Krishak Bharati Cooperative Ltd. vs Alutec Inc.
2002 Latest Caselaw 447 Del

JUDGMENT

S.B. Sinha, C.J.

1. A judgment and order dated 14.09.2001, passed in an application filed by the respondent herein purported to be under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') being A.A. No. 236 of 1998 by a learned Single Judge of this Court, is the subject matter of this writ petition.

2. Having regard to the question involved in this writ petition, it is not necessary to state the facts of the matter in great details.

3. The parties herein entered into a service agreement on 25.11.1994 in terms whereof the respondent was required to provide consultancy services for the "Due Diligence Process" and project implementation activities for engineering, technological, environmental, economic, financial and legal analysis of the three targeted companies identified through the "Search & Screen Process."

4. Pursuant to and in furtherance of the said agreement, services of sub-consultants were taken to prepare "Due Diligence Report" where after a service agreement was executed between the parties on 31.03.1995.

5. The said report was delivered to the petitioner and the final version of the plant acquisition project was submitted on 13.09.1995, recommending acquisition of M/s. Mulberry Phosphates Inc., namely, the Peney Point Chemical Plant and the Wingate Creek Mine.

6. Disputes and differences arose as the petitioner herein allegedly withheld payments against the outstanding invoices.

7. Allegedly both the service agreements provide for reference of disputes to arbitration.

8. The respondent herein filed an arbitration application, which was marked as A.A. No. 109 of 1996.

9. However, the said arbitration agreement was vague inasmuch as no procedure for appointment of an arbitrator had been laid down therein nor the said agreement provides for the number of arbitrator constituting arbitral tribunal.

10. Various contentions have been raised before the learned Single Judge with which this Court is not concerned. Suffice it to point out that Clause 28 of the service agreement dated 25.11.1994 whereupon reliance has been placed by the respondents is as under:-

"ARBITRATION

Except where otherwise provided in agreement, all questions and disputes relating to agreement, design, drawings, specifications, payments, instructions, orders or any other matter concerning WORK or the execution or failure to execute the same, whether arising during the progress of WORK or after completion or abandonment thereof or otherwise which cannot be settled amicable, shall be referred to arbitration. The arbitration shall be conducted under the rules and regulations of the Indian Arbitration Act, 1940 and shall take place in New Delhi in accordance with INDIAN law. The award given by the arbitrators shall be final and binding on both parties and shall be enforceable in the country of the CONSULTANT and India.

WORK shall be continued by the CONSULTANT during the arbitration proceedings unless otherwise directed in writing by owner or unless the matter itself is such that WORK cannot practically be continued until the decision of the arbitrators is obtained. Except as otherwise expressly provided in agreement, no payment due and payable by owner shall be withheld on account of such arbitration proceedings unless it is subject matter or one of the subject matters."

11. It is not in dispute that the service agreement dated 31.03.1995 also contains a similar Clause.

12. The learned Single Judge referring to various decisions relied upon by the learned counsel appearing for the parties came to the conclusion that there exists a valid arbitration agreement between the parties. As regards the procedure, which is to be followed for appointment of the arbitrator and it was held:-

".....On a perusal of the arbitration clause, it appears that the parties had intended to appoint more that one arbitrators. Therefore, in terms of Arbitration Act of 1940 the reference of disputes shall be to two arbitrators and one umpire."

13. Referring to Sub-section (2) of Section 11 of the Act and having regard to the correspondences exchanged by the parties, the learned Single Judge was of the opinion that the dispute was required to be referred to two arbitrators and one umpire and accordingly two retired Judges of this Court, namely, Justice P.K. Bahri and Justice Jaspal Singh were appointed as the arbitrators to decide the disputes between the parties and to appoint a third arbitrator.

14. A Special Leave petition was filed against the said judgment before the Supreme Court o India, which was marked as Petition for Special Leave to Appeal (Civil) No. 20997 of 2001.

15. Having regard to the decision of the Constitution Bench of the Apex Court in Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd. 2002(1) SCALE 465, delivered on 30.01.2002, the said SLP was withdrawn on 11.02.2002.

This writ petition has thereafter been filed.

16. Ms. Bindu Saxena, the learned counsel appearing on behalf of the petitioner would inter alia argue that the purported arbitration agreement being vague, as no fixed procedure having been laid down therein, the impugned judgment cannot be sustained. Strong reliance has been placed in this connection on Konkan Railway Corporation Ltd. and Ors. v. Mehul Construction Co. ; Wellington Associates Ltd. v. Kirit Mehta ; and Teamco Private Ltd. v. T.M.S. Mani, .

