Kurup Engineering Company Pvt. ... vs Bharat Heavy Electricals Ltd. And ...
2005 Latest Caselaw 1056 Del

JUDGMENT

R.C. Jain, J.

1. This is a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'Act') seeking appointment of a Sole Arbitrator for settlement of the claims/disputes raised by the petitioner.

2. The petition has been made with the averments that the petitioner-company was awarded the work for erection, testing, commissioning and trial operation of 1x100 TPH HRSG set at IOCI Mathura Refinery Co. Gen. Plant Phase III, Mathura (UP) by the respondents by means of letter of intent dated 23.10.2003. The contract contains an Arbitration Agreement which provides that all disputes between the parties arising out of or in relation to the contract, other than those for which the decision of the Engineer or any other person is by the contract expressed to be final and conclusive, shall after written notice by either party to the other party, be referred to sole arbitration of the General Manager or his nominee. The arbitration was to be continued in accordance with the provisions of the Arbitration and Conciliation Act, 1996. It is alleged that disputes/differences arose between the parties and so by a noticed dated 18.10.2004, the petitioner invoked the Arbitration and called upon the respondent to appoint the Arbitrator within 30 days of the receipt of the said notice. It is alleged that the respondent failed to do so and hence this petition.

3. On being noticed by the Court, the respondents opposed the present petition by filing a reply thereby raising preliminary objections that the petition is misconceived because the respondent has taken prompt steps to appoint the Sole Arbitrator in accordance with the Arbitration Agreement and the Arbitrator was appointed within 30 days from the date of receipt of the letter of the petitioner, even though no such time limit is applicable in this case and that the Arbitrator so appointed has entered the reference and has commenced the proceedings. It is stated that the notice dated 18.10.2004 issued by the petitioner was received in the office of the respondent in the evening of 29.10.2004 only and after completing the procedural requirements, the sole Arbitrator was appointed on 29.11.2004 before any notice of the present petition was received by the respondent from this Court. It has been prayed that the Sole Arbitrator so appointed by the respondent may continue to act as the Arbitrator as no prejudice has been caused to the petitioner by continuance of the said Arbitrator. It is denied that after the appointment of the Sole Arbitrator by the respondent, the petitioner is entitled to the appointment of another Arbitrator by this Court.

4. In the rejoinder filed on behalf of the petitioner, the objections and pleas raised in the reply of the respondent have been controverter and averments and allegations made in the petition are reiterated. It is not denied that vide a letter dated 29.11.2004 the respondent appointed the sole Arbitrator but it is denied that the appointment of the Sole Arbitrator was made within the stipulated period and consequently it is pleaded that the appointment of the Sole Arbitrator beyond the time limit is illegal and invalid. It is also pleaded that the respondent has forfeited its right to appoint the Arbitrator after the expiry of the stipulated period, and, therefore, the petitioner is within its rights to seek the appointment of an independent Arbitrator other than the Sole Arbitrator envisaged in the Arbitration Agreement or the one appointed by the respondent.

5. As the Sole Arbitrator appointed by the respondent had entered into the reference, the petitioner moved an application IA No. 453/2005 under Section 9 of the Act praying for the stay of the arbitral proceedings before the Sole Arbitrator Shri Jitender Kumar and for the stay of the order dated 5.1.2005 passed by the said Arbitrator in the said proceedings. Vide an order dated 17.3.2005, this Court directed that the proceedings before the Sole Arbitrator shall remain stayed till the disposal of the present petition.

6. I have heard Mr. Anupam Lal Das, learned counsel representing the petitioner and Mr. M. K. S. Menon, learned counsel representing the respondent and have bestowed my anxious and thoughtful consideration to their respective submissions.

