Nucon India (P) Ltd. vs Delhi Vidyut Board (Desu)
2001 Latest Caselaw 180 Del

ORDER

Sharda Aggarwal, J.

1. This is an application for appointment of an Arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) for adjudicating the dispute having arisen between the Petitioners and the Respondents relating to the execution of the contract awarded by the Respondents for the work of construction of control room building for 400 KV Sub-Station of the Respondent (DESU) at Bawana, Delhi. The letter of intent was issued by the Respondents on 6th August, 1991. The contract was for Rs.1,10,02,860/-. Time was the essence of the contract and it was to be completed within a time period of six months, that is, by 8th June, 1992. According to the Petitioners, the contract could not be completed for various reasons attributable to the Respondents.

2. This Court at present need not go into the detailed facts of the case as the short prayer in the petition is the appointment of an arbitrator and referring to him all the disputes having arisen between the parties for adjudication. The fact that the contract contains the following Arbitration clause is not disputed.

3. General Conditions of Contract contains clause 56 which is reproduce as under:-

"Clause 56 : Arbitration and Laws"

"Arbitration except where otherwise provided for in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works, or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of the General Manager of Delhi Electric Supply Undertaking and if the General Manager is unable or unwilling to act, to the sole arbitration of some other person appointed by the Chairman and Managing Director, Delhi Electric Supply Undertaking willing to act as such arbitrator. There will, be no objection if the arbitrator so appointed is an employee of Delhi Electric Supply Undertaking and that he had to deal with the matters to which the contract relates and that in the course of his duties as such he had expressed views on all or any of the matters in dispute or difference. The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason as aforesaid at the time of such transfer, vacation of office or inability to act, Chairman and Managing Director, Delhi Electric Supply Undertaking shall appoint another person to act as arbitrator in accordance with the terms of the Contract. It is also a term of this Contract that no person other than a person appointed by GM, DESU, as aforesaid should act as arbitrator and if for any reason, that is not possible, the matter is not to be referred to arbitration at all.

Subject as aforesaid the provision of the Arbitration Act, 1940 or any statutory modification or re-enactment thereof and the rules made there under and for the time being in force shall apply to the arbitration proceeding under this clause.

It is a term of the contract that the party invoking arbitration shall specify the dispute or disputes to be referred to arbitration under this clause together with the amount or amounts claimed in respect of each such dispute.

The arbitrator (s) may from time to time with consent of the parties enlarge the time, for making and publishing award.

The work under the Contract shall, if reasonably possible continue during the arbitration proceedings and no payment due or payable to the Contractor shall be withheld on account of such proceedings.

The arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties fixing the date of the first hearing. The Arbitrator shall give a separate award in respect of each dispute or difference referred to him.

The venue of arbitration shall be such place as may be fixed by the Arbitrator in his sole discretion.

The award of the arbitrator shall be borne by the parties to the dispute, as may be decided by the arbitrator (s).

The cost of arbitration shall be borne by the parties to the dispute, as may be decided by the arbitrator (s).

In the event of disputes or differences arising between one public sector enterprise and a Govt. Department or between public sector enterprises the above "stipulations shall not apply, and the provisions of B.P.E. office memorandum No. BPE/GL-001/76/MAN/2[11057BPE (GMII)] dated 1st Jan.1976 or its amendments for arbitration shall be applicable."

4. The Petitioners claimed that the work could not be completed due to various reasons attributable to the Respondents. The Petitioners wrote a number of letters raising various claims against the Respondents but when the Respondents failed to give a positive response, the Petitioners invoked the Arbitration clause by giving a legal notice to the Respondents on 15th May, 1996 for referring the disputes to arbitrator and thereafter further representations were made time and again and finally called upon the General Manager of the Respondents vide letter dated 30th December, 1997 to act as a sole arbitrator and enter upon the reference and decide the disputes arisen between the parties. The Petitioners specified the disputes together with claim amount. The claim amount was Rs.314 lacs. When the Respondents failed either to make the payment of the claim amount or to appoint an arbitrator in terms of the Arbitration clause as demanded by the Petitioners, the Petitioners were left with no other alternative but to file the present petition under Section 11(6) of the Act. Respondents have filed the reply and Petitioners have filed the rejoinder. Both learned counsel for the Petitioners and Respondents have addressed their arguments.

5. Learned counsel for the Respondents contests the petition mainly on the ground that the Chairman, Delhi Vidyut Board appointed Mr. S.R.Sethi, Chief Engineer (Project and Engineering) as a sole arbitrator on 24th June, 1998 after the filing of the petition, in accordance with clause 56 of the General Conditions of the Contract which deals with the Arbitration clause, and the Petitioners were duly informed of the appointment. The contention of the Respondents is that in view of the appointment of an arbitrator the petition under Section 11(6) of the Act is not maintainable, the same having become infructuous.

