M/S Pragati Steels vs Uoi
2008 Latest Caselaw 1686 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+                    A.A. No.456/2007

                                      Date of decision : 19.9.2008
IN THE MATTER OF :

       M/S PRAGATI STEELS               ..... Petitioner
                      Through : Mr. Rajesh Banati, Adv.


                          Versus

       UNION OF INDIA                       ..... Respondent

Through : Mr. R.C. Nangia, Adv.

       CORAM

*      HON'BLE MS.JUSTICE HIMA KOHLI

              1. Whether Reporters of Local papers may         be
                 allowed to see the Judgment?

              2. To be referred to the Reporter or not?

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

HIMA KOHLI, J. (O R A L)

The present petition is filed by the petitioner under Section 11(6)

of the Arbitration & Conciliation Act, 1996 (in short 'the Act') praying inter

alia for appointment of an Arbitrator to adjudicate the disputes between the

parties.

2. In a nutshell, the facts of the case are that in the year 2000, the

respondent, Northern Railways invited tenders for supply of 29,00,000

numbers of Metal Liners. The petitioner was also one of the tenderers. The

tender of the petitioner was accepted by the respondent, who issued a

purchase order dated 20.3.2001 for supply of 4,50,000 numbers of Metal

Liners. It is the case of the petitioner that it supplied a total quantity of

1,40,000 numbers of Metal Liners to the respondent and was willing to

supply the balance quantity of 3,10,000 numbers of Metal Liners for which it

sought extension of time, vide letter dated 6.2.2003. However, the

respondent cancelled the contract for the balance quantity, vide its letter

dated 10.2.2003.

3. Counsel for the petitioner contends that the aforesaid

cancellation of the contract resulted in the petitioner suffering a loss of about

Rs.2,31,105/-. It is further stated that vide letter dated 16.11.2004, the

respondent issued a demand on the petitioner for a sum of Rs.4,27,800/-

towards general damages. Thereafter, the petitioner sent a legal notice

dated 08.1.2005 calling upon the respondent either to withdraw the

aforesaid letter or to appoint an arbitrator to adjudicate the disputes

between the parties.

4. After receipt of the aforesaid notice, the respondent, vide letter

dated 11.5.2005 appointed Shri Ved Prakash as the Sole arbitrator.

However, the Sole arbitrator did not enter upon reference. Hence, the

petitioner issued a legal notice dated 16.10.2006 to the General Manager of

the respondent calling upon him to appoint another arbitrator in place of Shri

Ved Prakash. It is stated that though the respondent issued a reply dated

26.10.2006, it failed to appoint any arbitrator, thus compelling the petitioner

to file the present petition.

5. The aforesaid petition was filed by the petitioner on 18.10.2006

and notice was issued thereon on 24.10.2007, returnable on 12.2.2008.

Appearance was entered on behalf of the respondent on 12.2.2008 and time

was sought to file reply to the petition. Matter was renotified for 27.3.2008.

In the meantime, the respondent appointed an arbitrator, vide letter dated

25.3.2008. A copy of the said letter is enclosed with the reply filed by the

respondent on 28.3.2008.

6. Counsel for the petitioner states that the respondent has lost its

right to appoint an arbitrator in the present matter, it having failed to take

any steps in the matter within a period of 30 days from the date of the

receipt of the notice from the petitioner or for that matter prior to institution

of the present petition. He relies on a judgment of the Supreme Court

rendered in the case of Union of India vs. Bharat Battery Manufacturing,

(2007) 7 SCC 684 to state that once a party files an application under

Section 11(6) of the Act, the right of the other party to appoint an arbitrator

in terms of the clause of the agreement get extinguished thereafter.

7. The aforesaid contention is however denied by the counsel for

the respondent, who states that the arbitration clause, being Article 2900 of

the contract governing the parties, mandates that only the General Manager

of the respondent is competent to appoint an arbitrator and that even in the

case of substitution of one arbitrator by another, the said power vests only

with the General Manager and none else. In support of his argument, he

seeks to rely upon the judgment rendered by the Supreme Court in the case

of Union of India v. Krishna Kumar, Civil Appeal No.6324/2004 decided on

19.7.2007.

8. I have heard the learned counsels for the parties and have

considered the rival submissions. The relevant facts of the case have

already been narrated above. However, it is necessary to take note of

certain dates for the purposes of deciding the present petition.