17. Strange though it may seem to be, the learned counsel would contend that the learned Single Judge has entered into the merit of the disputes and came to he conlusion that there existed an arbitration agreement and had this for all intent and purport determined the disputes as regards the constitution of the arbitral tribunal, and as such the impugned order cannot be said to be an administrative order.

18. Mr. Rajiv Nayar, the learned counsel appearing on behalf of the respondents, on the other hand, would submit that this writ petition is not maintainable having regard to the Constitution Bench decision of the Apex Court in Konkan Railway Corporation's case (Supra).

19. It is not in dispute that there exists an arbitration clause. It is also not in dispute that before this Court an application was filed under Section 11 of the Act of appointment of an arbitrator. Section 11 of the Act is based on Article 11 of the UNCITRAL Model Law on International Commercial Arbitration.

20. Sub-section (5) of Section 11 of the Act provides for the procedure for appointment of a sole arbitrator. It states, that failing any agreement referred to in Sub-section (2), if there is to be sole arbitrator, the Chief Justice or any person or institution designated by him shall make the appointment at the request of either party if the parties fail to agree on the arbitrator within 30 days from receipt of a request by one party from the other party to so agree.

21. Sub-section (6) of Section 11 of the Act is a mandatory provision and parties cannot derogate from it. Whereas Sub-sections (4) and (5) of Section 11 of the Act deal with removal of obstacles arising in the absence of agreement between the parties on a procedure for appointing the arbitrator or arbitrators, Sub-section (6) seeks to remove obstacles arising when there is an agreed appointment procedure. These obstacles are identified in Clauses (a), (b) and (c) of Sub-section (6) of Section 11 of the Act. They arise when (i) a party fails to act as required under an agreed appointment 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 that procedure. (See arbitration & Conciliation Act by P. Chandresekhar Rao page 25).

22. Sub-section (6) of Section 11 of the Act provides a cure to these problems by permitting the aggrieved party to request the Chief Justice or any person or institution designated by him to take the "necessary measure", i.e., to make the appointment, unless the agreement on the appointment procedure provides other means for securing the appointment, and such means fail to secure the appointment, the aggrieved party may request the Chief Justice or any person or institution designated by him to make the appointment and the other party will not be competent to opt out of such procedure. Sub-section (6) of Section 11 of the Act aims at removing and deadlock or undue delay in the appointment process.

23. In the instant case, procedures have bene laid down by the parties - in that they agreed that the provisions of Law of India operating in the field shall govern the procedure. Both the 1940 Act and the 1996 Act provide for the procedures in this behalf unless the parties otherwise agree, the same must be followed.

24. In first Konkan Railway's case, an order passed by the Chief Justice or his designate in the nomination of an arbitrator was held to be an administrative order. It was held that the Chief Justice or his designate while appoints an arbitrator is not a tribunal and thus such an order cannot be the subject matter of a writ petition for grant of special leave to appeal under Article 136 of the Constitution of India (in short, 'the Constitution').

25. However, the correctness or otherwise of the said decision was doubted in Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd. and therein the matter was referred to a Constitution Bench.

26. In Konkan Railway Corporation's case (Supra), Hon'ble S.P. Bharucha, CJI speaking for the Constitution Bench, affirmed the decision in the first Konkan Railway's case (Supra) and held that the decision of the Chief Justice or his designate is final. It was opined that :-

"19. These is nothing in Section 11 that requires. the party other than the party making the request to be noticed. It does not contemplate a response from that other party. It does not contemplate, a decision by the Chief Justice or his designate on any controversy that the other party may raise, even in regard to its failure to appoint an arbitrator within the period of thirty days. That the Chief Justice or his designate has to make the nomination of an arbitrator only if the period of thirty days is over does not lead to the conclusion that the decision to nominate is adjudicatory. In its request to the Chief Justice to make the appointment the party would aver that this period has passed and, ordinarily, correspondence between the parties would be annexed to bear this out. This all that the Chief Justice or his designate has to see. That the Chief Justice or his designate has to take into account the qualifications required of the arbitrator by the agreement between the parties ( which, ordinarily, would also be annexed to the request) and other considerations likely to secure the nomination of an independent and impartial arbitrator also cannot lead to the conclusion that the Chef justice or his designate is required to perform an adjudicatory function. That the word 'decision' is used in the matter of the request by a party to nominate an arbitrator does not of itself mean that an adjudicatory decision is contemplated.

