Pt. Munshi Ram & Associates Pvt. ... vs New Delhi Municipal Council
2009 Latest Caselaw 2430 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                         AA 428 & AA 429/2008

%                               Date of decision: 2nd July, 2009

PT. MUNSHI RAM & ASSOCIATES PVT. LTD.....                     Petitioner
                       Through: Mr. D. Moitra and Mr. Moaniken,
                                Advocates

                               Versus

NEW DELHI MUNICIPAL COUNCIL                    .....      Respondent
                       Through: Ms. Madhu Tewatia with Ms. Sidhi,
                                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. Both petitions are between the same parties and relate to two

different but identical contracts and entail similar questions of law

and are taken up together for consideration.

2. The contracts contain the arbitration clause as under:-

"23 Disputes, if any arising during the period of this agreement between NDMC and the agency shall be referred to the sole arbitration of the Chairman, NDMC or a person nominated by him. (The fact that the person so nominated is also an employee NDMC shall not be a bar on his acting as an Arbitrator, nor shall any of the parties have any objection to his nomination for the said reason). The decision of the Sole Arbitrator so appointed shall be final and binding on both the parties. The venue of Arbitration shall be at Delhi. The courts in Delhi shall have exclusive jurisdiction, to the exclusion of all other suits."

Disputes and differences having arisen, the petitioner claims

to have written letters dated 14th August, 2008 to the Chairman,

NDMC being the persona designata in terms of the arbitration clause

aforesaid for referring the disputes to arbitration. Copies of the said

letter filed along with the petition inter-alia state:

"Thus therefore while invoking the Clause 23 of the said contract I Vinod Sharma authorized signatory for and on behalf of Pt. Munshi Ram & Associates Pvt. Ltd. call upon you either to act as an Arbitrator or nominate a person on your behalf within a period of 30 days of issue of this notice"

Upon the Chairman, NDMC not responding to the aforesaid

communication, the petitioner vide petitions dated 27th November,

2008 applied to the Chief Justice of this court under Section 11(6) of

the Arbitration and Conciliation Act. It is the case in para 21 of the

petitions that the Chairman, NDMC being the persona designata lost

the right to appoint an Arbitrator.

3. When the petitions came up first before this court on 5th

December, 2008 it was felt that the arbitration agreement between

the parties having provided for the arbitration of the Chairman,

NDMC or person nominated by him, the failure if any of the named

Arbitrator to act did not form the ground for invoking Section 11 (6)

of the Act. The following order was passed on that date:-

"The arbitration clause relied upon is of arbitration by the Chairman, NDMC or person nominated by him. The petitioner claims to have approached the Chairman, NDMC vide letter dated 14th August, 2008 to arbitrate or to nominate a person. No action is stated to have been taken by the Chairman, NDMC. Though it appears that upon the failure of nominated arbitrator to act, a petition under Section 14 and not under Section 11(6) would lie but since the Chairman, NDMC has not let known his decision whether he is wanting to act as an arbitrator or will nominate someone else as an arbitrator, issue notice to the respondent on the petitioner taking requisite steps, returnable on 30th March, 2009."

4. The respondent has been served and appeared through

counsel. Though no reply has been filed but the counsel for the

respondent has communicated that the Chairman, NDMC has since

appointed Shri Manish Kumar, Financial Advisor of the NDMC as the

Sole Arbitrator. List of notings of the officials of the NDMC has been

filed in court. The same show the appointment to have been made

on 1st April, 2009. The counsel for the petitioner also admits receipt

of a letter dated 1st April, 2009 from the Medical Officer of Health of

the NDMC in this regard. Though the counsel for the petitioner

contended that the communication ought to have been by the

designated person i.e. the Chairman, NDMC and not by the Medical

Officer of Health but there is no merit in the said contention. The

letter dated 1st April, 2009 clearly intimates that the Chairman,

NDMC has appointed Sh. Manish Kumar, Financial Advisor as the

Arbitrator. It is not the case that the Medical Officer of Health has

appointed the Arbitrator. Intimation of appointment was not required

to be by the Chairman himself.

