Tirath Ram Ahuja Pvt. Ltd. vs Indira Gandhi National Centre For ...
2002 Latest Caselaw 1859 Del

JUDGMENT

S.K. Agarwal, J.

1. By this application under Section 11 of the Arbitration and Conciliation Act, 1996 read with Section 151 Code of Civil Procedure (hereinafter referred as "the Act"), petitioner has prayed "for taking the necessary measure" and for appointment of an arbitrator on behalf of respondents, on the ground that despite request dated 10th January, 2001, they have failed to appoint the Arbitrator. First respondent has filed reply opposing the prayer inter-alia pleading that by letter dated 2.9.2002, they have nominated their Arbitrator.

2. Facts necessary for disposal of the petition are: that petitioner filed the above petition pleading therein that they are contractors engaged in the construction industry for several years. First respondent is a trust established by the Government of India, Ministry of Human Resources Development. Second respondent was the construction management agency of first respondent. They called tenders for construction of Kalanidhi Kalakosha for Indira Gandhi National Centre for Arts at No. 5, Rajendra Prasad Road, New Delhi (for short 'IGNCA'). Petitioner's tender was accepted and work was awarded to them for Rs. 23,91,83,798/-. On 23.8.96 parties entered into a contract, which contained the mode of resolution of disputes arising between them (for short, "the agreement"). The Arbitration Clause reads as under:

"3.25.0 ARBITRATION

Save as otherwise provided in the Contract all questions, disputes and differences as to the meaning of the specifications, designs, drawing and instructions herein before mentioned and as to the quality of workmanship or materials used on the works or as to any 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 during the progress of the work or after the completion or abandonment thereof, (the decision whereof is not herein otherwise provided) for shall be referred to the arbitration of three arbitrators, one to be appointed by each party to the Contract and the third to be appointed by the two arbitrators so appointed and the decision of the majority shall prevail. It will be no objection to any such appointment that the arbitrator so appointed is in any way, whether directly or indirectly, concerned or interested in the Trust, or that he had to deal with any matter to which the Contract relates or that in the course of his duties relating to the Trust he has expressed views on any of the matters in dispute or difference. In the event of any arbitrator to whom the matter is originally referred being transferred or being unable or unwilling to act for any reason whatsoever, or dying or otherwise vacating his office as arbitrator, the party or the arbitrators concerned shall appoint another person to act as arbitrator in his place in accordance with the terms of the Contract. Such person shall be entitled to proceed with the reference from the stage at which it was left over by his predecessor. No person other than the person so appointed as arbitrator shall act as arbitrator and if for any reason that is not possible or practicable, the matter shall not be referred to arbitration at all. In all cases where the total amount of all the claims in dispute is Rs. 75,000/- (Rupees Seventy Five thousand) or more, the arbitrators shall give a speaking award supported by adequate material or reasons.

3.25.1 The party invoking arbitration shall specify the dispute or difference to be referred to arbitration under this clause together with the amount or amounts claimed in respect of such dispute or difference.

3.25.2 If the Contractor does not make any demand for arbitration in writing in respect of any question, dispute or difference within Ninety (90) days form the date of receiving intimation from TATA that the final bill is ready for payment, the right of the Contractor(s) to refer such claim to arbitration will be deemed to have been waived and absolutely barred and TATA shall on payment of such bill be discharged and released from all liabilities under the Contract in respect of such claim.

3.25.3 The venue of arbitration shall be New Delhi.

3.25.4 The arbitrators may from time to time with the consent of the parties to the Contract enlarge the time for making and publishing the award.