20. As we see it, the only function of the Chief Justice or his designate under Section 11 is to fill the gap left by a party to the arbitration agreement or by the two arbitrators appointed by the parties and nominate an arbitrator. This is to enable the arbitral tribunal to be expeditiously constituted and the arbitration proceedings to commence. The function has been left to the Chief Justice or his designate advisedly, with a view to ensure that the nomination of the arbitrator is made by a person occupying high judicial office or his designate, who would take due care to see that a competent, independent and impartial arbitrator is nominated."

It was further observed:-

"22. It might also be that in a given case the Chief Justice or his designate may have nominated na arbitrator although the period of thirty days had not expired. If so, the arbitral tribunal would have been improperly constituted and be without jurisdiction. It would then be open to the aggrieved party to require the arbitral tribunal to rule on its jurisdiction. Section 16 provides for this. It states that the arbitral tribunal may rule on its now jurisdiction. That the arbitral tribunal may rule "on any objections with respect to the existence or validity of the arbitration agreement" shows that the arbitral tribunal's authority under Section 16 is not confined to the width of its jurisdiction, as was submitted by learned counsel for the appellants, but goes to the very root of its jurisdiction. There would, therefore, be no impediment in contending before the arbitral tribunal that it had been wrongly constituted by reason of the fact that the Chief Justice or his designate had nominated an arbitrator although the period of thirty days had not expired and that, therefore, it had no jurisdiction."

27. The scheme of the Act is that the competence, impartiality and jurisdiction of the arbitral tribunal having regard to the provisions of Sections 12,13 and 16 of the Act must be made before the arbitral tribunal itself.

28. The contention raised in this writ petition is more or less covered by a recent decision of the Apex Court in Narayan Prasad Lohia v. Nikunj Kumar Lohia and Ors. 2002 (2) SCALE 232, wherein it was held :-

"17. ... A reading of Section 11 would show that it only provides for appointments in cases where there is only one arbitrator or three arbitrators. By agreement parties may provide for appointment of 5 or 7 arbitrators. If they do not provide for a procedure for their appointment or there is failure of the agreed procedure, then Section 11 does not contain any provision for such a contingency. Can this be taken to mean that the Agreement of the parties is invalid. The answer obviously has to be in the negative. Undoubtedly the procedure provided in Section 11 will mutates mutants apply for appointment of 5 or 7 or more arbitrators. Similarly even if parties provided for appointment of only two arbitrators, that does not mean that the agreement becomes invalid. Under Section 11(3) the two arbitrators should then appoint a third arbitrator who shall act as the presiding arbitrator. Such an appointment should preferably be made at the beginning. However, we see no reason, why the two arbitrators cannot appoint a third arbitrator at a later stage i.e. if and when they differ.

This would ensure that on a difference of opinion the arbitration proceedings are not frustrated. But if the two arbitrators agree and give a common award there is no frustration of the proceedings. In such a case their common opinion would have prevailed, even it the third arbitrator, presuming there was one, had differed. Thus we do not see how there would be waste of time, money and expense if a party, with open eyes, agrees to go to Arbitration of two parsons and then participates in the proceedings. On the contrary there would be waste of time, money and energy if such a party is allowed to resile because the Award is not of his liking. Allowing such a party to resile would not be in furtherance of any public policy and would be most inequitable."

29. In any event, all questions including the question of improper constitution can only be raised before the arbitral tribunal.

30. We may notice that even in Konkan Railways's case (Supra), it has been held:-

"8. Special Leave Petition (Civil) No. 19549 of 1999 is directed against the order of the learned Chief Justice of the Gauhati High Court, refusing to appoint an arbitrator, after entertaining contentions issues and deciding the said issues by elaborate consideration, on a finding that there is no valid agreement for arbitration. Even if it was not open for the learned Chief Justice to entertain the contentions issues and decide the same, but since the ultimate order is administrative in nature, as has been held by us and since the learned Chief Justice does not function as a court or tribunal, the order cannot be subject to judicial scrutiny of this Court under Article 136 of the Constitution. The aggrieved party, however, has a remedy to approach the High Court for issuance of a writ of mandamus, if so advised, in accordance with law. It is clarified that the learned Chief Justice not having functioned as a court or tribunal and the order being administrative in nature, the observations and findings are not binding and will not be taken into consideration by the Arbitral Tribunal, if an objection to validity or existence of arbitration agreement is taken before it. Such objection, if taken, shall be decided on its own merits. The special leave petition stands rejected."

31. Reliance placed by the learned counsel for the petitioner on Wellington Associates Ltd.'s case (Supra) is misplaced.

32. However, we may notice that the same learned Single Judge in Malaysian Airlines Systems BHD (II) v. Stic Travels (P) Ltd. (2001) 1 SCC 509 followed the first Konkan Railway's case (Supra) by declining to decide the preliminary issue and refer the matter to an arbitrator.

