Sterlite Optcal Technologies ... vs Bharat Sanchar Nigam Ltd.
2009 Latest Caselaw 74 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

                       + Arb. Appl. No. 261/2008
          *
%                                  Date of decision : 14.01.2009

STERLITE OPTCAL TECHNOLOGIES LTD.                        ....Petitioner

                              Through: Mr. Tarun Gulati and Mr. Neil
                                       Heldrieth, Advocates


                                  Versus

BHARAT SANCHAR NIGAM LTD.                                .... Respondent

                               Through: Mr. U.C. Mittal and Mr. Ankur
                                        Mittal, Advocates


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 factum of the parties to this petition being parties to an

agreement containing in arbitration agreement and the factum of

this being the right High Court to be approached is not in dispute.

The arbitration clause in the agreement between the parties is as

under:-

"Clause 20. In the event of any question, dispute or difference arising under this agreement or in connection there-with (except as to the matters, the decision to which is specifically provided under this agreement), the same shall be referred to the sole arbitration of the CMD, BSNL or in case his designation is changed or his office is abolished, then in such cases to the sole arbitration of the office for the time being entrusted (whether in addition to his own duties or otherwise) with the functions of the

CMD, BSNL or by whatever designation such an officer may be called (hereinafter referred to as the said officer) is unable or unwilling to act as such, then to the sole arbitration of some other person appointed by the CMD, BSNL or the said officer. The agreement to appoint an arbitrator will be in accordance with the Arbitration and Conciliation Act, 1996....."

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

Act on the ground that the respondent in spite of request has refused

to join in the appointment of the arbitrator and / or the appointing

authority has failed to appoint the Arbitrator and thus the agreed

arbitration procedure has failed.

3. The respondent has contested the application on three

grounds. Firstly, it is contended that the agreement is of arbitration

by CMD of the respondent or by any person appointed by the CMD;

the petitioner never approached the CMD and only approached the

DDG (MM) of the respondent for arbitration. Secondly, it is

contended that the dispute raised fall in the excepted matter under

the arbitration clause aforesaid. Thirdly, it is contended that in fact

there is no dispute inasmuch as the claim as set out in the petition

and disputed by the respondent is not under the agreement but

tantamounts to the petitioner wanting the agreement to be re-

written.

4. As far as the first contention of the respondent is concerned,

admittedly there is no communication from the petitioner, after the

disputes have arisen to the CMD of the respondent. The agreement

between the parties is of reference of disputes to a named arbitrator

i.e. CMD of the respondent who under the agreement is also entitled

to nominate/appoint some other officer of the respondent as the

arbitrator. The petitioner has relied upon its letter dated 23rd April,

2007 to the DDG (MM) of the respondent stating that in view of

disputes have arisen, the petitioner in terms of Clause 20 of the bid

document was calling upon the addressee to forthwith nominate and

appoint the arbitrator to adjudicate the issues in dispute and further

stating that if the appointment of the arbitrator is not made in terms

of clause 20, the petitioner shall proceed on the basis that there is no

agreement on the procedure for appointing arbitrator and proceed

with appointment of arbitrator in accordance with the Act. The

Assistant Director General (ST) of the respondent replied to the

aforesaid communication on 7th May, 2007 stating that the request

for appointment of an arbitrator in terms of clause 20 of the bid

document was not tenable in view of terms and conditions of the

document. The advocate for the petitioner sent another letter dated

7th June 2007 again to the DDG (MM) of the respondent and which

was replied to 21st June, 2007 by the Assistant Director General (ST)

reiterating the stand taken earlier.

5. The question which arises is that where the CMD of the

respondent is named arbitrator but the petitioner instead of

approaching the CMD writes to some other official of the respondent

to appoint the arbitrator, whether it can be said that the conditions

of Section 11 (6) are satisfied entitling the petitioner to approach

this Court to take the necessary measure. This is all the more

relevant when the official of the respondent approached has denied

reference to arbitration on ground other than that the petitioner

having not approached the CMD.

6. Under Section 11 (2) of the Act, the parties are free to agree

on a procedure for appointing the arbitrator. Sub-section 6 provides

that where under an appointment procedure agreed upon by the

parties, a party fails to act as required under that procedure or the

parties or the two appointed arbitrators fail to reach an agreement

expected of them under that procedure or when a person fails to

perform any function entrusted to him under that procedure, a party

may request the Chief Justice or his designate to take the necessary

measure for securing the appointment. Sub-section 5 deals with a

situation of the parties having not agreed on any procedure for

appointment of arbitrator.

