim immediately. On the basis of this Mr. Jain has argued that arbitrator did enter upon the reference from the aforesaid date. In support of his argument Mr. Jain has relied upon Hari Shanker Lal v. Ram Babu Nath and others , which reads as under :

"...... I agree with the view expressed in Iossifoglu v. Coumantaros ((1941) 1 KB 396), that arbitrators enter upon a reference as soon as they have accepted their appointment and have communicated with each other about the reference. This is a stage earlier than their starting the proceedings in the presence of the parties or under some peremptory order compelling them to conclude the hearing ex parte. 'Calling upon the arbitrators to act' does include asking the arbitrators to enter on the reference but may also include asking them to do anything in connection with reference except asking them to do the routine acts connected with the enquiry."

11. He has also cited Hari Shanker Saxena v. Union of India (1965 (Supplementary) PLR 206), in support of his arguments that arbitrator entered upon the reference. Once the arbitrator sends letters to the parties notifying the parties that the he accepts that appointment and directed them to furnish their respective pleadings by certain dates. Mr. Jain has further cited The Secretary to the Government of India, Orissa and another v. Servash Rawat :

"In arbitration proceedings as soon as the arbitrator indicates his willingness to act as such, the proceedings must be held to have commenced. Therefore, the arbitrator in the instant case, by directing the parties to file their statements of claim, could be said to have clearly indicated that he accepted the offer to arbitrate. The proceedings must, therefore, be deemed to have been instituted not later than the date of passing such orders."

12. On the other hand, Mr. Tewari has vehemently argued that in the arbitration clause if no provision is made as to how the vacancy is to be supplied in the event of arbitrator having resigned the harmonious construction of the arbitration clause would be that it would be the obligation of the appointing authority to supply the vacancy caused by such resignation or vacancy caused by the arbitrator. In his support he has cited Chander Bhan Harbhajan Lal v. State of Punjab , which reads as under :

"On a careful reading of the condition relating to arbitration we agree with the High Court as well as the trial court that there is no bar to the Government appointing a fresh committee for going into the dispute consisting of three officers as stipulated in the condition. As the appellant would not reply to the letter of the Government seeking to nominate a Settlement Committee the Government moved the court for appointment of the Committee. The trial court gave an option to the appellant to furnish names but as he did not furnish the names the trial court accepted the names suggested by the Government. On our finding that the Government was entitled to appoint a Committee under the new agreement the Government could have very well appointed a committee by itself without coming to court. But may be by way of abundant caution the Government came to court and the court has appointed a committee as suggested by the State. We are equally clear that under Section 8 the court is entitled to act and appoint a committee. As already found by us when the second Settlement Committee ceased to function the Committee became "incapable of acting" and therefore it was within the competency of the court to proceed to appoint a new committee. Equally untenable is the contention that Section 8 is not applicable to cases where the condition stipulates the appointment of a Settlement Committee by one of the parties. This submission was made relying on the wording of the section that any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy. This part of the section no doubt contemplates two parties but the section cannot be read as not being applicable where the agreement provides for the nomination of the committee by one of the parties for the section itself says that the party may serve the other parties. "Many serve the other parties" will include not serving other parties in cases in which the service on the other party is not contemplated."

13. Learned counsel for the defendant has also cited City and Industrial Development Corporation of Maharashtra Ltd. v. M/s. Motiram Budharmal and others , which reads as under :

"If the agreement is silent as regards supplying the vacancy, the law, it is urged, presumes that the parties intended to supply the vacancy. Where, therefore the court is moved under Section 8 of the Act to appoint an arbitrator, it was well within its jurisdiction to appoint another arbitrator."

14. Keshav singh Dwarkadas v. M/s. Indian Engineering Co. , D. R. Gupta v. Steel Authority of India Ltd. and Ved Prakash Mittal v. The Union of India and other and M/s. Harbans Singh Tuli and Sons Builders Pvt. Ltd. v. Union of India , have been cited by the learned counsel for the defendant but I am afraid that none of the authorities cited is applicable to the facts and circumstances of this case. In Chander Bhan's case (supra) it was on account of a fresh Settlement Committee which was appointed by the respondent and the notice of such fresh Settlement Committee was given to the appellant who did not responded to the notice. The State Government made application to the trial court for appointment of an arbitrator under Section 8 of the Arbitration Act. Therefore, this case is of on help to the defendant. In City and Industrial Corporation's case (supra) there was a specific clause in the agreement that arbitrator will be the Chief Engineer and instead of appointing the Chief Engineer the High Court appointed an Advocate and Supreme Court held that when the parties had intended that person has to possess specific knowledge like a Chief Engineer the High Court errored in appointing advocate & held that it was not an appointment in terms of the arbitration clause. In case of M/s. H. L. Tuli (supra) clause 70 of the arbitration clause itself provided that if the arbitrator so appointed resigns his appointment or vacates his office or is unable or unwilling to act due to any reason whatsoever the authority appointing him may appoint another arbitrator to act in has place.