9. Vide letter dated 11.5.2005, the respondent appointed Shri Ved

Prakash as the Sole arbitrator calling upon him to enter upon a reference to

adjudicate upon the disputes and differences arising between the parties. It

is not disputed by both the sides that Shri Ved Prakash did not proceed in the

matter and did not enter upon reference. As a result, the petitioner issued a

notice dated 16.10.2006 to the General Manager of the respondent calling

upon him to appoint another arbitrator in place of Shri Ved Prakash

forthwith, failing which it would approach the court of law for appointment of

an independent arbitrator. The respondent wrote a letter dated 26.10.2006

to Shri Ved Prakash informing him about the notice received from the other

side and calling upon him to enter into reference and proceed with the

matter. It is not disputed by the counsel for the respondent that despite the

said letter, Shri Ved Prakash did not enter upon reference. As the petitioner

did not hear anything further from the respondent, it filed the present

petition on 18.10.2007. After entering appearance in the present petition on

12.2.2008 and seeking time to file reply, the respondent appointed another

arbitrator, vide letter dated 25.3.2008 and requested him to enter upon

reference.

10. The relevant extract of the arbitration clause governing the

parties is reproduced hereinbelow :

"2900. Arbitration

(a) In the event of any question, dispute or difference arising under these conditions or any special conditions of contract, or in connection with this contract (except as to any matters the decision of which is specially provided for by these or the special conditions) the same shall be referred to the sole arbitration of a Gazetted Railway Officer appointed to be the arbitrator, by the General Manager in the case of contracts entered into by the Zonal Railways and Production Units; by any Member of the Railway Board, in the case of contracts entered into by the Railway Board and by the Head of the Organization in respect of contracts entered into by the other Organizations under the Ministry of Railways. The Gazetted Railway Officer to be appointed as arbitrator however will not be one of those who had an opportunity to deal with the matters to which the contract relates or who in the course of their duties as railway servant have

expressed views on all or any of the matters under dispute or difference. The award of the arbitrator shall be final and binding on the parties to this contract.

(b) In the event of the arbitrator dying, neglecting or refusing to the act or resigning or being unable to act for any reason, or his award being set aside by the court for any reason, it shall be lawful for the authority appointing the arbitrator to appoint another arbitrator in place of the outgoing arbitrator in the manner aforesaid.

(c) It is further a term of this contract that no person other than the person appointed by the authority as aforesaid should act as arbitrator and that if for any reason that is not possible, the matter is not to be referred to arbitration at all.

x x x x x x x x x x x x x"

11. The facts of the present case are squarely governed by the

judgment rendered by the Supreme Court in the case of Bharat Battery

Manufacturing (supra). In the aforesaid case, Clause 24 of the agreement

governing the parties therein is para materia with Article 2900 in the present

case. Just as in the aforesaid case, the respondent having received a notice

from the opposite side to appoint an arbitrator failed to do so within 30 days

from the date of the request, similarly in the present case also the

respondent herein failed to appoint an arbitrator within 30 days from the

16.10.2006.

12. Even in the aforesaid case, the aggrieved party approached the

Court by filing a petition under Section 11(6) of the Act, wherein after taking

note of the relevant dates, the court observed as below :

" Para 8: It is contended by Mr. P.P. Malhotra, learned Additional Solicitor General appearing for the appellant, that the High Court did not follow the procedure prescribed under Section 11(8) of the Act. According to him, the appointment of Justice K.S. Gupta as a sole arbitrator is not in consonance with Clause 24 of the agreement inasmuch as Clause 24 of the agreement provides that if any dispute arises, the same shall be referred to the sole arbitration of an officer in the Ministry of Law, appointed to be the Arbitrator by the Director General of Supplies and Disposals.

Para 9. We are unable to countenance with the submission of the learned Counsel for the appellant. Section 11(8) of the Act could have come to the aid of the appellant had the appellant appointed the arbitrator within 30 days from the date of receipt of request to do so from the respondent or the extended time as the case may be. In the present case, as noticed above, Section 11(6) petition was filed on 30.3.2006 by the respondent. The appellant stated to have appointed one Dr. Gita Rawat on 15.5.2006, i.e. after Section 11(6) petition was filed by the respondent on 30.3.2006, which is not permissible in law. In other words, the appellants are stopped from making an appointment of the arbitrator in terms of Clause 24 of the agreement after Section 11(6) petition is filed by the respondent. Once Section 11(6) petition is filed before the Court, seeking appointment of an arbitrator, the power to appoint an arbitrator in terms of arbitration clause of the agreement ceases.