5. The counsel for the petitioner relying upon Union of India Vs.

M/s Bharat Battery Manufacturing Company Pvt. Ltd. 2007 (7)

SCC 684 has contended that after the institution of the petition

under Section 11 (6) of the Act, the Chairman, NDMC had lost the

right to make the appointment and thus the appointment admittedly

made after the institution of the petition is of no avail and this court

ought to appoint an independent Arbitrator, preferably a retired

judge or even from the retired personnel on panel of arbitrators of

the NDMC. Reliance is also placed on State of West Bengal Vs.

Sarkar and Sarkar AIR 2006 (NOC) 1087 (CAL.); in that case the

agreement provided for the Arbitration either of the Chief Engineer

himself or of some other person appointed by the Chief Engineer; the

Chief Engineer neither entered into reference himself nor appointed

any arbitrator to adjudicate disputes; in these circumstances, the

Chief Justice was approached under Section 11(6) of the Act and

appointed an independent Arbitrator. In objection under Section 34

to the award of the said Arbitrator plea was taken that the Chief

Justice could not have appointed any person other than the named

Arbitrator. It was held by a single judge of the Calcutta High Court

that the said plea was untenable and the appointment could not be

challenged on that ground.

6. Per contra, the counsel for the respondent NDMC has

contended that the Apex court in Ace Pipe Line Contracts Pvt.

Ltd. Vs. Bharat Petroleum Corpn. Ltd. (2007) 5 SCC 304 has

held that on failure of the appointing authority to appoint Arbitrator

within a reasonable time mandamus can be issued under Section

11(6) to the authority concerned to appoint the Arbitrator and only if

it is found that the appointment in terms of the agreement would not

be conducive in the interest of the parties or for any other reasons to

be recorded in writing, the choice of Arbitrator can go beyond the

designated persons or institutions in appropriate cases. It was

further held that the court should normally adhere to the terms of

the arbitration clause except in exceptional cases and for reasons to

be recorded. Reference was also made to the departmental lethargy

in making appointment of arbitrators in terms of the arbitration

clause.

7. Ace Pipe Line Contracts Pvt. Ltd. turns on as to who should

be appointed as the Arbitrator, after the Chief Justice or his

designate is satisfied of the conditions for invocation of Section 11(6)

having been made out. In this regard a later judgment of the Apex

Court in Northern Railway Administration Vs. Patel

Engineering Co. Ltd. (2008) 10 SCC 240 may also be noticed. That

was also concerned with as to who ought to be appointed as the

Arbitrator. However, that is not the immediate issue for

consideration in the present case. The first question which arises for

adjudication is, when the arbitration agreement names the Arbitrator

and the named Arbitrator inspite of being approached by a party fails

to act, whether an application under Section 11(6) of the Act lies.

The view expressed at the time of issuing notices of the petitions on

5th December, 2008 was that such a petition does not lie and the

remedy if any of the party is to approach under Section 14 of the Act.

Notice was however issued since the Chairman, NDMC had neither

communicated his willingness to act as the Arbitrator nor

communicated that he will be nominating somebody else as the

Arbitrator. What falls for consideration in these petitions is the

correctness of the view then taken. If it is found that the petitioner

was right in approaching this court under Section 11(6) of the Act,

then the settled legal position is that the person who under the

agreed procedure was to appoint the Arbitrator, loses the right of

such appointment upon the filing of the petition. If such right is lost,

whether the appointment still has to be of a person who was eligible

under the agreement to be appointed or of an independent person

would then arises for consideration.

8. Neither of the judgments cited by the counsels concern the

aforesaid aspect.

9. Taking the language of the statute first, Section 11 is

concerned, as the heading thereto discloses, with "Appointment of

arbitrators". Section 11 (2) permits freedom to the parties to agree

on a "procedure" for appointing the Arbitrator. Sections 11 (3)&(4)

deal with an agreement for arbitration with three arbitrators.

Section 11(5) deals with an agreement providing for an arbitration

with a sole arbitrator. Section 11(6) with which we are concerned is

as under:-

"Where, under an appointment procedure agreed upon by the parties,-

(a) a party fails to act as required under that procedure;

or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment."

