Sharma Enterprises vs National Building Construction
2008 Latest Caselaw 1391 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI


+      OMP 144/2003


%                              Date of decision : 20.08.2008

SHARMA ENTERPRISES                                 .......Petitioner
                   Through:    Ms Ansuya Salwan, Advocate.


                                Versus

NATIONAL BUILDING CONSTRUCTION ....... Respondent

CORPORATION LTD & ANR Through: Mr Manoj K Das, Advocate.

CORAM :-

HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1. Whether reporters of Local papers may YES be allowed to see the judgment?

     2. To be referred to the reporter or not?             YES

     3. Whether the judgment should be reported            YES
        in the Digest?


RAJIV SAHAI ENDLAW, J

1.          This petition invokes     Sections 14   and 15     of the

Arbitration Act, 1996 to declare that the mandate of respondent

No.2 appointed as the arbitrator by the chairman of respondent

No.1 stands terminated de jure or de facto. The case has had a

chequered history which can be summarised as under.

2. Disputes arose out of a contract dated 18th January, 1991

between the petitioner and the respondent No.1. Suit No.

3446/1992 under Section 20 of the Arbitration Act, 1940 came to

be filed by the petitioner for appointment of arbitrator. The said

OMP.No.144/2003 Page no. 1 of 16 suit was disposed of vide judgment dated 2nd December, 1997. It is

recorded in the said judgment (a) that the respondent No.1 had

terminated the agreement with the petitioner on 22nd September,

1992; (b) that the petitioner had vide its letter dated 20th June,

1992 invoked the arbitration clause in the agreement and called

upon the respondent to appoint an arbitrator; (c) that the

respondent had failed to appoint the arbitrator leading the

petitioner to file the suit No.3446/1992; (d) that the respondent

had, in the course of those proceedings, not disputed the

arbitration agreement but had resisted the suit on the ground that

an arbitrator, namely, Shri Daljit Singh, General Manager of the

respondent had already appointed as the sole arbitrator on 27th

January, 1993 and as such the suit had been rendered infructuous.

The petitioner claimed to be entitled to have an independent

arbitrator appointed.

3. This court in the judgment dated 2nd December, 1997,

inter alia, held that the Chairman-cum- Managing Director of the

respondent initiated action for appointment of arbitrator only upon

receipt of notice of the suit; that the respondent had forfeited its

right to appoint an arbitrator in terms of the arbitration agreement

and the petitioner was justified to seek the appointment of an

independent arbitrator. This court, accordingly, appointed justice

G.C. Jain (Retd) as the sole arbitrator to adjudicate the disputes

spelt out as,

"1. Whether the respondent is liable to pay the sum of Rs 1,08,47,848.00 (Rupees one crores eight lakhs forty seven thousand eight hundreds forty eight only) as per break up given in letter dated 8.9.92 annexed with

OMP.No.144/2003 Page no. 2 of 16 the petition as annexure Q?"

2. Whether respondent is liable to pay interest @24% p.a. on the said amount from the date the same became due till its realization?"

between the petitioner and the respondent.

4. I may mention that in the aforesaid judgment of this

court, the letter dated 27th January, 1993 of the Chairman-cum-

Managing Director of the respondent appointing Mr Daljit Singh as

arbitrator has been reproduced as under :

"NOW THEREFORE, I R.C. KEHAR, the Chairman-cum- Managing Director, NBCC Ltd., New Delhi in exercise of the powers conferred on me, do hereby appoint Shri Daljeet Singh, General Manager, NBCC Ltd., Calcutta as the sole arbitrator to decide and make his Award regarding the disputes/claims mentioned in Annexure Q of the petition bearing Suit No. 3446/96 (except the disputes/claims pertaining to the Bank Guarantees and the disputes/claims in respect of which the decision of a particular authority is stated to be as final), and also the counter-claims of the respondents, if any, subject however to their admissibility under the terms and conditions of the contract." (emphasis added)"

5. An appeal (FAO(OS) 33/1998) was preferred by the

respondent against the aforesaid judgment and which was allowed

vide order dated 9th July, 1999 of a Division Bench of this Court. In

the meanwhile, Justice G.C. Jain, appointed as the independent

arbitrator, expired and an application was moved by the petitioner

for appointment of a new arbitrator in his place. Justice Satpal was

appointed by this court vide order dated 9th September, 1998 in

place of Justice G.C. Jain. The Division Bench held that the

petitioner had, prior to the institution of the suit, not served any

notice on the appointing authority for appointment of the arbitrator

and that only on filing of the suit the notice thereof was served on

OMP.No.144/2003 Page no. 3 of 16 the appointing authority and the appointing authority had within

the stipulated period appointed Mr Daljit Singh as the sole

arbitrator. It is further recorded in the order of the Division Bench

that "Needless to add that the counter claim of the appellant

before the named arbitrator appointed by Chairman-cum-Managing

Director is within period of limitation. Objection of the respondent

as regards limitation for raising counter claim was only to that

counter claim, which was filed by the appellant before Shri Satpal."