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

3. The disputes arose between the parties during the execution of work. On 10.1.2001 petitioner invoked the arbitration clause, and nominated Mr. Justice (Retd.), M.K. Chawla, as their nominee arbitrator. The petitioner also called upon respondents to nominate their nominee arbitrator within thirty days, failing which they would be seeking recourse to law. The respondents vide their letter dated 5.2.2001, claimed that request for appointment of the Arbitrator was not in conformity with the provision of Clause 3.25.1 of the agreement, as details of claims were not furnished. By letter dated 6.2.2001, petitioner furnished details of its claims and again called upon respondents to appoint their nominee Arbitrator within 30 days. Thereafter respondents made payment of Rs. 8,377,383/-, to the petitioner, towards partial settlement of their claims. On 12.7.2002, the petitioner wrote two letters to the respondents one acknowledging the receipt of the said amount on ad hoc basis, and other again asking the respondents to settle their claims and also informing them that their earlier nominee Arbitrator Mr. Justice (Retd.) M.K. Chawla had died and that in his place Mr. Justice (Retd.) C.L. Chaudhary was appointed as their nominee arbitrator, Respondents were again called upon to nominate their nominee arbitrator within one month from the receipt of the letter. It is pleaded that the respondents have not nominated their Arbitrator under agreement, thus, they have failed to discharge their contractual obligations. The claims under various heads are also detailed in the petitioner. On these averments, it is prayed that he respondent's right to appoint their nominee arbitrator had ceased, therefore, some independent arbitrator be appointed under Section 11(6) of the Act.

4. The respondents in reply opposed the appointment of any other Arbitrator on their behalf under the agreement. However, they have not denied the agreement and the Arbitration Clause, and various letters exchanged between the parties. It is pleaded that the petitioner is not entitled to the amounts claimed in the petition and that they have appointed Mr. W.D. Dandage, retired Director General, CPWD as their nominee Arbitrator, and that in this regard an intimation was sent to the petitioner on 9.9.2002. The second respondent has not filed any reply. Their case is that they were consultants for the first respondent and were acting on their behalf and that there was no privity of contract between the petitioner and them.

5. Law with regard to appointment of the arbitrator under Section 11 of the Act by the Chief Justice or his designate is well settled by several Apex Court pronouncements. This Section does contemplate a decision by the Chief Justice or his designate, on any controversy between the parties. The Chief Justice or his designate is required to make nomination of an Arbitrator only if the period of thirty days is over. The decision to nominate is not adjudicatory but is administrative. This Section does not contemplate even a response from other party. The only function of the Chief Justice or his designate under Section 11(6) is to fill the gap left by a party to the arbitration agreement. This is to enable the Arbitral Tribunal to the expeditiously constituted and the arbitration proceedings to commence. The Chief Justice or his designate is to ensure that a competent, independent and impartial arbitrator is nominated. Reference: Konkan Railways Corporation Ltd. v. Rani Construction Pvt. Ltd. , (2992) 2 SCC 388 and Konkan Railway Construction Corporation Ltd. v. Mehul Construction Co. , .

6. Learned counsel for the petitioner argued that the respondents have forfeited their right to nominate the Arbitrator in terms of arbitration clause, as they failed to appoint their Arbitrator even after a lapse of more one and half years, after the invocation of the arbitration clause and that the appointment made after filing of the petition is not sustainable in law. Learned counsel for the respondents, on the other hand, argued that there is no time limit in the arbitration agreement, for nomination of the Arbitrator. Mere filing of an application under Sub-section (6) of Section 11 of the Act does not prevent the respondents from appointing an Arbitrator, as per the agreed procedure; that assuming that the respondents have failed to act as per the agreed appointment procedure, the Chief Justice or his designate under Section 11(6) is required to take "the necessary measure" to ensure that the parties give effect to the arbitration agreement by directing them to take steps as per the appointment procedure and then by ensuring that the arbitration agreement is not rendered nugatory by any of the parties, refusing to act in terms of the prescribed procedure. It was further argued that the Arbitrator has since been appointed, therefore, the petition has become infructuous. Reliance was placed on a Single Bench decision in J.L. Prasad v. The General Manager, Southern Railway, Chennai , 2002 (1) Arb.LR 584 (Karnataka).