33. Even the decision of National Aluminum Co. Ltd. v Metalimpex Ltd. (2001) 6 SCC 372 was rendered in a case where the respondents therein failed to nominate their arbitrator and a sole arbitrator was appointed.

34. The contention of Ms. Saxena to the effect that the impugned order of the learned Single Judge is not an administrative one is stated to be rejected. If the same is not an administrative order, the petitioner herein ought not to have withdrawn the SLP from the Supreme Court. It ought to have proceeded with the matter. Even before the Supreme Court, no leave was taken that a writ petition would be filed. An application under Articles 226 and 227 of the Constitution would not lie against the High Court in relation to an adjudicatory order. In Naresh Shridhar Mirajkar v. State of Maharashtra and Anr. , it is stated:-

"(53). It is well settled that the powers of this Court to issue writs of certiorari under Article 32(2) as well as the powers of the High Courts to issue similar writs under Article 226 are very wide. In fact, the powers of the High Courts under Article 226 are, in a sense, wider than those of this Court, because the exercise of the powers of this Court to issue writs of certiorari are limited to the purposes set out in Article 32(1). The nature and the extent of the writ jurisdiction conferred on the High Courts by Article 226 was considered by this Court as early as 1955 in T.C. Basappa v. T. Nagappa, . It would be useful to refer to some of the points elucidated in this judgment. The first point, which was made clear by Mukherjea, J., who spoke for the Court, was that:-

"in view of the express provisions in our Constitution, we need not now look back to the early history or the procedural technicalities of these writs in English law, nor feel oppressed by any difference or change of opinion expressed in particular cases by English Judges. We can make an order or issue a writ in the nature of certiorari in all appropriate cases and in appropriate manner, so long as we keep to the broad and fundamental principles that regulate the exercise of jurisdiction in the matter of granting such writs in English Law."

One of the essential features of the writ, according to Mukherjea, J., is "that the control which is exercised through it over judicial or quasi-judicial Tribunals or bodies is not in appellate but supervisory capacity. In granting a writ of certiorari, the superior Court does not exercise the powers of an appellate Tribunal. It does not review or reweigh the evidence upon which the determination of the inferior Tribunal purports to be based. It demolishes the order which it considers to be without jurisdiction or palpably erroneous but does not substitute its own views for those of the inferior Tribunal. The supervision of the superior Court exercised through writs of certiorari goes on two points, one is the area of inferior jurisdiction and the qualifications and conditions of its exercise; the other is the observation of law in the course of its exercise. Certiorari may lie and is generally granted when a Court has acted without or in excess of its jurisdiction. The want of jurisdiction may arise from the nature of the subject-matter of the proceeding or from the absence of some preliminary proceeding or the Court itself may not be legally constituted or suffer from certain disability by reason of extraneous circumstances. When the jurisdiction of the Court depends upon the existence of some collateral fact, it is well settled that the Court cannot by a wrong decision of the fact give its jurisdiction which it would not otherwise possess."

It is in the light of these principles, which have been consistently followed by this Court in dealing with the problem relating to the exercise of the writ jurisdiction by the High Court under Article 226 or by this Court under Article 32, that we must now proceed to deal with the point before us.

35. Even assuming that a writ petition will be maintainable in a case where an arbitrator has been appointed, despite the fact that there existed no arbitration clause, even such a question cannot be raised herein as an arbitration clause admittedly exists the question is as to whether the said arbitration clause is vague or not.

36. The scope of entertaining the writ petition is limited as has been held by the Constitution Bench of the Apex Court in Konkan Railway's case (Supra). Only in a case where having regard to the absence of the arbitration agreement only in a case where the Court holds that there does not exist any arbitration agreement and thus refused to appoint an arbitrator, a writ petition may be maintainable as has been held in Union of India and Ors. v. Vengamamaba Engineering Co. and Ors. 2001 (4) ALT 45.

37. The Act has brought a sea-change in the matter of reference of disputes and differences to arbitration by reason of the provisions of the Act. Such obligations, which are capable of being taken before the learned arbitrator, cannot be allowed to be taken before this Court by way of a writ petition under Article 226 of the Constitution.

38. In any event, keeping in view the Constitution Bench decision of the Apex Court in Konkan Railway's case (Supra) that a writ petition will be maintainable only when an arbitrator is not appointed, we are of the considered view that this writ petition is not maintainable.

39. This writ petition is accordingly dismissed with costs. Advocates fee is quantified at Rs. 5,000/-.