7. A bare reading of the arbitration clause in the present case

would show that the parties had in the agreement itself agreed on

the arbitrator. The CMD of the respondent was the agreed

arbitrator. When the parties have agreed on the arbitrator to whom

the disputes are agreed to be referred, upon disputes arising, the

parties or any of them are required to approach the said named

arbitrator. In such case, sub-sub-clause (c) of sub section 6 is

attracted and a party becomes entitled to request the Chief Justice

for securing the appointment only when the named arbitrator fails to

perform any function entrusted to him under that procedure. When

an arbitrator is named in the agreement, the parties raising the

dispute or making the claims is not required to approach the other

party to join in the appointment of the arbitrator or to appoint the

arbitrator as the petitioner has done in the present case. There was

no need for the petitioner to approach the DDG (MM) of the

respondent for nominating and appointing the arbitrator inasmuch

as the arbitrator was already named in the agreement. What the

petitioner was required to do was to approach this CMD of the

respondent with its claims and only if the said CMD had failed to

either himself act as an arbitrator or to nominate/appoint anyone

else as the arbitrator, could the petitioner have any cause of action

for approaching this Court. The petitioner having admittedly not

done so, the petition is liable to be rejected as without cause of

action.

8. The next aspect to be examined is as to would the refusal of

the Assistant Director General (ST) of the respondent to appoint an

arbitrator make any difference. The petitioner had agreed to the

arbitration of CMD or his nominee, notwithstanding the proximity of

the said CMD to the other party, for the reason of special faith

having been reposed in the person occupying the office of the CMD.

It was open to the parties to agree and provide that in the event of

disputes, the respondent shall nominate/appoint the arbitrator. The

parties instead of agreeing so, agreed to the arbitration of CMD or

his nominee. Thus, CMD of the respondent, at least for the purpose

of arbitration agreement was treated differently from the respondent

and cannot be equated with the respondent. Thus, the denial by the

Assistant Director General (ST) of the respondent to the request of

the petitioner for appointment of arbitrator is of no avail. Moreover,

the request itself was not in accordance with the agreed procedure.

Thus, in my view, the application is without any cause of action and

is liable to be rejected on this gourd alone.

9. The second contention of the respondent that the dispute

raised is an excepted matter can be discussed together with the third

contention of there being no dispute between the parties.

10. The case as set out in the petition/application is that under the

agreement between the parties, under Clause 3 titled "Price

Variation' the composite price of each size of cable was to be worked

out on monthly basis, based upon the monthly Copper Price Circular

issued by the respondent; that the petitioner had agreed to the price

being determined as per the Copper Price Circular issued by the

respondent because the respondent in the past had always adopted

the market price issued in the monthly circular of Hindustan Copper

Limited (HCL) which being the sole indigenous producer of primary

copper in India and being also a public sector undertaking issued

monthly price circular of copper and which was always reflective of

the market price; that historically, the price circulars issued by the

respondent have been identical to the HCL price circulars and in the

past the cable industry had no reason to raise a grievance to the

respondent reserving a right to determine the copper prices because

of being satisfied by the same being copper price as published by the

HCL; that however this time around during the currency of the

agreement subject matter of the application, the respondent in

complete disregard of past practice determined the copper prices at

variance and lower than that of the copper price as published by

HCL. The said action of the respondent was impugned in the

petition/application as arbitrary and is the basis of the claims raised

by the petitioner and disputed by the respondent and for

adjudication of which appointment of arbitrator is sought.

11. The second contention aforesaid of the respondent is that the

prices of copper under the agreement were to be determined by the

respondent and thus the disputes raised fell within the excepted

matters in the arbitration clause i.e., the decision of which was

specifically provided under the agreement. Thirdly, it was

contended that since it was not disputed that the petitioner had been

paid as per the price of copper published in circulars of the

respondent and the claim was based on the prices of copper

published in the circulars of HCL, there was in reality no dispute

requiring the parties to be referred to arbitrator.

12. The second contention raised by the respondent is no longer

res integra. The Apex Court recently in BSNL vs. Motorola India

Pvt. Ltd. 2008 (12) Scale 720 : MANU/SC/4021/2008 has held that

for the matter to fall in the excepted matter, an adjudicatory

mechanism/process has to be provided therein. In the absence of

any adjudicatory process it cannot fall within excepted matter, the

decision of which is provided under the agreement.

13. In this regard, it may be noted that the counsel for the

respondent had argued that the only matter the decision whereof

under the agreement was to be of the respondent was with respect

to the publication of the aforesaid prices of copper and thus the

exception in the arbitration clause applied to the determination of

price of copper only and could not apply to any other matter.