7. The above question has also been settled by the Supreme Court decision wherein it was held that the appointment, has to be made, before the other party files an application under Section 11. Therefore, the right of the opposite party ceases. In Datar Switchgears Ltd. v. Tata Finance Ltd. and Anr. (2000) 8 SCC 151, it was held:

"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 aromatically 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 arising 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." (emphasis supplied)

8. In this case, the arbitration clause was invoked by letter dated 10th January, 2001 and petitioner intimated the respondents that Mr. Justice (retd.) M.K. Chawla would be their nominee Arbitrator. In response to respondent's letter dated 5th February, 2001, petitioner gave details of the disputes to be referred to the arbitration and amounts up to date against each claim and requested for appointment of their Arbitrator on 6th February, 2001. Therefore respondents made some ad-hoc payments. By two separate letters dated 12th July, 2002, the petitioner acknowledged ad-hoc payments and informed the respondents that their nominated Arbitrator has died and that in his place they have nominated Mr. Justice C.L. Chaudhary (retd.) and again called upon respondents to nominated their Arbitrator within one month from the receipt of the letter. Respondents did not appoint the Arbitrator. The above petition was filed in the Court on 20th August, 2002. Respondents were served on 5th September, 2002. They appeared in the Court on 10th September, 2002 and took time to file reply. On 16th September, 2002, they filed reply, inter-alia, pleading therein that they have nominated Shri W.D. Dandage, Director General (retd.), CPWD as their nominee Arbitrator. Admittedly, the Arbitrator was appointed by the respondents, after service of notice of petition upon them, when the right to appoint the Arbitrator had ceased as per the law laid down by the Supreme Court. It is needless to observe that the law declared and interpreted by the Supreme Court is binding on all courts. With great respect, I am unable to agree with the view taken by the learned Judge in the case relied upon by learned counsel for the respondents. The view taken by me finds support from decisions of this Court in Kiran Construction Co. v. Bhartiya Yantra Nigam Ltd. and Ors. 2001(3) Arb.LR 564 (Delhi) and Nucon India (P) Ltd. v. Delhi Vidyut Board (DESU) , AIR 2001 Delhi 277.

9. Learned counsel for respondents also argued that till date the arbitration has not been invoked in terms of arbitration clause; that in the letter dated 10th January, 2001, details of the claims were not mentioned; and that same is the position in the letter dated 6th February, 2001. In any case, after 6th February, 2001, parties were negotiating, the petitioners admittedly received payment of more than Rs. 83.0 lacs after 6th February, 2001; by letter dated 12th July, 2001, the petitioner acknowledged the receipt of said amount. Therefore, the question of nomination of the Arbitrator by the respondents did not arise.

10. I do not find any merit in the above contention. Admittedly the arbitration clause was invoked on 10th January, 2001, and respondents were informed that the petitioners have nominated Mr. Justice M.K. Chawla (retd.) as their Arbitrator. The details of various claims were furnished on 6th February, 2001. The letter dated 12th July, 2002 was in continuation with the previous letters. Payment of some money after the invocation of the arbitration clause would not automatically defeat the right of the petitioner to get other claims adjudicated, as per the agreement. In any case, the question whether there was proper invocation of the Arbitration clause or not cannot be decided here and the same will to be adjudicated by the Arbitrators.

For the foregoing reasons, a case for nomination of an independent and impartial Arbitrator on behalf of respondents is made out. Accordingly, Shri Muni Lal Jain, (formerly member of Delhi Higher Judicial Service), Chamber No. 7, Lawyer's Chambers, Delhi High Court, New Delhi is hereby appointed as the Arbitrator on behalf of the respondents in terms of arbitration clause. The fee of the Arbitrator is fixed,for the present, at rupees six thousand per hearing, subject to the maximum of rupees one lac fifty thousand. The arbitrator, Along with the nominee arbitrator of the petitioner, would appoint the third arbitrator in terms of the arbitration clause and proceed to adjudicate the disputes between the parties in accordance with law.

With the above direction, petition stands disposed of. Copy of order be sent to the parties as well as to the Arbitrators.