Shivaai Industries (P) Ltd. vs Delhi Transport Corporation
2009 Latest Caselaw 3708 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                        ARB.P. 239/2009

%                    Date of decision: 11th September, 2009

SHIVAAI INDUSTRIES (P) LTD.                     .... Petitioner
                         Through:    Mr. S.K. Maniktala   and   Mr   Alok
                                    Tripathi, Advocates

                                  Versus

DELHI TRANSPORT CORPORATION                          ... Respondent
                         Through: Ms Avnish Ahlawat with Mr Nitesh
                                  Kumar Singh, Advocates


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

1.    Whether reporters of Local papers may
      be allowed to see the judgment?                 No

2.    To be referred to the reporter or not?          No

3.    Whether the judgment should be reported         No
      in the Digest?


RAJIV SAHAI ENDLAW, J.

1. The petition is preferred under Section 11(6) of the Arbitration

Act, 1996 averring the failure of the appointing authority to appoint

the arbitrator. The arbitration clause in the agreement between the

parties is inter alia as under:

"34. ARBITRATION

There shall be a Dispute Settlement Committee which shall try to settle all disputes at the first stage. The Dispute Settlement Committee shall consist of CGM, Addl. CAO, concerned Dy CGM and Sr Manager Law. If the Committee fails to resolve the issue, it shall be referred for arbitration. Chairman-cum-M.D. shall be the final authority in all litigation/arbitration. He can nominate any arbitrator for settlement of disputes. Chairman-cum- M.D.'s decision shall be final and binding on all the parties.

All questions and disputes between the parties, the settlement of which has not been herein specifically recorded, shall be referred to the Sole arbitration of the Chairman-cum-Managing Director, Delhi Transport corporation or any other officer so nominated and

appointed by him. There shall be no bar to the reference of dispute to the arbitration of such an officer of the Corporation appointed by the Chairman-cum-Managing Director even though the said officer may have dealt with the matter and had expressed his opinion thereon."

2 It is the case of the petitioner that it had as far back as on 31 st

May, 2006 invoked the arbitration clause by writing to the Managing

Director of the respondent and pursuant thereto a Disputes

Settlement Committee was constituted which vide its Minutes dated

2nd March, 2009 resolved some of the disputes which had arisen

between the parties and in the said Minutes itself, qua the

unresolved disputes it is recorded "As per the contractual

mechanism provided in the agreement, these disputes can now be

referred to arbitrator for adjudication by appointing an arbitrator."

3 It is contended that inspite of the Minutes aforesaid, no

arbitrator was appointed and hence the petitioner applied to this

court for appointment of an independent arbitrator.

4 The counsel for the respondent has appeared pursuant to

notice and has stated that the Managing Director of the respondent

has vide order dated 9th September, 2009 appointed Mr S.P.

Marwah, IAS (Retd) as the sole arbitrator to adjudicate the disputes.

The said order of the Managing Director of the respondent is

admittedly of a date after the institution of this petition which came

up first before this court on 10th July, 2009. The counsel for the

petitioner has contended that the aforesaid order has not been

communicated to the petitioner as yet and that the appointing

authority had, as on the date of the said order forfeited its rights to

appoint an arbitrator. Reliance in this regard is placed on Union of

India Vs Bharat Battery Manufacturing Co (P) Ltd (2007) 7 SCC

684.

5 There can be no dispute with the proposition of law that on the

institution of the petition under Section 11(6) of the Act the

appointing authority loses the rights to appoint. However, the

question which arises in this case is whether the petitioner was

under the arbitration clause aforesaid, upon the disputes remaining

unresolved before the Disputes Settlement Committee, required to

approach the Chairman-cum-Managing Director, who besides being

the appointing authority is also entitled to act as the named

arbitrator. If the aforesaid clause is to be interpreted as requiring

the arbitration to commence only after the disputes remain

unresolved before the Disputes Settlement Committee, then

admittedly the petitioner has not approached the Chairman-cum-

Managing Director and the petition under Section 11 (6) of the Act

would then be not maintainable. However, if as contended by the

counsel for the petitioner, the invocation of the arbitration prior to

the reference of the matter to the Disputes Settlement Committee is

enough, then undoubtedly the appointment of the arbitrator now by

the Managing Director of the respondent is without any authority

whatsoever.

6 Clause 34 in the agreement under the heading Arbitration does

not immediately provide for arbitration. It first provides for a

Disputes Settlement Committee and arbitration is provided only for

those disputes which have not been settled in the said Dispute

Settlement Committee. The placing of the Dispute Settlement

Committee in the arbitration clause, before the said clause leads me

to hold that invocation of arbitration has to be after the mechanism

of the Dispute Settlement Committee has been exhausted.

Admittedly in this case also several disputes have been settled in the

said Committee and thus the question of seeking arbitration with

respect thereto does not arise. Had the intent of the parties been

that the Dispute Settlement Committee would come into play after

the invocation of the arbitration, the clause could have been worded

accordingly. However, the parties having provided for arbitration

only of unresolved disputes, on an interpretation of the agreement,

in my view the petitioner was required to approach the Chairman-

cum-Managing Director after the Minutes dated 02.03.2009 of the

Dispute Settlement Committee (supra) and only upon the failure of

the Managing Director of the respondent to act at that stage could

the cause of action for an application under Section 11(6) of the Act

have accrued to the petitioner.

7 The petitioner having admittedly not done so, there is no

option but to hold that the petition is premature. Once the petition is

held to be premature, the Managing Director of the respondent has

not forfeited his right to appoint the arbitrator and the appointment

made now cannot be said to be unauthorized.

8 The Supreme Court in M.K. Shah Engineers and

Contractors Vs. State of Madhya Pradesh AIR 1999 SC 950 has

held that mechanism provided in the agreement preceding the

arbitration is mandatory unless waived by the parties. I have also in

Sushil Kumar Bhardwaj Vs. U.O.I. MANU/DE/1324/2009 held

clause 25 of the contract in that case requiring the contractor to

approach the Engineer Incharge, then Superintending Engineer and

finally Chief Engineer for settlement of disputes, before seeking

arbitration, to be mandatory. In this view of the matter also, it

cannot be said that the mechanism provided of the Dispute

Settlement Committee is an empty exercise.

9 Even otherwise, the Supreme court in ACE Pipeline

Contracts Ltd. Vs. BPCL 2007 (5) SCC 304 and Northern

Railway Administration, Ministry of Railway New Delhi Vs

Patel Engineering Co. Ltd (2008) 10 SCC 240 has held on an

interpretation of Section 11(8) of the Act that even in an application

under Section 11(6) of the Act the court can appoint the same

arbitrator as provided under the agreement or mandate the

authority to appoint the arbitrator and an independent arbitrator can

be appointed only when reasons for not so abiding by the agreement

of the parties are found. In this view of the matter also, it cannot be

said that the petitioner will suffer any prejudice by the action of

appointment of the arbitrator now.

10. The counsel for the petitioner has contended that the question

of the Chairman-cum-Managing Director of the respondent

appointing the arbitrator, as has been done now, could have arisen

only if the letter dated 31st May, 2006 is treated as the invocation

letter. However, in my view, for the Managing Director to appoint

the arbitrator, the invocation by the petitioner was not necessary in

the light of the Minutes aforesaid of the Dispute Settlement

Committee.

11. The petition is dismissed. No order as to costs.

RAJIV SAHAI ENDLAW (JUDGE)

September 11, 2009 M