15. Learned counsel for the defendant has also cited West Bengal Committee v. International Trading Corporation , which, inter alia, held as follow :

"It is that the arbitration agreement does not indicate that in case of vacancy, it shall be filled up but, at the same time, the arbitration agreement does not show that the vacancy should not be supplied. So, by virtue of the provision of Section 8(1)(b), the Managing Director of the appellant was quite competent to supply the vacancy caused by the refusal of the first arbitrator, it is, however, submitted on behalf of the respondent that as the Managing Director of the appellant was not specifically empowered to fill up the vacancy, such vacancy could only be filled up by the parties and, on their failure, by the court. We are unable to accept this contention. The Managing Director of the appellant has been specifically authorised by the parties to appoint the arbitrator. In our opinion, this authority of the Managing Director does not come to an end on the appointment of an arbitrator, but will continue for the purpose filling up the vacancy that may be caused for any of the reasons as mentioned in Section 8(1)(b) of the Arbitration Act. In making the appointment, the Managing Director of the appellant acted on behalf of the parties, in other words, the first and, thereafter, the second appointment of arbitrators should be deemed to have been made with the consent of both the parties including the respondent. So, the appointment of the arbitrator for the second time by the Managing Director of the appellant was quite legal ......"

16. On the basis of the above authorities Mr. Tiwari has contended the after the first arbitrator resigned in terms of the arbitration clause the vacancy was to be supplied by the respondent in terms of that clause. Mr. Jain, learned counsel for the petitioner, has vehemently argued that the first arbitrator in the present case entered into the reference which has been denied by the learned counsel for the respondent. However, in view of the first arbitrator after applying his mind called upon the petitioner vide letter dated 29.1.1992 to prepare the inventory in terms of said letter and thereby by any stretch of imagination it cannot be said that the arbitrator did not enter upon the reference. The case is fully covered by the dictum laid down by the Supreme Court in Hari Shanker Lal's case (supra).

17. Another argument of Mr. Jain which needs consideration is that an inconvenient arbitrator can always be made to resign or transfer or remove by the appointing authority if power to supply vacancy is given to the respondent in the event of first arbitrator who has been appointed by virtue of the arbitration clause resigning as arbitrator. Mr. Jain has further contended that in all the cases cited by the respondent the arbitrator has not entered upon the reference and, therefore, the case were distinguishable. In the present case the first arbitrator did enter upon the reference. To my mind, this will hardly make any difference. The whole question is what is provided in the arbitration clause which is as under :

"If any dispute arises and persists between in the contractor and employer the same shall be referred to the sole arbitrator to be appointed by the Chairman, Army Welfare Housing Organisation, whose award shall be final and binding on both the parties. The Arbitrator shall submit his award within four months of his entering on the reference. This period may be extended by the arbitrator with the consent of both the parties.

18. The true intent, effect and scope of aforesaid clause is that both the parties have given their consent that in the event of any dispute arising between the parties, Chairman, Welfare Housing Organisation shall appoint an arbitrator on behalf of both the parties the wording of the clause makes it manifestly clear that both the parties have agreed the vacancy to be supplied by the Chairman, Army Welfare Housing Organisation in terms of Section 8(1)(b) of the Arbitration Act and in the event of any vacancy accruing it is the Chairman, Army Welfare Housing Organisation who shall supply the vacancy. I find support from the reasoning given in West Bengal Essential Commodities Supply Corporation Ltd. v. M/s. International Trading Corporation of India , that situation which confronts the parties is fully covered under the provisions of Section 8(1)(b) of the Arbitration Act and the power of the court to appoint an arbitrator will only stand if the Chairman, Army Welfare Housing Organisation does not supply the vacancy caused on account of resignation of the first arbitrator.

19. The argument of Mr. Jain that the appointing authority may get rid of an inconvenient arbitrator by transferring or by otherwise making him incapable so as to act an arbitrator is of no force. In the event of any such occurrence where a new arbitrator who has been appointed by the appointing authority in terms of arbitration clause shows a bias or misconduct himself or the proceedings or does not act in a fair or judicious manner, the authority of such an arbitrator can be revoked in terms of Section 11 and 12 of the Arbitration Act. Therefore, the argument of the petitioner is not well founded.

20. If I agree with the argument of the petitioner then it will be interfering with the clause in the arbitration agreement which empowers the respondent to supply vacancy. The golden rule which governs arbitration law is that interference of the court in proceedings arising out of arbitration agreement has to be minimum.

21. For the reasons given above. I hold that the Chairman, Army Welfare Housing organisation was entitled to supply the vacancy caused by the resignation of the previously appointed arbitrator to act. In the circumstances, the appointment of the arbitrator for the second time is legal and valid. These petitions are dismissed. Admittedly the petitioner has not appeared before the arbitrator as these petitions were pending. Parties are directed to appear before the arbitrator on 23.12.1994, time and place to be communicated by the arbitrator. Time for making the award is extended by four months from today.