Madhava Hytech Engineers Pvt Ltd vs Airports Authority Of India
2009 Latest Caselaw 569 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                  ARB.A. 356/2008



%17.02.2009             Date of decision:17th February, 2009


MADHAVA HYTECH ENGINEERS
PVT LTD                  .......                         Petitioner
                       Through: Mr Jayant K Mehta and Mr Sandeep
                                Phogat, Advocates

                               Versus

AIRPORTS AUTHORITY OF INDIA                    ....... Respondent
                       Through: Mr S.S. Lingwal, Advocate.


CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

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

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

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


RAJIV SAHAI ENDLAW, J.

1. The agreement between the parties contains an arbitration

clause as under:

"Except where otherwise provided for in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, 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 arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitrator as may be appointed by the authority mentioned at Serial No.32 in Schedule E. There will be no objection if the arbitrator so appointed is an employee of AAI and that he had to deal with the matters to which the contracts relates and that in the course of his duties as such he had expressed views on all or any of the matters in dispute or difference. The arbitrator to whom the matter

is originally referred being transferred or vacating his office or being unable to act for any reason the appointing authority for arbitrator, as aforesaid at the time of such transfer, vacation of office or inability to act, shall appoint another person to act as arbitrator 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 by his predecessor. It is also a term of this contract that no person other than a person appointed by the authority mentioned in schedule E, should act as arbitrator and if for any reason, that is not possible, the matter is not to be referred to arbitration at all."

2. The petitioner applied under Section 11(6) of the Arbitration

Act, 1996 averring that though the petitioner pursuant to the

agreement mobilized all resources to undertake the awarded work

but there was delays on the part of the respondent; on the contrary,

the respondent made only part payment to the petitioner and that

too belatedly; that disputes and differences having arisen between

the parties, the petitioner vide its letter dated 11th June, 2007 to the

Member Planning of the respondent being the appointing authority

under the agreement requesting for appointment of arbitrator within

a period of 30 days from the receipt of the letter. A copy of the letter

dated 11th June 2007 together with a copy of the postal receipt vide

which the same was pleaded to have been dispatched were filed

alongwith the petition.

3. The respondent upon being served with the notice of the

application filed a short reply stating, inter alia, that the respondent

had already vide order dated 18th November, 2008 of the competent

authority, in terms of the agreement, appointed an arbitrator and

thus the petition under Section 11(6) of the Act had become

infructuous. Copy of the letter dated 18th November, 2008 of the

Member Planning of the respondent appointing Shri Dandage W.D.

as a sole arbitrator to adjudicate the disputes was also filed

alongwith the reply. It was also stated that the arbitrator had already

entered upon reference and started functioning and the subject

matter of the petition under Section 11(6) was sub judice before the

arbitrator.

4. When the matter was listed on 23rd January, 2009 it was

observed that the petition under Section 11(6) of the Act had been

instituted on 5th September, 2008 and the arbitrator had been

appointed by the respondent on 18th November, 2008 i.e., after the

institution of the petition. Thus, in view of the dicta in Datar

Switchgears Ltd v Tata Finance Ltd (2000) 8 SCC 151 the

respondent had forfeited the right to appoint the arbitrator and the

petitioner had become entitled to appointment of an independent

arbitrator from this court. The counsel for the respondent had,

however, contended that since the arbitrator had been appointed

and there was no averment of the petitioner of any bias, against the

said arbitrator, this court instead of appointing an independent

arbitrator, as sought by the petitioner, should not exercise the power

under Section 11(6) and/or confirm the appointment of the arbitrator

already appointed by the respondent. However, it was felt on that

date that in contracts by authorities such as the respondent and on

the award of works by whom business of persons as the petitioner is

dependent, there is normally no negotiation on such terms of the

contract which are contained in the General Conditions. It was

further observed that no person, if free to contract, would of his own

agree to adjudication of disputes by nominee / appointee of others;

such clauses are rarely found in arbitration agreements between the

private parties and are to be generally found in General Conditions

of contract of State authorities only and who are the largest

employers.

5. I may notice that the Apex Court recently in United India

Insurance Company Limited v. Manubhai Dharmasinhbhai

Gajera (2008) 10 SCC 404 has also observed that the principle of

the State being required to act fairly operates also in contractual

fields and more in a case where bargaining power is unequal or

where the contract is not negotiated one and/or is based on the

standard form contracts between the unequals.

6. It was thus felt on 23rd January, 2009 that upon default by the

agreed appointing authority to appoint the arbitrator, and the Apex

Court having held that the right to appoint then stands forfeited and

further, the right of adjudication of disputes by independent

arbitrator being an important right which had accrued to the

petitioner could not be defeated merely because the arbitrator had

been appointed after the institution of the petition. It cannot be said

that without any plea of bias against the said arbitrator, the right of

the petitioner to have an independent arbitrator could be interfered

with.

7. However, in view of the arbitration clause aforesaid between

the parties providing that no person other than a person appointed

by the competent authority of the respondent should act as

arbitrator and if for any reason that is not possible, the matter is not

to be referred to arbitration at all, it was felt on that day that the

petitioner should not be left remediless and would necessarily have

to then file a suit for its claims. However, upon the said proposition

being put to the counsel for the petitioner, the counsel for the

petitioner had contended that the petitioner was ready to institute a

suit but upon such suit being instituted, the respondent ought not to

take the plea of the suit being barred by Section 8 of the Arbitration

Act. In the circumstances, the counsel for the respondent was asked

to take instructions.