The aforesaid would show that Section 11 generally and

Section 11(6) particularly is concerned only with an appointment

procedure agreed upon by the parties. Sections 11 (4), (5) & (6)

provide for the remedy in the eventuality of default by a party to act

in relation to such appointment procedure. Section 11 (6) (a)&(b)

clearly refer to the procedure for appointment. Similarly, Section

11(6) (c) though providing for failure to perform any function

entrusted, qualifies such failure to be under that procedure. Thus in

my view Section 11 (6) is the remedy for default in abiding with the

procedure and does not deal with the case of the failure of the

Arbitrator to act. Neither does it deal with failure of a named

Arbitrator to act nor does it deal with the failure of an Arbitral

Tribunal constituted in accordance with the procedure to act. As

aforesaid though Section 11(6) (c) refers to failure to perform any

functions entrusted, but is qualified with the words "under that

procedure".

10. The question then arises is, if the remedy for, the named

arbitrator or the constituted arbitrator/arbitral tribunal failing to

act, is not under Section 11 (6), then what is the remedy of a party in

such a situation.

11. In my view, the answer is to be found in Section 14 of the Act,

which is as under:-

"14. Failure or impossibility to act.-(1) The mandate of an arbitrator shall terminate if-

(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and

(b) he withdraws from his office or the parties agree to the termination of his mandate.

(2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.

(3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12.

12. In my view, Section 14 is a complete answer to the question

posed above. The same provides for a situation where the Arbitrator

is unable to perform his functions or for other reasons fails to act

without undue delay. An application then lies to the court for

decision on the termination of the mandate.

13. In the present case, the parties agreed to the arbitration of the

Chairman of the NDMC or of a person nominated by him. Upon

disputes having arisen, the petitioner was required to prefer its

claim before the Chairperson of the NDMC. The Chairperson of the

NDMC was entitled to either enter upon reference himself or to

refer the same to any other person. If he failed to act without undue

delay, the petitioner was entitled to then take a stand that the

Chairman was de facto unable to perform his functions as an

Arbitrator and if the NDMC or the Chairman did not accept the said

position, it was open to the petitioner to apply to the court under

Section 14 for a finding that the mandate of the Chairman to act as

the Arbitrator had terminated. The petitioner however did not do so

and on the contrary approached the Chief Justice under Section

11(6) of the Act.

14. Though as aforesaid no judgments on this aspect were cited

but I find that an argument in this regard was raised before the

Division Bench of this court in Indian Oil Corporation Ltd. Vs.

Kiran Construction Co. 102 (2003) DLT 908 DB. In that case the

agreement between the parties was for arbitration of the Managing

Director, Marketing Division of the Indian Oil Corporation and if

such Managing Director was unable or unwilling to act as the Sole

Arbitrator, of arbitration by some other person designated by such

Managing Director in his place. The respondent in that case

approached the Managing Director for arbitration. Upon the

Managing Director maintaining silence, an application under Section

11(6) of the Arbitration Act was filed. During the pendency of the

said application the Managing Director appointed the Dy. General

Manager of the Indian Oil Corporation as the Arbitrator and the said

person entered upon reference. The factum of appointment was

brought to the notice of the court where Section 11(6) was pending.

However, the court held that since the appointment had been made

after the expiry of 30 days hence the Managing Director of the

Indian Oil Corporation had lost the right to appoint an Arbitrator

and a retired judge of this court was appointed as the Sole

Arbitrator. A writ petition was preferred to the Division Bench

against the said order. It was the contention of the counsel for the

Indian Oil Corporation before the Division Bench that the court

could exercise jurisdiction of appointing an Arbitrator only if the

procedure had not been prescribed in the agreement itself or when

there was a default in complying with the agreed procedure;

however when the agreement is of a named Arbitrator, Chief Justice

or his designate could only secure the appointment of the person so

named and since the named person had entered upon reference

during the pendency of application under Section 11(6) of the Act,

Chief Justice or his nominee would not do anything more except to

uphold his appointment. It was further contended that even if the

Arbitrator had not been named, the Chief Justice was not vested with

any power to appoint an independent Arbitrator because that would

be in violation of the procedure agreed by the two parties.

15. However, the Division Bench of this court did not accept the

aforesaid contention and interpreted Section 11 (6) of the Act as

entitling the Chief Justice to also make an appointment where the

named Arbitrator fails to perform the function entrusted to him,

though the words "under the procedure" were also used. The

Division Bench for holding so reasoned "therefore, there being no

other alternative procedure provided nor providing any other means

for the appointment of an Arbitrator, the respondent as per the

provision of the Act requested the Chief Justice".