6. Learned counsel for the Petitioners refute this argument alleging that the Respondents appointed the arbitrator only after the filing of the present petition under Section 11 of the Act and notice of the same having been served upon them. It is submitted that the Petitioners had invoked the Arbitration clause as late as 15th May, 1996 when they had demanded the appointment of a sole arbitrator in terms of the Arbitration clause and lastly they invoked the Arbitration clause vide their letter dated 30th December, 1997. In the said letter, the Petitioners had also given the details of the disputes and the amount claimed. The important part of this letter reads as under:-

Sub: XXX XXX XXX

# Notice for Acting as Sole Arbitrator and

# Notice as per Article 4.0 'Settlement of Disputes' of Contract Agreement and

# Notice as per clause 56 of the General Conditions of the Contract.

Dear Sir,

1. XXX XXX XXX

2. As provided in the Article 4 of Contract Agreement read in conjunction with clause 56 of General Conditions 'Arbitration and Laws', we hereby invoke arbitration and request the General Manager, DESU to act as 'Sole Arbitrator' and enter upon the reference to decide these disputes referred to him and make his award as per statute provisions and laws applicable:

3. As required, as per terms of the Contract Agreement, we are specifying the disputes referred to together with the amounts claimed as under :

 Disputes      Amount claimed 
                   against the 
                   Specified dispute 
 
 XXX  XXX      XXX   XXX 
 
 

7. Despite this letter the Respondents did not take any steps for appointment of an arbitrator for reasons best known to them. The Petitioners under tremendous compulsion had to move the present petition under Section 11(6) of the Act. The petition was filed on 13th April, 1998 and was put up before the Court on 16th April, 1998, on which date notice was issued to the Respondents for 23rd July, 1998 which was served on them on 1st May, 1998 and thereafter the Respondents appointed the arbitrator on 24th June, 1998.

8. It is urged that once the Petitioners invoke the jurisdiction of the Court under Section 11(6) of the Act, the Respondents forfeit the right to appoint an arbitrator and the appointment of an arbitrator after two years of invoking of the Arbitration clause and after filing the petition is a nullity.

9. The argument of learned counsel for the Respondents is that there being no time limit in the Arbitration agreement for appointment of an arbitrator, the filing of an application under Section 11(6) of the Act does not preclude the Respondents from appointing an arbitrator even after the filing of the application. According to learned counsel for the Petitioners, appointment after the filing of the petition is no appointment in the eyes of law and an arbitrator can only be appointed by the Chief Justice or a person designated by him.

10. Learned counsel for the Petitioners in this respect relies upon three judgments of the High Courts of Bombay, Delhi and Andhra Pradesh.

11. Reference has been first made to a decision of Bombay High Court in the case of Naginbhai C.Patel Vs. Union of India, 1999(2) Arb. LR 343 (Bombay).

12. In the said case the Petitioners, a Government contractor as per the terms of Arbitration clause requested the Secretary, Public Works Department (for short PWD) to appoint an arbitrator. The Secretary did not take any action and the Petitioners filed an application under Section 11(6) of the Act. After the filing of the petition the Secretary, PWD, i.e. the respondents appointed an arbitrator. The Respondents pleaded that the application under Section 11(6) of the Act filed by the Petitioners became infructuous as no time was provided in the Arbitration agreement for appointment of an arbitrator and as such filing of an application under Section 11(6) of the Act did not preclude the Respondents from appointing an arbitrator in terms of the Arbitration clause even after the filing of the petition. The Petitioners had waited for about thirty days from the date of demand for appointment of an arbitrator and having failed to receive any response, approached the Chief Justice under Section 11(6) of the Act for appointment of an independent arbitrator. It was held by the High Court of Bombay that the absence of time limit under Section 11(6) of the Act does not mean that the Petitioners could not move the Chief Justice if Respondents failed to appoint an arbitrator within a reasonable time and thirty days were considered to be reasonable time in the facts of the said case.

13. It was further held that since the Petitioners had waited for thirty days for appointment of an arbitrator and as the Respondents had failed to appoint the arbitrator, the objection was not sustainable and the appointment made by the Respondents after filing of the petition under Section 11(6) of the Act was not valid in the eye of the law. An arbitrator was accordingly appointed by the Court.

14. Another decision of Andhra Pradesh High Court in the case of Sharma and Sons Vs. Engineer-in Chief. Army Headquarters, New Delhi and Others, 2000(2) Arb. LR 31 (AP) has been relied upon. In this case also disputes arose between the parties and the Petitioners invoked Arbitration clause and requested the Respondents for appointment of an arbitrator to adjudicate the disputes between the parties. When the Respondents failed to appoint an arbitrator, the Petitioners filed an application under Section 11(6) of the Act for appointment of an independent arbitrator. It was after filing of the application that the Respondents appointed an arbitrator.