However, a perusal of the clause relating to publication of price of

copper by the respondent shows that no adjudicatory process was

entailed therein. Merely, because the so called excepted matter in

the arbitration clause could not apply to any dispute for the reason

that the decision of no matter by adjudicatory process was left to the

respondent, is no ground to apply the said exception clause to the

case in hand. Moreover, the Apex Court in the judgment aforesaid

has also held that such a clause would also be contrary to Section 28

of the Contract Act being in restraint of legal proceedings and has to

be held to be bad. Following the said dicta, the second contention of

the respondent is not found tenable.

14. As far as the third contention of the respondent is concerned, it

tentamounts to saying that the dispute raised is illusionary or no

dispute and hence the parties ought not to be put through the

expensive exercise of arbitration. The counsel for the respondent

has in this record relied upon SBP & Co. vs. Patel Engineering

Ltd. & Anr. (2005) 8 SCC 618. The Constitution Bench of Apex

Court in the said judgment, overruling the earlier position held that

at least in the matter of deciding his own jurisdiction and in the

matter of deciding on the existence of an arbitration agreement, the

Chief Justice when confronted with two points of view presented by

the rival parties has to decide between them. The Apex Court in

para 37 of the judgment citing the examples of claims being made 10

or 20 years after the period of contract come to an end and of where

appointment of arbitrator is sought after the parties had settled the

accounts and the party concerned had certified that he has no

further claim against the other and when dead claims are sought to

be resurrected or where assertions are made of the existence of

arbitration agreement when in fact such existence is strongly

disputed or a controverted or as to whether the claim that is sought

to be put forward comes within the purview of arbitration clause

concerned at all, held that the Chief Justice has necessarily to apply

his mind to these aspects before coming to a conclusion one way or

the other and before proceeding to appoint an arbitrator or declining

to appoint an arbitrator. The Constitution Bench in para 32 of the

judgment further held that if the parties are compelled to take

objection to the jurisdiction or the existence of an arbitration

agreement before the arbitral tribunal, the parties have to

participate in the arbitration proceedings extending over a period of

time by incurring substantial expenditure and then come to the

Court with an application under Section 34 of the Act seeking the

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. It was held that the same

meant considerable expenditure and time spent by the party before

the arbitral tribunal. It was held that on the contrary if the decision

on the aforesaid aspect is taken when the court is approached for

appointment of an arbitrator, this will put to an end a host of

disputes between the parties and leave the arbitral tribunal to decide

the disputes on merits unhampered by preliminary and technical

objections. This option was considered by the Constitution Bench to

be more conducive in matter coming under the Act.

15. The third contention of the respondent in the present case is in

fact on the merits of the dispute. It is the case of the respondent

that the claim raised is not tenable under the agreement inasmuch

as the claim is based on HCL published list of copper prices whereas

under the agreement the price was to be determined as per the

respondent published copper price. Whether the court when

approached under Section 11(6) is entitled to consider this aspect

also? The same would necessarily entail interpretation of the

contract. But so would determination of whether the disputes are

arbitrable or not or fall in excepted matter or not and which, the

Constitution Bench of the Apex Court as aforesaid held was to be

determined at this stage only.

16. Though the scope of inquiry in both the situations may not be

different but it cannot be lost sight of that while one is a plea of the

very arbitrablilty of the disputes, the other is the plea of tenability of

the claim. In the light of the prohibition contained in Section 5 of the

Act, even though present may be of a very clear case where

admittedly the claim is contrary to the written words of the

agreement, this court hesitates from expanding the scope of

intervention of the court to also consider where the claim is tenable

on merits or not. If same were to be permitted, it would open the

flood gates to pleas in this regard and litigants, may be with a view

to delay the disposal of the application would make all sorts of

pleadings to urge that the claim was not in terms of the agreement

or is a sham and fictitious.

17. Having held so, I may, however, observe that since I have on

the first contention of the petitioner found the petition to be without

cause of action, the finding on the second and third contention

aforesaid of the respondent, would not constitute res judicata in a

subsequent petition/application if any under Section 11(6) of the Act,

in the event of the CMD of the respondent failing to act in spite of

being approached by the petitioner. However, since the contention

had been raised and it is a requirement of law that notwithstanding

the matter being found to be not maintainable on one ground alone,

finding on all the grounds urged has to be returned so that the

parties are not compelled to successive rounds of litigations, these

findings would be relevant if either of the parties dissatisfied with

this order takes the matter further.

18. For the reasons aforesaid, the application is rejected accepting

the contention No. 1 of the respondent. However, in the facts of the

case, the parties are left to bear their own costs.

RAJIV SAHAI ENDLAW (JUDGE) January 14, 2009 rb