7. This case once again raises a vexed question in regard to the interpretation of the provisions of Section 11 in particular of sub-section (6) of the Act and about the scope of jurisdiction, power and authority of the Chief Justice of High Court or his designate to appoint an Arbitrator or to fill the gap left by a party to the Arbitration Agreement or by the two Arbitrators by the parties and nominate an Arbitrator. The relevant part of Section 11 of the Act is extracted below for the facility of reference:

Appointment of arbitrators:-

(1)      x       x      x
 

(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
 

(3)      x       x      x
 

(4)      x       x      x
 

(5)      x       x      x
 

(6)  Where, under an appointment procedure agreed upon by the parties,-
  

(a) a party fails to act as required under that procedure; or
 

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
 

(c ) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,
 

a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
 

8. It may be noticed at once that sub-section (1) to (8) of Section 11 of the Act adopt the substance of all the five sub-sections of Article 11 of the 'UNCITRAL MODEL LAW'. It may also be stated that the heading of this Section 11 'appointment of Arbitrator' is misleading because its text deals with the 'procedure to appoint Arbitrator'. This section recognizes the parties maximum freedom to agree on a procedure for constituting an Arbitral Tribunal and has given the power to the Chief Justice or its designate to appoint an Arbitrator or to supply the vacancy only in case the parties fail to agree on the procedure so agreed. Section 11(2) grants freedom to the parties, to agree on procedure for appointing the Arbitrator or Arbitrators and also to provide the means for securing the appointment in such procedure. It is well settled that the parties are free to agree on procedure for appointing the arbitrator or arbitrators by making appropriate provision in the 'arbitration clause' or the Agreement. The most satisfactory situation is where the parties agree on their Tribunal envisaged in the Agreement and the need of the third party e.g. the institution to act would arise only if a party has defaulted. However, the freedom of the parties to agree upon the appointment procedure is not unfettered and such freedom is restricted and is subject to sub-section (6) of Section 11. This provision states that unless the Agreement on the appointment procedure provides other means for securing the appointment, the party may request the Chief Justice or any person or institution designated by him to take necessary measure to secure the appointment of an Arbitrator. Such request can be made in the following three situations:

(i) a party fails to act as required under that procedure; or

(ii) the parties or the two appointed Arbitrators fail to reach an agreement expected of them under the procedure; or

(iii) a person including an institution, fails to perform function entrusted to him under that procedure.

9. Section 11 of the Act is attracted and can be invoked in a situation where the parties have agreed upon the appointment procedure but have not provided the means for securing the appointment of the Arbitrator or Arbitrators named in the Agreement. It provides for assistance of the third party, viz, the Chief Justice or any person or institution designated by him to take the necessary measure only in case of failure to act or agree or in order to avoid deadlock or undue delay in securing the appointment of the Arbitrator by enforcing the procedure agreed upon by the parties. It is relevant to note that sub-section (6) unlike sub sections (4) and (5), does not prescribe any time limit for the parties to appoint the Sole Arbitrator or for the Arbitrators appointed by them to agree upon the third Arbitrator. This may be for the reason that such time limit is normally provided in the procedure agreed upon by the parties.

10. In the present case, the Arbitration Agreement does not provide for any time limit for constituting the Arbitral Tribunal after one party has invoked the Arbitration and sought for the appointment of the Arbitrator but that does not mean that the other party can sit over the matter up to indefinite or any undue long period. Therefore, the core question which arises in each case would be whether the other party has acted promptly and with due dispatch or within the reasonable period or acted after undue delay or defaulted in taking action. In absence of any time limit specified in the Statute or Arbitration Agreement, no straight jacket formula can be evolved laying down the time period which can be considered to be reasonable or otherwise. This will necessarily depend on the facts and circumstances of the each case.

11. Learned counsel for the petitioner on the strength of the Supreme Court decision in the case of Datar Switchesgears Ltd. v. Tata Finance Ltd. and Anr. has emphatically urged that the appointment of the Sole Arbitrator by the respondent vide a communication dated 29.10.2004 is no appointment in the eyes of law because the appointment was made beyond the period of 30 days of the receipt of the notice of the petitioner dated 18.10.2004 and even after the filing of the present petition by the petitioner on 25.11.2004. In this connection, he has placed reliance on para 19 of the said decision which reads as under:

"So far as cases falling under Section 11 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 and Section 11 of the Act. In our view, therefore, so far as Section 11 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 arising under Section 11, 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 is forfeited."