The Division Bench further held that Shri Daljit Singh will proceed

to adjudicate upon the claims and the counter claims.

6. A Special Leave Petition was preferred by the petitioner

herein against the order of the Division Bench of this court. The

said Special Leave Petition was disposed of vide order dated 18 th

October, 2000 of the Apex Court. The Apex Court noted in the

order that the respondent herein in the Memorandum of Appeal

preferred before the Division Bench made it clear that the

appointment of Justice Jain was not being questioned and in effect

the prayer in appeal was confined to treating the appointment of

the sole arbitrator pursuant to the arbitration agreement between

the parties and not on account of default or negligence of the

Managing Director to make an appointment in terms of the

agreement and for referring the counter claim to the said

arbitrator. The Apex Court further noted that the respondent

herein had not questioned before the Division Bench the order of

the Hon'ble Single Judge appointing Justice Satpal as an arbitrator

OMP.No.144/2003 Page no. 4 of 16 in place of Justice G.C. Jain. The Apex Court further noted that the

respondent had filed a review application before the Single Judge

against the order appointing Justice Satpal in place of Justice

G.C.Jain. The Apex Court, accordingly, held that the appeal before

the Division Bench, in fact, had become infructuous and ought to

have been so disposed of. The Apex Court, accordingly, set aside

the order of the Division Bench leaving it open to the respondent

herein to pursue the review application filed by it before the Single

Judge.

7. The review application filed by the respondent before

the Single Judge was disposed of on 6th February, 2001 on the

concession of the counsel for the respondent herein that since a

number of hearings had already taken place before Justice Satpal

and since the respondent had from time to time had given consent

for extension of time for making of the award by Justice Satpal, the

respondent was not pressing the review application. It was further

ordered that the said concession ought not to however be treated

as a precedent for other cases.

8. The respondent herein, thereafter, filed an application

dated 16th March, 2002 before Justice Satpal (Arbitrator) for taking

on record the counter claim of the respondent. The said

application was dismissed vide order dated 16th March, 2002 of the

Arbitrator Justice Satpal holding, inter alia, that only the disputes

as set out above had been referred to him and that no disputes

OMP.No.144/2003 Page no. 5 of 16 pertaining to the counter claim of the respondent had been

referred to him.

9. The respondent thereafter filed IA.No. 3/2002 in appeal

disposed of by the Apex Court on 18th October, 2000. The

respondent in the said application contended that since justice

Satpal had declined to entertain its counter claim, the order dated

18th October, 2000 be modified and the counter claim of the

respondent be also referred to the arbitrator (Justice Satpal). The

said application was dismissed vide a non-speaking order dated

23rd September, 2002.

10. It may also be noted that the petitioner herein filed yet

another petition under Section 20 of the Arbitration Act and which

was numbered as suit No.2858A/2000 for reference of certain

other claims to the arbitrator Justice Satpal. The said petition was

decided vide order dated 4th December, 2002 and the additional

claims of the petitioner were also referred to the arbitrator Justice

Satpal.

11. The respondent wrote a letter dated 7th February, 2002

to the appointing authority under the agreement stating that a

sum of Rs 9,49,94,421.38 was due and payable by the petitioner to

the respondent; that the said claim was initially filed in the form of

a counter claim before Justice Satpal; that Justice Satpal had ruled

that the said claim of the respondent had not been referred to him

by the court and the said stand of the arbitrator was confirmed by

OMP.No.144/2003 Page no. 6 of 16 the Supreme Court; it had therefore become necessary for the

respondent to invoke the arbitration clause in the agreement for

adjudication of its claims against the petitioner. The respondent,

therefore, requested its Chairman-cum-Managing Director being

the person designated in the arbitration clause in the agreement

to appoint an arbitrator for adjudication of the claims of the

respondent. The Chairman-cum-Managing Director of the

respondent vide his letter dated 18th February, 2003 noted that the

respondent had vide its letter dated 7th February, 2003 invoked the

arbitration clause and requested for appointment of an arbitrator

and appointed respondent No.2 herein Shri A.K. Gupta, Deputy

General Manager of the respondent as sole arbitrator regarding

the claims/disputes of the respondent against the petitioner.