15. High Court of Andhra Pradesh held that in view of Section 11(6) of the Act read with sub-Section (8) of Section 11 of the Act, the Respondents had forfeited his right to appoint an arbitrator after the expiry of thirty days from the date of demand for the appointment of an arbitrator. The Court appointed an arbitrator under Section 11(6) of the Act.

16. Learned counsel for the Petitioners has further placed reliance on a decision of Delhi High Court in the case of B.W.L.Ltd Vs. M.T.N.L. and Others, 2000(2) Arbitration Law Reporter 190 (Delhi). In this case over a year had elapsed since the demand for Arbitrator was raised. The Respondents had failed to make the appointment of an arbitrator on the grounds that they had unfettered right to unilaterally decide to recover liquidated damages and this right would not have to await the decision of an arbitrator. The Hon'ble Justice Vikramajit Sen of Delhi High Court while appointing an arbitrator observed, that Section 11 of the Act clearly stipulates that if a party fails to appoint an arbitrator within a period of thirty days from the receipt of a request to do so from the other party the appointment shall be made by the Court. On facts, in this case there was no appointment at all of an arbitrator by the Respondents and an application under Section 11 of the Act was filed and this Court returned the finding that since no arbitrator was appointed within 30 days from the demand, and arbitrator could be appointed by this Court. On facts this case is not applicable to the case in hand, as in the case in hand, the Respondents had appointed an arbitrator but much after the filing of the application under Section 11 of the Act.

17. However, the two cases of Bombay and Andhra Pradesh High Courts referred above do support the Petitioners in the present case. Like the case in hand, in both Bombay and Andhra Pradesh cases the arbitrator was appointed after the filing of the Arbitration Application under Section 11(6) of the Act. However, the finding in both the cases was that the Respondents/appointing authority forfeited their right to appoint an arbitrator after the expiry of thirty days (being reasonable time) from the date of service of request invoking the Arbitration clause and demanding the appointment of an arbitrator in terms thereof.

18. The question as to whether for the purposes of Section 11(6) of the Act, the party to whom a demand for appointment of an arbitrator is made, forfeits his right to do so if he does not appoint an arbitrator within thirty days being the reasonable time for purposes of Section 11(6) of the Act came up for consideration before the Hon'ble Supreme Court in a recent judgment in the case of Datar Switchgears Ltd. Vs. Tata Finance Ltd. and Anr., (2000) 8 SCC 151.

19. The Hon'ble Judges of the Supreme Court after considering the above referred Bombay, Andhra Pradesh and Delhi High Court's judgments held as under:-

"So far as cases falling under Section 11(6) are concerned - such as the one before us - no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view, therefore, so 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 rising 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. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited."

20. The conclusion thus derived from the findings in the above mentioned Supreme Court case is that under Section 11(6) of the Act where no time limit is prescribed if the opposite party has not made an appointment within a period of thirty days of the demand to appoint an arbitrator, the right to appoint is not forfeited and continues, but such right of the opposite party ceases to exit or forfeited if an application under Section 11 of the Act is moved for appointment of an arbitrator. That is to say, that an appointment has to be made by the opposite party of an arbitrator before filing of the application under Section 11(6) of the Act. If the appointment is made after the filing of the application under Section 11 of the Act then such an appointment is a nullity and in fact no appointment in the eye of law. It is non-est.

21. I have carefully considered the rival contention of the parties. The ratio of the Supreme Court authority fully applies to the case in hand. Disputes and differences having been arisen between the parties and the Respondents having failed to respond positively to various letters of the Petitioners for their claim. The Petitioners invoked the Arbitration clause by giving a legal notice dated 15th May, 1996 for referring the dispute to arbitration by appointing an arbitrator as per the terms of the Arbitration clause. There was no positive response from the Respondents. The Petitioners awaited. After a number of requests the Petitioners called upon the General Manager of the Respondents vide their letter dated 30th December, 1997 to act as the sole arbitrator and enter upon the reference and decide the disputes having arisen between the parties. When the Respondents failed to appoint an arbitrator as per the terms of the Arbitration clause and having for a period of almost two years since their first demand for arbitration, they filed the present Arbitration Application under Section 11 of the Act in April, 1998. Notice of this application was served on Respondents on 1st May, 1998. It was after the filing of the application and its service having been affected on them the Respondents appointed an arbitrator vide their letter dated 24th June, 1998. The appointment of the arbitrator was thus after the filing of the Arbitration Application under Section 11(6) of the Act.

22. In view of the facts and circumstances of this case set out above, it is for the Chief Justice or the person designated by him to make the appointment having due regard for considerations set out in sub-Section (8) of Section 11 of the Act and to secure the appointment of an independent and impartial arbitrator and not merely order the recalcitrat party or the appointing authority to act.

23. The petition is, accordingly, allowed with costs.

24. I appoint Hon'ble Mr. Justice Jaspal Singh a retired Judge of Delhi High Court as the sole Arbitrator to decide the disputes and differences between the parties. He will issue notice to the parties on entering upon the reference and shall fix his own remuneration.