Modi Korea Telecommunications ... vs Union Of India (Uoi)
2002 Latest Caselaw 691 Del

JUDGMENT

D.K. Jain, J.

1. These are three applications under Section 11(6) of the Arbitration and conciliation Act, 1996 (for short the Act), praying for appointment of a sole arbitrator to resolve the disputes and differences, which are stated to have arisen between the parties, separately in each of the applications. Since the material facts and the issues arising for consideration are common, all the three applications are being disposed of by this common order.

2. Shorn of unnecessary details, the facts of AA 117/01 shall be referred to as being illustrative.

Sometime in the year 1994, the Department of Telecommunications, hereinafter referred to as the DOT, invited tenders for the purpose of introducing radio paging services in 18 different territorial circles of India. The tenderers were free to bid for all or any number of territorial circles. Tender submitted by the applicant company was accepted and accordingly it was awarded license for the Madhya Pradesh circle. The letter of intent by the DOT was issued on 30 November 1995 and on 15 January 1996, a formal license agreement was signed between the applicant and the DOT, granting license to the applicant to operate radio paging services in the said circle, initially for a period of ten years. Condition 18 of the license agreement inter alia, provided for payment of yearly (as equal quarterly Installments) license free with certain other stipulations contained therein. In terms of the license agreement the applicant furnished the requisite financial and performance bank guarantees to secure regular payment of license fee and due performance of obligations under the agreement.

3. The applicant alleges that installation and commissioning of the project having been delayed on account of certain acts of omission and commission on the part of the DOT as well as other governmental organisations, it could not make payment of license fees as stipulated under the agreement, whereupon, vide their letter dated 18 March 1997, the respondent invoked the financial bank guarantee for payment of Rs. 42,20,924/- towards quarterly license fee. Aggrieved by which, the applicant took recourse to various proceedings in this court; before the Telecom Regulatory Authority and in the Supreme Court. However, ultimately, all interim orders passed initially in favor of the applicant were vacated concluding proceedings for encashment of bank guarantee, for reasons, not relevant for disposal of these applications.

4. Since according to the applicant, disputes had arisen under the license agreement including the respondent's invoking and encashment of the bank guarantee, the applicant, vide its letter dated 2 January 2001, called upon the Secretary, DOT to either hold that no dues towards license fees were payable by the applicant or, in the alternative, these were to be restricted to a maximum period of three months but if he was unable to so hold, then appoint an independent arbitrator to resolve these issues. The said letter was preceded by another letter dated 15 December 2000, addressed to the Minister of Communications with similar prayers. Since there was no response to the said letters. the present applications were filed on 23 April 2001 for appointment of an independent arbitrator on the plea that the DOT having failed to appoint an arbitrator within thirty days of the aforenoted notices, they had forfeited their right to appoint an arbitrator in terms of the arbitration clause.

5. The applications are resisted by the DOT mainly on the ground that the applicant had failed to invoke the arbitration clause strictly as per the procedure laid down in the arbitration clause, in that, instead of asking for appointment of the Director General, DOT or his nominee as the arbitrator, the applicant had requested for appointment of an independent arbitrator, which was not in consonance with the terms/procedure prescribed in the arbitration clause and, therefore, there is no occasion for this Court to exercise its powers under Section 11 of the Act.

6. It appears that during the pendency of these applications, the applicant, referring to its earlier letters dated 15 December 2000 and 2 January 2001 etc., addressed a letter, dated 14 September 2001, to the Director General, DOT calling upon him to appoint an arbitrator to adjudicate upon the disputes which had arisen between them. With reference to the said letter, on 29 November 2001, the Assistant Director General addressed a letter to the applicant, to state:

"The undersigned is directed to refer to your letter dated 14.9.2001 on the subject referred above. Kindly arrange to clarify whether the appointment of an arbitrator is required as per provisions in the license Agreement. It may also be mentioned here that so far as the court cases pending in Delhi High Court are concerned, your request is for appointment of an independent arbitrator. Kindly arrange to clarify the same at the earliest to enable this office to take further necessary action."

7. Though the applicant did not respond to the said letter, but, vide letter dated 13 December 2001, the Director General informed the applicant that Shri N. Parameshwaran, DDG(LR) DOT had been appointed as the sole arbitrator to determine the disputes and differences so far that are referable to the arbitration. The letter reads thus:

"Whereas certain disputes and differences have arisen between you (Licensee) and the Licensor, the President of India under the aforesaid license agreement and thereupon you requested that a reference of the said disputes and differences be made to arbitration.