12. The petitioner immediately vide its letter dated 13th

February, 2003 controverted the appointment of respondent No.2

as arbitrator as aforesaid and, thereafter, filed the present petition

for declaration that the mandate of the said Shri A.K. Gupta

impleaded as respondent No.2 in this petition had been terminated

and that Shri A.K. Gupta was de jure and de facto unable to

perform his function as an arbitrator. By an order dated 3 rd April,

2003 in the present petition, the implementation of the letter dated

18th February, 2003 of the Chairman-cum-Managing Director of the

respondent No.1 and any proceedings before Shri A.K. Gupta,

arbitrator appointed by the said letter, were stayed.

OMP.No.144/2003 Page no. 7 of 16

13. The principal contention of the counsel for the

petitioner is that the claim of the respondent emanates from the

agreement which was terminated on 22nd September, 1992. As

such, the requisition of the respondent on 7th February, 2003 to the

person designate in the agreement as the authority for the

appointment of arbitrator was highly belated and time barred. It

was further the contention that in the face of the proceedings

aforesaid, Shri A.K. Gupta was not entitled to perform his function

as an arbitrator. On the contrary, the counsel for the respondent

urged that all the said pleas should be taken by the petitioner

before the arbitrator, under Section 16 of the Act and ought not to

be entertained in a petition under Sections 14 and 15 of the Act.

14. The 1996 Act in Section 5 prohibits judicial intervention

except where so provided by the Act itself. Section 14 of the Act is

titled "failure or impossibility to act". The court has been

permitted to intervene where the arbitrator becomes unable to

perform his functions de jure or de facto or for other reasons fails

to act without undue delay. What is the meaning to be assigned to

the words de facto, de jure and what are the other reasons. The

counsel for the petitioner would urge that in a given situation

where the arbitration has been invoked mala fide, as is contended,

has been done in the present case, it is the court's duty to

intervene and to hold that there is no mandate to arbitrate. The

counsel for the petitioner lays heavy emphasis on SBP &

Company v Patel Engineering Limited 2005 8 SCC 618 and has

urged that powers of the court under Section 14 are akin to those

OMP.No.144/2003 Page no. 8 of 16 under section 11(6) of the Act as now interpreted by the

Constitution Bench of the Apex Court and since the Apex Court has

held that the court at the stage under Section 11(6) of the Act is

empowered to decide whether the claim was a dead one or a long

barred claim or was sought to be resurrected and also as to

whether the parties have concluded the transaction by recording

satisfaction of their mutual rights and obligations, so should the

court, even where arbitrator has been appointed without

intervention of the court, if called upon under Section 14 of the Act

and if finds that the arbitration is sought of a dead or a long barred

or a non-existent claim, should step in and set aside the

appointment.

15. On the contrary the counsel for the respondents would

contend that the respondents' claims against the petitioner, in

spite of the respondents having raised the same long back and in

spite of the orders aforesaid that the arbitrator would also

adjudicate its claims, have not been adjudicated on merits till date.

He would further submit that an award on the petitioner's claims

would not be an award on the respondents' claims and would not

be barred by res judicata or constructive res judicata. Reliance

was placed on para 8 of judgment in State of Orissa v

Gokulananda Jena 2003 (5) SCALE 543 and conclusion in sub-

para (ix) of para 47 of SBP & Company to contend that where

Arbitral Tribunal is constituted without resource to Section 11(6),

it will have jurisdiction to decide all matters as contemplated in

Section 16 and since alternate remedy is available the court should

OMP.No.144/2003 Page no. 9 of 16 not entertain the challenge. Reliance was also placed on

Kunhayammed & Ors v State of Kerala (2006) 6 SCC 359 to

contend that by dismissal of SLP and application by Apex Court,

there was no res judicata. The counsel for petitioner in rejoinder

relied on Wellington Associates Ltd v Kirit Mehta (2000) 4 SCC

272 approved in SBP & Co to contend that availability of remedy

under Section 16 was held not to bar exercise of jurisdiction under

Section 11(6) of the Act.