12. Though in the reply to the petition a half hearted attempt was made on behalf of the respondent to project that the notice of the petitioner dated 18.10.2004 was received by them on the evening of 29.10.2004 and on receipt of the same, they promptly processed the case and appointed the Arbitrator within 30 days of the receipt of the notice, yet at the hearing, learned counsel for the respondent taking note of the certificate issued by the postal authorities certifying that the communication dated 18.10.2004 emanating from the petitioner was delivered in the office of the respondent on 20.10.2004, the learned counsel for the respondent did not dispute the factual position about the receipt of the said communication on 20.10.2004. He however, urged that assuming the notice was served on 20.10.2004, the appointment of the Sole Arbitrator made by the respondent vide a communication dated 29.11.2004 must be considered as a due discharge of the obligation of the respondent to appoint the Arbitrator under the Arbitration Agreement. He has urged that the judgment in the case of Datar switchesgears ltd.(Supra) was passed by the Supreme Court per incurium and on the facts of that case and taking note of the submissions made by the learned counsel for the respondent. He submitted, and rightly so, that the legal position which emerges from the above authority is that Section 11 does not prescribe any time limit, least the period of 30 days within which the party must act on receipt of the notice. Now, the question is if the legislature in its wisdom has not prescribed any time frame for any party to act is it open for the Court to interpose a time limit in that behalf? In the opinion of this Court, the answer should be plainly in the negative because prescription of time limit under sub-section (4) and (5) and non-prescription of any time limit under sub-section (6) must be with the some object. The object is loud and clear and it is that if the parties have agreed to a procedure for appointment of an Arbitrator, the same should be given effect to and the parties in the first instance must exhaust the said procedure and the Court should not prematurely interdict in the matter of appointment of an Arbitrator by thrusting its own Arbitrator on the parties. It is an established legal proposition that the Arbitration Agreement is the very foundation for settlement of disputes between the parties through the mechanism of arbitration and is the fountain head of the rights and obligations of the parties and that of the arbitrators power and authority to resolve the dispute between the parties. The Arbitration Agreement is a commercial document and it must be interpreted so as to give effect to the contract rather than to invalidate it. The parties with open eyes provide for a dispute resolution mechanism and forum for themselves and one party cannot be allowed to wriggle out the terms of the said agreement on certain hypertechnical grounds by taking advantage of a few days gap in appointing the Arbitrator. The Arbitrator selected by the parties is considered to be the best person to resolve the dispute between the parties. Merely because the Arbitrator envisaged by the Agreement is the officer of the respondent viz. the General Manager or a person nominated by him should not give any apprehension in the mind of the petitioner that he will not act independently and fairly.

13. As noticed above in absence of any time limit prescribed in Section 11 or in the Arbitration Agreement for the appointment of an Arbitrator by the respondent, it cannot be said that there was any delay much less undue or unreasonable delay on the part of the respondent to act on the notice of the petitioner dated 18.10.2004. The respondent it would appear has appointed the Arbitrator within a reasonable period and in any case before receipt of the notice of these proceedings from the Court. The said appointment of the Arbitrator is fully inconsonance with the terms of the Arbitration Agreement. The mere incidence that the present petition has been filed a few days (4-5 days) before the appointment of the Arbitrator, the same cannot be considered to be a default on the part of the respondent in acting on the request of the petitioner to constitute the Arbitral Tribunal. Therefore, it is not possible to hold that the respondents had forfeited their right to appoint the Arbitrator as soon as the present petition was filed by the petitioners thereby opening a vista for the petitioner to seek the appointment of another Arbitrator than that specified in the Arbitration Agreement. Such a course would hit at the very root of the Arbitration Agreement. Assuming for the sake of argument that the respondent had forfeited their right to appoint the Arbitrator and the petitioner was entitled to invoke the authority and jurisdiction of this Court for the purpose of appointment of the Arbitrator, still this Court on the face of the Arbitration Agreement would have preferred to appoint the General Manager or any other officer of the respondent to settle the disputes and differences between the parties rather than any other person having regard to the nature of the disputes and differences said to have been raised by the petitioner. Even otherwise no prejudice can be said to have been occasioned to the petitioner on account of the alleged 4-5 days' delay in the appointment of the Arbitrator by the respondent.

14. In the result, this Court is of the considered opinion that on the appointment of the Sole Arbitrator by the respondent, the present petition has become infructuous and has to be disposed of as such. The Arbitrator so appointed has already entered the reference and must resume the arbitral proceedings so as to answer the reference and resolve the dispute between the parties by making an Award in accordance with law.

15. The petition is hereby disposed of as having become infructous while IA No. 453/2005 is dismissed and the ad-interim order staying the arbitral proceedings is hereby vacated.