Whereas the license agreements cited above are subject to condition No. 16 which provides for reference of disputes and differences arising under the license agreement to the sole arbitration of the Director General Telecommunication or an officer appointed to be the sole arbitrator by the said Director General.

Now, therefore, by virtue of aforesaid condition No. 16 of three license agreements, I, Shyamal Ghosh, Director General, Telecommunication, nominate and appoint Shri N. Parameshwaran, DDG (LR) DOT as sole arbitrator to hear and determine the said disputes and differences so far that are referable to the arbitration."

8. The short question, therefore, is whether applicant's request for appointment of an arbitrator, made in these applications is in order ?

9. I have heard Mr. Rajiv Nayar, learned senior counsel for the applicant and Mr. Neeraj K. Kaul, learned counsel for the DOT.

10. Mr. Nayar submits that there being no specific stipulation in the arbitration clause requiring a request for appointment of arbitrator to be specifically addressed to the Director General and as it did ultimately reach him for action, by failing to act within 30 days, he forfeited his right to do so subsequently, in any case after the filing of these applications. Alternatively, it is urged that assuming that the request in earlier letters, not addressed to the Director General, were taken to be not in order, Since the Director General failed to appoint an arbitrator within thirty days from the receipt of applicant's letter dated 14 September 2001, admittedly addressed to him, the DOT has forfeited its right to appoint an arbitrator in terms of the said clause. In support, reliance is placed on the decision of the Supreme Court in Datar Swtichgears Limited v. Tata Finance Limited and Anr. (2000) 8 SCC 151 and the constitution bench decision of the Apex Court in Konkan Railway Corporation Limited and Anr. v. Rani Construction Pvt. Ltd. .

11. Mr. Kaul, on the other hand, while reiterating the aforenoted stand of the respondent, has submitted that since the applicant, in its letter dated 2 January 2001, had asked for appointment of an independent arbitrator, it had not followed the procedure laid down in the arbitration agreement and, therefore, the applicant could not complain that the DOT had failed to comply with their statutory obligations under the arbitration clause. It is asserted that, in any case, on the nomination of an arbitrator by the Director General, by letter dated 13 December 2001, these applications are rendered infructuous. In support of the first proposition he has relied on the decisions of the Supreme Court in Shetty's Construction Company Pvt. Ltd. v. Konkan Railway Corporation Limited and Anr. , Bhupinder Singh Bindra v. Union of India and Anr. and of this Court in Modi Korea Telecommunications Ltd. v. Deptt. of Telecommunications 2000 III AD (Delhi) 101.

12. Since the parties are ad idem on the question of existence of arbitration agreement and the disputes between them, the only issues arising for consideration are: (i) whether the applicant had followed the procedure laid down in Clause 16.1.1 of the license agreement in connection with the demand for appointment of an arbitrator for resolving the disputes between the parties and (ii) if answer to the first issue is in the negative, whether the nomination of an arbitrator by the Director General, vide his afore-extracted letter dated 13 December 2001, after receiving notice in these applications and applicant's letter dated 14 September 2001, has rendered these applicant infructuous ?.

13. The answer to the first question, in my view, is in the affirmative and to the second, in the negative. The relevant portion of the arbitration clause, contained in the license agreement reads thus:

"16. Arbitration

16.1.1. In the event of any question, dispute or difference arising under this license, or in connection thereof, except as to the matter, the decision of which is specifically provided under this license, the same shall be referred to the sole arbitration of the Director General, Telecommunications, or in case his designation has changed, or his office is abolished, then, in such case, to the sole arbitration of officer for the time being entrusted, whether in addition to the functions of the Director General, Telecommunications or by whatever designation such officer may be called (hereinafter referred to as the said officer), and if the Director General, Telecommunications or the said officer is unable or unwilling to act as such, to the sole arbitration, then some other person appointed by the Director General Telecommunications or the said officer.

xxxxx."

14. From a bare reading of the above extracted clause, it is evident that the DOT has taken a hyper technical objection that instead of asking the Director General to appoint himself as the arbitrator or nominate someone, the applicant had requested the Secretary, DOT to appoint an "independent arbitrator" in the event he was unable to decide the issues raised in the letter. It is not the case of the DOT that the said communication was not received by them. Their only objection is that application's demand for appointment of an "independent arbitrator" was not in accordance with the procedure laid down in Clause 16.1.1 of the agreement and, therefore, they were not obligated to appoint an arbitrator.