Para 10. Mr. Malhotra, learned ASG referred to the decision of a three-Judge Bench of this Court in Union of India and Anr. vs. M.P. Gupta (2004) 10 SCC 504, wherein this Court held that since there was express provision contained that two gazetted railway officers

shall be appointed as arbitrators, Justice P.K. Bahri could not be appointed by the High Court as the sole arbitrator. This case was not in a situation where Justice P.K. Bahri was appointed after Section 11(6) petition was filed. It appears from the facts that Justice P.K. Bahri was appointed a sole arbitrator dehors clause (3)(a)(iii) of the arbitration agreement in that case. It also appears that Justice P.K. Bahri was appointed by the Court as the sole arbitrator on a petition filed by the respondent therein by an ex-parte order. The facts of that case, therefore, are clearly distinguishable from the facts of the present case. The aforesaid decision is of no help to the appellant in the present case.

Para 11. xxx

Para 12. A three-Judge Bench of this Court in Punj Lloyd Ltd. vs. Petronet MHB Ltd. (2006) 2 SCC 638 considered the applicability of Section 11(6)petition and considered the facts which are similar to the facts of the present case and held that once notice period of 30 days had lapsed, and the party had moved the Chief Justice under Section 11(6), the other party having right to appoint arbitrator under arbitral agreement loses the right to do so. While taking this view, the Court had referred to the judgment rendered in Datar Switchgears Ltd. vs. Tata Finance Ltd. and Anr.(2000) 8 SCC 151 wherein at page 158 (para 19) SCC, this Court held as under:

"19. 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 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(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.

As already noticed, the respondent filed Section 11(6) petition on 30.3.2006 seeking appointment of an arbitrator. The appellant, thereafter, said to have appointed one Dr. Gita Rawat on 15.5.2006 as a sole arbitrator, purportedly in terms of Clause 24 of the agreement. Once a party files an application under Section 11(6) of the Act, the other party extinguishes its right to appoint an arbitrator in terms of the clause of the agreement thereafter. The right to appoint arbitrator under the clause of agreement ceases after Section 11(6) petition has been filed by the other party before the Court seeking appointment of an arbitrator." (emphasis added)

13. The facts of the aforesaid case are identical to the facts of the

present case. Therefore, guided by the aforesaid judgment, the present

petition is also liable to be allowed inasmuch as the respondent having

received a request from the opposite party to substitute the erstwhile

arbitrator by appointing another arbitrator within 30 days of the demand,

failed to do so. Further, the said right accrued in favour of the respondent

prior to the institution of the present petition but not thereafter. In other

words, the respondent could have appointed an arbitrator prior to

18.10.2007. However, it failed to do the needful till as late as on 25.3.2008,

after entering appearance in the present case. As a result, it has to be held

that the right of the respondent to appoint an arbitrator stands forfeited.

14. As noted above, in the case of Datar Switchgears Ltd. vs. Tata

Finance Ltd. & Anr., reported in (2000) 8 SCC 151, the Supreme Court has

held that if the vacancy of an arbitrator is not filled till the party approaches

the Court and files a petition for appointment of an arbitrator by the

designated authority of the Chief Justice of that Court under Section 11(6) of

the Arbitration and Conciliation Act, the right to supply the vacancy by the

opposite party stands extinguished. The ratio of the aforesaid case was

approved by the Supreme Court in Punj Lloyd Ltd. vs. Petronet MHB Ltd.,

reported in (2006) 2SCC 682 and it was again followed by a Division Bench

of this Court in the case of Delkon (India) Pvt. Ltd. vs. G.M. Bharat Heavy

Electricals Ltd., reported in 120 (2005) DLT 542 (DB).

15. In view of the aforesaid judgments, the respondent has lost its

right to appoint an Arbitrator, it having failed to do so within 30 days from

the date of receipt of the notice from the petitioner for appointment of an

Arbitrator or even prior to the date of institution of the present petition.

16. This Court is, therefore, of the view that the order of

appointment issued by the respondent under cover of letter dated 25.3.2008

is without jurisdiction. The present petition filed by petitioner is allowed and

Justice J.P. Singh (Retd.) is appointed as an arbitrator to adjudicate the

disputes between the parties. The parties shall share the fee equally, which

shall be fixed by the learned Arbitrator.

17. The parties shall appear before the learned Arbitrator on 16 th

October, 2008 at 4.00 PM. When both the parties appear before the

arbitrator on the date fixed, they shall place on record their respective

pleadings and documents and proceed from the said point. The Registry is

directed to forward a copy of the order to the Arbitrator forthwith. The

parties are also directed to intimate the Arbitrator about the order.

18. The petition is disposed of.

HIMA KOHLI,J SEPTEMBER 19, 2008 sk/KA