16. Section 32 of the Act provides for the ways of

termination of arbitration proceedings. The Division Bench of this

court has held in Surinder Pal Singh v HPCL 136 (2007) DLT

646 that the proceedings shall be deemed to be pending so long as

one of the events envisaged in Section 32 does not occur.

17. This court in Shyam Telecom Ltd v ARM Ltd

113(2004) DLT 778 held that the de jure impossibility referred to

in Section 14 is the impossibility which occurs due to factor

personal to the Arbitrator and de facto occurs due to factors

beyond the control of arbitrator. It was further held that non

conclusion of arbitral proceedings within the agreed time rendered

the arbitrator de jure unable to continue with the proceedings.

18. I may also notice United India Insurance Co. Ltd. v.

M/s. Kumar Texturisers & another AIR 1999 Bom. 118 where an

Hon'ble Single Judge held that the court, under Section 14 of the

Act has no jurisdiction to declare that no dispute existed for

OMP.No.144/2003 Page no. 10 of 16 arbitration. However, those were the pre SBP & Co days. The

Apex Court since then has held (see para 32 of SBP & Co) that the

party ought not to be compelled to participate in arbitration

proceedings extending over a period of time by incurring

substantial expenditure and then to come to the court with an

application under Section 34 of the Act seeking setting aside of the

award on the ground that there was no arbitration agreement or

that there was nothing to be arbitrated upon when the Tribunal

was constituted. The Apex Court juxtaposed intervention by court

before award with saving of time and expenditure before arbitral

tribunal and opted / favoured the latter.

19. Whether the approach favoured by the Apex Court in

arbitration with intervention of court under Section 11(6), can be

applied/extended to arbitrations without intervention of courts,

where parties have themselves appointed the arbitrator - by

enabling the parties to at initial stage of arbitration only

approaching the court under Section 14 of the Act for declaration

that in fact there is no arbitration agreement or that the claim is a

dead one, as in the present case.

20. The Apex Court under the 1940 Act was faced with a

situation similar to that in the present case in Panchu Gopal Bose

v Board of Trustees for Port of Calcutta AIR 1994 SC 1615.

There also, works were executed in 1978-79, bills were sent on 12th

July, 1979 and for the first time on 28th November, 1989 reference

to arbitration was sought. On receipt thereof, suits, inter alia,

OMP.No.144/2003 Page no. 11 of 16 under Sections 5, 12 and 33 of the 1940 Act were filed. The Single

Judge of the Calcutta High Court held that the claim was made

long after 10 years and was to be hopelessly barred by time and

held that the arbitration cannot be proceeded with and finding the

same to be an exceptional case for interference, cancelled the

arbitration clause. The appeal to the Division Bench was dismissed

and the Apex Court was approached. In that case also the

contention of the petitioner was that the petitioner had legally

invoked the arbitration clause and the arbitrator was bound to be

appointed and the court could not scuttle the procedure by

exercising the power under Section 5 of the 1940 Act.

21. At this stage Section 5 of the 1940 Act may be quoted :

"The authority of an appointed arbitrator or umpire shall not be revocable except with the leave of the Court, unless a contrary intention is expressed in the arbitration agreement."

22. The Apex Court in that case held that under Section 5

read with Section 12(2)(b) of the 1940 Act, the court had been

given power in the given circumstances to grant leave to a

contracting party to have the appointment of the arbitrator or

umpire removed and the Arbitration Agreement revoked. The

court further held that the said discretion has to be exercised

cautiously and sparingly considering that the parties should not be

relieved of a tribunal they have chosen because they fear that the

arbitrator's decision may go against them. The grounds on which

the power could be exercised were put under five heads as under:

(1) Excess or refusal of jurisdiction by arbitrator; (2) Misconduct of

OMP.No.144/2003 Page no. 12 of 16 arbitrator; (3) Disqualification of arbitrator; (4) Charges of fraud

and; (5) Exceptional cases.

The Apex Court further held that all the provisions of the Indian

Limitation Act applied to arbitration and noticed that an arbitration

is deemed to have commenced when one party to the arbitration

agreement serves on the other party a notice requiring the

appointment of the arbitrator. The same is the position under the

1996 Act.

23. The Apex Court further noted quoting Robertson's

History that honest men dread arbitration more than they dread

law suits. The court, also cited with approval Pegler v. Railway

Executive, 1948 Appeal Cases 332 where the House of Lords held

that just as in the case of actions the claim is not to be brought

after the expiration of a specified number of years from the date on

which the cause of action accrued, so in the case of arbitrations,

the claim is not to be put forward after the expiration of the

specified number of years from the date when the claim accrued.