16. I must however point out that there is no reference whatsoever

in the aforesaid judgment of the Division Bench to Section 14 of the

Act. The Division Bench appears to have proceeded on the premise

of there being no other provision in the Act providing for the failure

of the named Arbitrator to act and thus the Division Bench held that

such contingency would also fall within the domain of Section 11(6)

of the Act. However, as aforesaid such contingency is covered by

Section 14 of the Act and Section 15 provides that where the

mandate of the Arbitrator terminates inter-alia under Section 14,

substitute Arbitrator shall be appointed according to the rules

applicable to the appointment of the Arbitrator being replaced.

17. I would ordinarily be, however, bound by the judgment

aforesaid of the Division Bench. However, the principle of per

incuriam is that if a judgment is in ignorance of a provision of law, it

is not a binding precedent. Here, as aforesaid, attention of the

Division Bench was not invited to Section 14 of the Act, which led

the Bench to hold that there being no provision in the Act to deal

with cases of failure of Arbitral Tribunal to act, the same ought to be

held as within the ambit of Section 11 (6), even though Section 11

(6) by its language is confined to cases of failure to act in terms of

procedure agreed or provided, only for appointment of the arbitral

tribunal and does not extend to failure of named or appointed

arbitrator to act. I am thus humbly of the view that a petition under

Section 11(6) of the Act does not lie upon the arbitration agreement

providing for arbitration of a named arbitrator and such arbitrator

failing to act.

18. Another Single Judge in Kamala Solvent Vs. Manipal

Finance Corp. Ltd. AIR 2001 Madras 440 has also held that when

an Arbitrator is named in the arbitration agreement, the provisions

of Section 11 of the Act are not attracted and the court will not have

jurisdiction to try and decide the petition filed by a party for

appointment of another Arbitrator.

19. Though the option of referring the matter for reconsideration

to the Division Bench is available but in the facts and circumstances

of the case I think that following that procedure would lead to

delays. The effect of dismissal of this application would be that the

arbitrator nominated by the Chairman, NDMC will proceed with the

arbitration. Though this application under Section 11(6) is held to be

not maintainable, even if it were to be maintainable, the designate of

the Chief Justice, in view of Section 11(8) of the Act and the law laid

in Ace Pipe Line Contracts Pvt. Ltd. and Northern Railway

Administration (Supra), could always issue a mandate to the

Chairman, NDMC to arbitrate or to nominate an arbitrator; such

arbitrator has already been nominated as aforesaid.

20. Thus in my view upon the Chairman who was the named

Arbitrator failing to act, the option of the petitioner was to first

approach him/respondent NDMC with the plea that upon his failure

to act as the Arbitrator his mandate to act as the Arbitrator had

terminated. If such representation of the petitioner was not accepted

and controversy in this regard remained, the petitioner could apply

under Section 14 to the court to decide on such termination of

mandate. In my view, the provision in the arbitration clause

enabling the Chairman to, in the event of not wanting to arbitrate

himself, nominating another person as arbitrator, would also not

make any difference. Firstly, the action of the Chairman of not

nominating any other person was indicative of the Chairman wanting

to arbitrate himself. Secondly, in the absence of any general order

of the Chairman recusing himself, under the clause petitioner was

required to approach the Chairman as arbitrator and the court

cannot presume that the Chairman was only the appointing authority

and not the arbitrator himself.

21. I am also not inclined to treat this petition as one under

Section 14. The requirements of Section 11 (6) and of Section 14 are

entirely different. While an application under Section 11(6) is to lie

to the Chief Justice or his designate, an application under Section 14

is to lie to the court. Further while under Section 11(6) the right of

appointment terminates and the court is empowered to appoint an

independent Arbitrator, under Section 14 the court can only return a

finding of the mandate having terminated and the parties under

Section 15(2) have to resort to the rules applicable to the

appointment of the Arbitrator being replaced. The time limitation as

in Section 11 are also not applicable to Section 14.

In Section 14 the cause of action is the Arbitrator having failed

to act without undue delay. Upon the failure of the Chairman to act,

the only relief available under Section 15 (2) is of directing the

Chairman to nominate an Arbitrator. In the present case, the

Chairman has already appointed the Arbitrator. That having been

done, no further orders are even otherwise required.

22. The applications are accordingly dismissed as not

maintainable, however with no order as to costs.

RAJIV SAHAI ENDLAW (JUDGE) 2nd July, 2009 PP