8. The counsel for the respondent on next date i.e., 6th February,

2009 stated that the respondent also did not want the petitioner to

approach the civil court and wanted the disputes to be adjudicated

by arbitration only. However, the counsel for the respondent

contended that if the arbitrator already appointed by the respondent

was not agreeable to the petitioner, any arbitrator from the panel of

arbitrators of the respondent be appointed. The counsel for the

petitioner was asked to take instructions on the said offer of the

respondent.

9. The counsel for the petitioner has today stated that the

petitioner is not agreeable to appoint any arbitrator from the panel

of the respondent and relying upon Datar Switchgears aforesaid

has argued that the retired judge of this court or of the Apex Court

be appointed as the arbitrator to adjudicate the disputes between the

parties.

10. In Wellington Associates Ltd Vs Kirit Mehta AIR 2000 SC

1379, though on an application under Section 11(6) of the Act it has

been held that an arbitration clause, to constitute an arbitration

agreement within the meaning of Section 7, the arbitration should be

agreed to be resorted to mandatorily and as a sole remedy without

requiring any fresh consent of the parties.

11. A literal interpretation of the arbitration clause in the present

case would mean that though the parties had agreed for arbitration

and with which the petitioner was bound but upon disputes arising

between the parties, it was open to the respondent to either appoint

an arbitrator and if not willing for arbitration, to by not appointing

an arbitrator compel the petitioner to the ordinary remedy of civil

suit.

12. A Division Bench of this court in Union of India Vs Bharat

Engineering Corporation ILR 1977 (2) Delhi 57 also held that a

contingent arbitration agreement is no arbitration agreement within

the meaning of law. Wellington Associates Ltd together with

Bharat Engineering Ltd would thus lead to a conclusion that the

arbitration clause aforesaid in the contract is not an arbitration

agreement within the meaning of Section 7 of the Act and thus the

question of this court appointing an arbitrator under Section 11(6)

would not arise.

13. However, I have since also come across a Full Bench of this

court in Ved Prakash Mithal Vs UOI AIR 1984 Delhi 325 where a

similar clause as in the present case fell for consideration. The Full

Bench, without of course referring to Bharat Engineering Ltd held

that the purpose of Section 20 of the 1940 Act was to effectuate the

intention of the parties of arbitration of disputes and the parties

could not have agreed to exclude the power of court under Section

20.

14. I do not find any change in the 1996 Act, to make the dicta of

the Full Bench inapplicable.

15. The counsel for the petitioner, during the course of hearing,

also drew attention to the arbitration clause in Union of India Vs

Bharat Battery Manufacturing Co. (P) Ltd (2007) 27 SCC 684

wherein also an arbitration clause to the same effect as herein

existed and though there is no discussion in the judgment on this

aspect but the Apex Court appointed the arbitrator in that case also.

16. In view of the aforesaid, it has to be held that notwithstanding

the agreement providing that no person other than a person

appointed by the competent authority of the respondent should act

as arbitrator and if for any reason that is not possible, the matter is

not to be referred to arbitration at all, the power under Section 11(6)

of the Act can be exercised. I may also notice that the Apex Court in

U.O.I. Vs. M/s D.N. Revri AIR 1976 SC 2257 laid down that a

contract must be interpreted in such a manner as to give efficacy to

the contract rather than invalidate it.

17. The next question is whether the arbitrator from the panel of

the respondent only is to be appointed in view of the dicta of the

Apex Court in Northern Railway Administration, Ministry of

Railways, New Delhi Vs Patel Engineering Company Ltd VII

(2008) SLT 432 or an independent arbitrator as sought by the

petitioner can be appointed. The arbitration agreement does not

prescribe any qualification for the arbitrator. Thus, in my view,

there is no impediment to the appointment of an independent

arbitrator.

18. The counsel for the respondent next contends that no notice

for appointment of arbitrator was served on the respondent. The

service of such notice is a condition precedent to the exercise of

power under Section 11(6) as aforesaid. The petitioner has relied

upon the notice dated 11th June, 2007. Not only has the respondent

in the reply filed by it not denied the said fact but it has also not

been explained as to why, if the said notice had not been served, did

the respondent on 18th November, 2008 appoint the arbitrator. I,

therefore, do not find any merit in the said contention of the

respondent.

19. The petitioner has thus become entitle to appointment of an

independent arbitrator. The counsel for the petitioner states that the

works subject matter of the agreement were to be carried out at

Hyderabad, (even though the agreement was executed at Delhi) and

that the entire records and evidence would be available at

Hyderabad and it would be convenient if the arbitration proceedings

are held at Hyderabad. It may be noticed that the arbitrator

appointed by the respondent is a resident of Pune and from his letter

dated 23rd November, 2008 filed alongwith the reply of the

respondent it appears that he intended to hold the arbitration

proceedings in Pune only. No agreement between the parties as to

the place of arbitration has been shown. The counsel for the

respondent has not controverted the request of the petitioner for

arbitrator based at Hyderabad to be appointed.

20. Accordingly Justice M Jagannadha Rao, retired judge of the

Apex Court (C/o Sri M Krishan Mohan Rao, 3-6-281, Himayat Nagar,

Opp. Old MLA Qts. Hyderabad - 500029) is appointed as the

arbitrator to adjudicate the disputes, claims and counter claims of

the parties. The arbitrator to fix his own fee in consultation with the

counsel for the parties. The application is disposed of. The parties

to appear before the appointed arbitrator with prior appointment on

16th March, 2009. A copy of this order be also forwarded to the

appointed arbitrator. Copy of this order be given dasti under the

signature of the Court Master to the counsel for both the parties.

RAJIV SAHAI ENDLAW (JUDGE) February 17, 2008 M