The Apex Court quoting Mustiu and Boyd's Commercial

Arbitration held that there is no undoubtedly jurisdiction in the

court to interfere by way of injunction to prevent the respondent

from being harassed by a claim which can never lead to a valid

award for example in cases where claim is brought in respect of

the alleged Arbitration agreement which does not really exist or

which has ceased to exist and also where the dispute lies outside

the scope of Arbitration agreement. The Apex Court upheld the

OMP.No.144/2003 Page no. 13 of 16 decision of the Single Bench of the High Court and dismissed the

Special Leave Petition.

24. Though in 1996 Act, there is no literal equivalent of

Section 5 of the 1940 Act but, in my opinion, Section 5 of the old

Act as interpreted in Panchu Gopal Bose (supra) finds place in

the form of Section 14 of the 1996 Act. There can be no other

interpretation of the authority given to the court to terminate the

mandate of the arbitrator when the arbitrator de jure is unable to

perform this function. The de jure impossibility can be nothing but

impossibility in law. Judicial notice can be taken of the fact that a

large number of arbitration contracts are standard form contracts

and in which really speaking there is no negotiation. Judicial

notice can also be taken of the fact that the Government and the

Governmental agencies are the largest employers of contractors

and all their contracts invariably contain an arbitration clause

empowering their own officials to appoint the arbitrators. Unless

the provisions of Section 14 are read inconsonance with what has

been laid down in SBP & Company (supra), it would give a tool in

the hands of the employers to harass the contractors, to invoke

arbitration clauses in long finished contracts, to deprive the

contractors of payments under the current contracts.

25. However, the said power under Section 14 has to be

exercised sparingly and with great caution and on the same

parameters as laid down by Apex Court in SBP & Co, (in para 39)

OMP.No.144/2003 Page no. 14 of 16 in relation to Section 11(6). Only when from the facts there is no

doubt that the claim is dead or long barred or that the transaction

has been concluded, is the said power to be exercised. If it is not

possible to so decide without intricate enquiry into law and facts, it

will be appropriate to leave the question to be decided by the

arbitral tribunal.

26. Thus, I hold that in a petition under Section 14 of the

Act, if the court finds that the arbitration without intervention of

the court has been invoked of a long dead claim or of a claim not

arbitrable, the court is empowered to terminate the mandate of the

arbitrator.

27. Applying the aforesaid principles to the present case, it

is to be noticed that the respondent had made its claim as far back

as in 1993 itself. It is for this reason only that Mr Daljit Singh was

appointed as the arbitrator to adjudicate the claims of the

respondents also. The Division bench also had ordered that the

counter claim of the respondents before Mr Daljit Singh was within

limitation. When the matter went to the Apex Court also, the Apex

Court gave liberty to the respondents to pursue its review

application before the Single Judge. The said review application,

however, came to be dismissed on 6th February, 2001. The

respondents soon thereafter did prefer its claims before the

arbitrator. However, the said application was dismissed on 16 th

March, 2002 and the respondent immediately wrote to the

OMP.No.144/2003 Page no. 15 of 16 appointing authority for appointment of the arbitrator. In the

aforesaid circumstances, it cannot really be said at this stage that

the claims of the respondents are a dead one or which the

respondent is seeking to resurrect after long lapse of time. The

counsel for the respondent has rightly contended that it has to be

adjudicated whether the claims of the respondents are within time

or not. Under Section 21 of the 1996 Act also, the arbitration is

deemed to have commenced on the date on which the request is

made for reference to arbitration. In the present case the request

by the respondent appears to have been made within limitation.

The respondent thereafter has been pursuing its counter claim in

one form or the other as hereinabove noted but without any

success. It can be determined only on proper adjudication whether

the counter claims are within time or not, whether the respondent

has slept over its rights or not.

28. The present case does not fall in the exceptional

category where power under Section 14 of the Act to terminate the

mandate of the arbitrator can be invoked. It is appropriate to leave

the question to be decided by the arbitral tribunal.

29. The Petition therefore fails and is dismissed, however,

with no order as to costs.

                                         RAJIV SAHAI ENDLAW
                                              (JUDGE)

August 20, 2008
M


OMP.No.144/2003                                        Page no. 16 of 16