15. Though, strictly speaking, it could be said that applicant's letter to the Secretary, DOT was misdirected as the officer of the Secretary does not figure in the arbitration agreement but receipt of the said letter by the Director General not being contested his inaction thereon, in my view, is not in consonance with the letter and spirit of the arbitration agreement between the DOT and the applicant. The Director General would have been perfectly justified if he had appointed himself or his nominee as the arbitrator despite applicant's demand for appointment of an independent arbitrator.

16. The ratio of the decision of the Supreme Court in Shetty's Construction case (supra) is not applicable to the facts of the present case. In that case, the relevant clauses pertaining to the disputes had laid down strict time frame for presenting the final claim; for the authorities to consider whether the final and crystalised claim of disputed matters either during the pendency of the contract or after its termination or even after the final bills got prepared were required to be granted wholly or partly or not at all; on the expiry of ninety days for the contractor to raise those claims to demand arbitration, in writing, within a further three months, i.e. within the upper limit of six months from the date of raising of such final claims, which is not the case here. In the present case, except for the fact that the arbitrator had to be the Director General or his nominee, there is no such time bound procedural requirement in the arbitration clause. Similarly the decisions in Bhupinder Singh Bindra and Modi Korea cases (supra) were decided on their own facts and in those cases, the situation with which I am concerned, did not exist.

17. In the instant case, having regard to the terms of the arbitration clause, in my opinion, the Director General was not justified in declining to act on the applicant's demand for appointment of an arbitrator, merely because the letter seeking to invoke the arbitration clause was not specifically addressed to him, but to the Secretary, DOT, who seemingly had forwarded the said letter to the Director General. In fact, the Director General himself felt so when he ultimately, apparently acting on the self same requisitions, but after the expiry of thirty days, he himself, vide his letter dated 13 December 2001, purported to appointed Shri N. Parameshwaran to act as an arbitrator. In my view, the DOT have forfeited their right to appoint an arbitrator.

18. Again, during the pendency of these applications, the applicant wrote a letter to the Director General on 14 September 2001, saying:

"xxxxx.

As per Clause 16 of the license Agreement, the aforesaid disputes have to be adjudicated upon by an arbitrator. Despite our various reminders vide our letter dt. 15.12.2000, 2.1.2001, 30.4.2001, 14.5.2001 and 31.5.2001 you have not appointed the arbitrator to adjudicate upon the disputes between the parties. We once again call upon you to forthwith appoint an arbitrator to adjudicate upon the same. You may note that if you fail to appoint the arbitrator immediately, then we shall be constrained to take all steps necessary to safeguard our rights and the costs and consequences thereof shall be solely to your account."

19. There was no response to the said letter till 29 November 2001, when the letter was issued to the applicant seeking clarification. It is pertinent to note that though the said letter was not replied to the Director General, vide his letter dated 13 December 2001, five days before the next date of hearing in these applications, (without indicating in response to which letter(s), earlier or 14 September 2001) nominated an arbitrator. This he did without applicant's response to his earlier query seeking clarification. The fact remains that the arbitrator was not nominated by the Director General within the statutory time limit after the receipt of letter dated 14 September 2001 calling upon him to appoint an arbitrator.

20. True that in Datar Switchgears case (supra) the Supreme Court observed that as far as Section 11(6) of the Act is concerned, if one party demands the opposite party to appoint an arbitrator or the opposite party does not make the appointment within thirty days of the demand, the right to demand does not get automatically forfeited after the expiry of thirty days, if the opposite party makes the appointment even after thirty days of demand but before the first party had moved the Court under Section 11, that would be sufficient, which, as noted above, is not the case here. In the present case, as noticed above, the arbitrator had admittedly not been nominated before the filing of the applications under Section 11(6) of the Act. Looked at from any angle, the irresistible conclusion is that the Director General having failed to appoint an arbitrator within thirty days from the date of requests made to do so, the right of the Director General to appoint an arbitrator got forfeited. In my opinion, therefore, the nomination of an arbitrator by the Director General, vide his letter dated 13 December 2001, cannot be held to be valid.

21. For the foregoing reasons, all the three applications are allowed and Mr. Justice S.C. Aggarwal, a former Judge of the Supreme Court of India, is appointed as the sole arbitrator to resolve the differences/disputes between the applicant and the DOT, subject matter of these applications. The learned arbitrator shall fix his own fees in consultation with counsel for the parties.

22. The applications stand disposed of in the above terms.

23. This order shall be communicated to the arbitrator directly by the office. Another copy be issued dusty to counsel for the parties for being delivered to the learned arbitrator.