Shri Neeraj Goel vs Union Of India (Uoi) And Ors.
2005 Latest Caselaw 469 Del

JUDGMENT

T.S. Thakur, J.

1. In this petition under Section 11 of the Arbitration and Conciliation Act, 1996, the petitioner has sought filing of the original arbitration agreement in the court and reference of the disputes between the parties to an independent arbitrator for adjudication.

2. The facts giving rise to the present proceedings may be summarised as under:-

3. The petitioner is a railway contractor. A contract for certain civil and other allied works between kilometers 15 to 25 on the new railway line from Chandigarh to Ludhiana was allotted to the petitioner in terms of an agreement executed between the parties on 5th October, 2001. In terms of communications dated 31st August, 2001, 18th September, 2001 and 31st December, 2003, the petitioner was notified about its failure to complete the work by deploying sufficient men, machinery and other resources required for that purpose. The notices called upon the petitioner to mobilise and deploy the resources required, failing which the respondents proposed to rescind the contract and have the same carried out at the risk and cost of the petitioner. According to the respondents, the notices did not have the desired effect on the petitioner forcing them to terminate the contract in terms of clause 62 of the general conditions of the contract by order dated 2nd January, 2004 Fresh tenders were thereafter floated by the respondents for execution of the incomplete work. Disputes, in the above backdrop, appear to have arisen between the parties, a reference whereof was sought by the petitioner to arbitration. On receipt of the said request, the Chief Engineer by letter dated 5th March, 2004 called upon the petitioner to submit a break up of the claims which the petitioner proposed to make against the railways. In response to the said communication, the petitioner by his letter dated 9th April, 2004 furnished the detail of his claims against the respondents. The petitioner also claims to have sent a request to the General Manager, Northern Railways, stating that since the contract had been terminated illegally and fresh tenders floated, proper measurements of the works executed by the petitioner be taken and the claims referred for adjudication to the arbitral tribunal. The petitioner's case in the present petitioner now is that the respondents have not made any reference to arbitration so far and have there by forfeited their right to do so. The petition further states that clause 64 (3) (a)(ii) of the general conditions of contract governing the works in question is contrary to the scheme of Arbitration and Conciliation Act, 1996. The petitioner was not according to the petition, in a position to bargain with the respondents at the time of entering into the agreement. He had, therefore, no option but to agree to the said clause which is, according to the petitioner, totally unconscionable and arbitrary. The petitioner has, therefore, prayed for appointment of an independent arbitrator by the court and reference of the disputes raised in the petition to him for adjudication.

4. The respondents have filed a short reply on the affidavit of the Deputy Chief Engineer, Northern Railways, Chandigarh. Apart from denying the allegations made in the petition and asserting that the termination of the contract was valid and justified, the reply points out that in terms of clause 64 of the general conditions of contract, a panel of four gazetted officers of Northern Railways had been conveyed to the petitioner to enable him to suggest two names out of the said panel. It is submitted that the petitioner has not responded to the communications sent to him in that regard nor nominated two persons out of the panel of names sent to him. There is, therefore, no question of any failure on the part of the respondents to nominate the arbitrators and to refer the disputes to him for adjudication. The allegation that the procedure regarding nomination of the arbitrators is arbitrary and unconscionable has been denied. It is asserted that any disputes between the parties have to be referred to an arbitral tribunal of three arbitrators one of whom had to be chosen by the petitioner out of the panel conveyed to him. Since he has not complied with the procedure envisaged by clause 64, the present petition seeking appointment of an arbitrator fro the court was misconceived and deserved to be dismissed.

5. I have heard learned counsel for the parties at some length and perused the record. The material facts are not in dispute. That a contract for the execution of the works in question was entered into between the parties is admitted. That the said contract was terminated by the respondents on the allegation that the petitioner had not completed the work within the stipulated period by deploying the requisite men and machinery for the said purpose is also evident from the record. That the petitioner had disputed the legality of the termination and made claims against the respondents is also common ground. That the disputes had arisen on account of the termination of the contract and the assertion of the claims by the petitioner which have to be adjudicated upon by way of arbitration is also not denied. The only question which falls for consideration in the above backdrop is whether the procedure prescribed for nomination of the arbitrators is, in any manner, unfair, arbitrary or unconscionable and whether the said procedure has been breached by anyone of the parties. Clause 64 of the general conditions of contract applicable to the contract in question, to the extent, the same is relevant may be extracted at this stage:-

"64 (1) (i)Demand for Arbitration-In the event of any dispute or difference between the parties hereto as to the construction or operation of this contract, or the respective rights and liabilities of the parties on any matter in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the contractor may claim to be entitled to, or if the Railway fails to make a decision within 120 days, then and in any such case, but except in any of the 'excepted matters' referred to in clause-63 of these conditions, the contractor, after 120 days but with in 180 days of his presenting his final claim on disputed matters, shall demand in writing that the dispute or difference be referred to arbitration.

64(1)(ii)- The demand for arbitration shall specify the matters which are in question or subject of the dispute or difference as also the amount of claim itemwise. Only such dispute(s) or difference(s) in respect of which the demand has been made, together with counter claims or set off shall be referred to arbitration and other matters shall not be included in the reference.

64(1)(ii)(a)-the Arbitration proceeding shall be assumed to have commenced from the day, a written and valid demand for arbitration is received by the Railway.

(b) The claimant shall submit his claim stating the facts supporting the claim Along with all relevant documents and the relief or remedy sought against each claim within a period of 30 days from the date of appointment of the Arbitral Tribunal. The Railway shall submit its defense statement and counter claim(s), if any, within a period of 60 days of receipt of copy of claim from Tribunal thereafter unless otherwise extension has been granted by Tribunal.

64(3)(a)(ii)-In cases not covered by clause 63(3)(a)(i), the Arbitral Tribunal shall consist of a panel of three Gazetted Rly. Officers not below JA grade, as the arbitrators. For this purpose, the Railway will send a panel of more than 3 names of Gazetted Rly. Officers of one or more departments, of the Rly. To the contractor who will be asked to suggest to General Manager up to 2 names out of panel for appointment as contractor's nominee. The General Manager shall appoint atleast one out of them as the contractor's nominee and will, also simultaneously appoint the balance number of arbitrators either from the panel or from outside the panel, duty indicating the presiding arbitrator from amongst the 3 arbitrators so appointed. While nominating the arbitrators it will be necessary to ensure that one of them is from the Accounts department. An officer of Selection Grade of the Accounts department shall be considered of equal status to the officers in SA grade of other departments of the Railways for the purpose of appointment of arbitrators.

6. The present case does not fall under clause 64 (iii) (a) (i) as the value of the claims admittedly was in excess of Rs. 10 lacs. The procedure prescribed in clause 64 (iii)(a)(ii) is what is applicable to the case at hand. A closer reading of the said provision would show that the arbitral tribunal has to consist of a panel of three gazetted Railway officers not below JA grade. It is also clear from a reading of the clause that the Railways is required to send a panel of more than three names of railway gazetted officers of one ore more departments of the railway to the contractor who will then suggest to the General Manager up to two names out of the panel for appointment as contractor's nominee. The General Manager shall appoint at least one out of them as the contractor's nominee and simultaneously appoint the remaining two arbitrators either from the panel or from outside the panel duly indicating the presiding arbitrator from amongst the three arbitrators so appointed. It is also one of the conditions required under this clause that one of the arbitrators will be from accounts department. There is, in my opinion, nothing arbitrary or unconscionable about the procedure prescribed under clause 63(3)(a)(ii). The parties having agreed to the said procedure, neither one of them can get rid of or disown the same on the ground that the procedure was onerous, unconscionable and arbitrary. The argument that the court need not recognise or enforce the procedure must, therefore, fail especially when it is only in cases where the authority competent to nominate under a prescribed procedure agreed by the parties fails to do so that the court steps in to make an appointment.

7. The next question then is whether there has been any failure on the part of the authority competent namely the General manager, Northern Railways in nominating an arbitral tribunal. The respondents' case in this regard is that on receipt of the request from the petitioner, it had taken action and conveyed to the petitioner a panel of four gazetted officers, two out of which the petitioner was required to choose to enable the competent authority to nominate one of them as the nominee of the contractor Letter dated 27th September, 2004 addressed to the petitioner by Deputy Chief Engineer acting on behalf of General Manger of Northern Railways, in this regard, reads as under:-

NORTHERN RAILWAY Speed Post HEADQUARTER OFFICE, KASHMEREGATE, DELHI.

No.74-W/1/1/363/WA/CDG/ARB Dated : 27.09.2004

M/s. Jai Bharat Construction Co., 164-Sector-8, Panchkula (Haryana)

Sub: Construction of Road Under Bridge No.18,19 and 20 on open foundations with RCC box and allied works between Km.15.00 to Km.25.00 in Punjab in connection with New BG Rail Line from CDG to LDH.

Ref. Your letter dated 23.02.2004 and 9.04.2004

Dear Sirs,

This is in reference to your letters cited above, the General Manager, N.Rly., Baroda House, New Delhi has nominated a panel of following four gazetted officers of Northern Railway to suggest two names out of the panel to act as your nominee:-

1.Shri P.K. Jain,CTE,N.Rly., Baroda House, New Delhi.

2.Shri S.N. Singh, CE/TMC, N.Rly., Baroda House, New Delhi.

3.Shri Autul Kumar, CEE/RS, N.Rly., Baroda House, New Delhi.

4.Shri Stayendr Kumar, CSE/N.Rly., Baroda House, New Delhi.

You are requested to suggest two names out of the above panel at the earliest.

Yours faithfully,

Sd/-

(G.P. Pasricha) Dy. Chief Engineer/C/Genl.

For General Manager

Copy for information and necessary action to:-

1. The Dy. C.E./Const.-II/NR/CDG.

8. The receipt of the above letter has not been denied by the petitioner by way of a rejoinder, although a feeble submission was made on his behalf by the learned counsel for the petitioner that the said letter was never received by the petitioner. In the absence of a proper denial on affidavit, I deem it reasonable to hold that the letter in question which was an official communication issued in the ordinary course of official business and sent by speed post to the address of the petitioner has been received by the petitioner. The petitioner has not admittedly made a choice of the two names out of the four included in the panel. It was only in case the petitioner conveyed the choice of the officers that the General manager could nominate one out of them as the nominee of the petitioner. So long as the petitioner did not comply with his part of the procedural requirement, the competent authority could not be accused of having failed to act in the matter. Section 11 sub-section (6) envisages appointment by the court of an arbitrator only in cases where the authority or an institution competent to make such an appointment fails to do so. No such failure can be readily inferred by the court. It is only in cases where the failure is satisfactorily demonstrated that the court would deprive the authority competent to make the nomination of its power to do so. The present is not, in my opinion, a case where such a failure has been demonstrably proved so as to warrant an order of appointment from the court. The petitioner can even now exercise the option of choosing two names out of the panel conveyed to him and convey the same to the General manager. On receipt of the choice of names from the petitioner, the General Manager shall within two months fro the date, the choice of names out of the panel is received from the petitioner, nominate a presiding arbitrator as also the nominee of the railways and refer the disputes between the parties to the tribunal so constituted. The present petition is, with the above directions, disposed of leaving the parties to bear their own costs.