Delhi High Court

M/S. Utkal Galvanizers Ltd. vs M/S. Power Grid Corporation Of ... on 13 November, 2014

Author: Deepa Sharma

*     IN THE HIGH COURT OF DELHI AT NEW DELHI
+                         ARB.P. 527/2014
%                      Judgement Reserved on: 27.10.2014
                       Judgement pronounced on: 13th November, 2014

      M/S UTKAL GALVANIZERS LTD                              ..... Petitioner
                          Through: Mr Jayant K. Mehta and Mr Shovan
                          Mishra, Advs.

                          versus

      M/S POWER GRID CORPORATION OF INDIA LTD... Respondent
                   Through: Mr K.K. Rai, Senior Advocate with
                   Mr P.K. Mishra, Advocate

CORAM:
HON'BLE MS. JUSTICE DEEPA SHARMA
JUDGMENT

1. The present petition has been filed under Section 11(6) of the

Arbitration and Conciliation Act, 1996 for the relief that the appointment of

Justice K.S. Gupta (Retd.), the retired nominee Arbitrator, appointed by the

petitioner, be upheld. The other request, which has been made by the

petitioner in the present petition, is that since the respondent has already

nominated his Arbitrator, pursuant to the arbitration clause and the petitioner

has also appointed his nominee Arbitrator and since both the nominated

arbitrators have failed to reach the consensus to appoint a Presiding

Arbitrator, the Court should appoint a Presiding Arbitrator. A request has

also been made to quash the notice dated 04.09.2014 of the respondent,

whereby the respondent had appointed his nominated Arbitrator as a sole

Arbitrator.

2. The brief facts of this case are that the petitioner and the respondent

had entered into a contract which was subsequently terminated by the

respondent and the respondent had raised a demand of sum of

Rs.48,05,76,414/- vide their letter dated 13.02.2014. The petitioner had

refuted the said liability vide their letter dated 06.03.2014. The respondent,

thereafter, invoked the arbitration clause 39(2) of the agreement vide their

letter dated 14.05.2014 and informed the petitioner that they had nominated

Justice S.N. Aggarwal (Retd.) as their Arbitrator and called upon the

petitioner to appoint its nominee Arbitrator. The arbitration clause had

required the petitioner to nominate their Arbitrator within 60 days of the

receipt of the notice from the respondent. However, instead of nominating

their Arbitrator, the petitioner sought extension of time till 01.08.2014 on

the ground that they were unable to nominate their Arbitrator due to

unforeseen circumstances vide their letter dated 20.05.2014. Despite that the

petitioner did not nominate his Arbitrator and wrote a letter dated

31.07.2014 seeking further time of 30 days for nominating their Arbitrator.

3. The case of the petitioner is that although they had written a letter

dated 31.07.2014 seeking further extension of time, but, they had nominated

Justice K.S. Gupta (Retd.) as their Arbitrator even before 02.08.2014 and

also informed the respondent of this nomination vide their letter dated

02.08.2014. It is contended that despite that the respondent vide its letter

dated 06.08.2014 appointed their nominee as the sole Arbitrator on the

ground that the petitioner had failed to nominate its Arbitrator within 60

days in terms of clause 39(2) of the agreement. A protest letter dated

13.08.2014 was sent by the petitioner to Justice S.N. Aggarwal (Retd.),

nominated Arbitrator of the respondent and also to the respondent asking

them to accept the nomination of their Arbitrator. The petitioner had

received a letter dated 24.08.2014 from Justice S.N. Aggarwal (Retd.),

wherein it was disclosed that he had a meeting on 22.08.2014 with Justice

K.S. Gupta (Retd.), nominated Arbitrator of the petitioner, but, since they

could not reach to any consensus over the issue of appointment of a

Presiding Arbitrator, the meeting was adjourned. In the same letter, Justice

S.N. Aggarwal (Retd.) has also informed the petitioner that he had received

a letter of respondent dated 06.08.2014 on 23.08.2014, whereby he had been

asked to act as a sole Arbitrator. The learned Arbitrator vide its written

communication fixed the date of hearing before him.

4. It is also pleaded by the petitioner that the notice of the respondent

dated 14.05.2014 was actually received by them only on 20.05.2014 and,

therefore, 60 days for appointment of an Arbitrator be counted from that

date and those 60 days thus expired only on 20.07.2014. It is further

pleaded that the petitioner understood by the silence of the respondent on

their letter seeking extension of time till 01.08.2014 that the respondent had

conceded to their request for extension of time till 01.08.2014. It is also

contended that the respondents have now lost their right to object the

nomination of the Arbitrator by the petitioner. Since the Arbitrator has been

validly appointed by the petitioner and since both the nominated Arbitrators

in the meeting for appointment of a principal Arbitrator had failed to reach a

consensus, it is prayed that the Court should appoint a third Arbitrator

declaring that the petitioner had legally nominated their Arbitrator and also

quash the appointment of the nominated Arbitrator as a sole Arbitrator.

5. It is further argued by the learned counsel for the petitioner that the

right of a party to appoint an Arbitrator does not automatically cease, but

continues till the application under Section 11(6) of the Act is made and,

therefore, it cannot be said that the petitioner had since nominated its

Arbitrator after 60 days, his nomination is invalid. Reliance has been placed

on Bharat Sanchar Nigam Limited and Another vs. Dhanurdhar

Champatiray (2010) 1 SCC 673.

6. Learned counsel for the respondent has not filed any reply, but has

argued the matter. It is argued that the present petition under Section 11(6)

of the Act is not maintainable. It is submitted that under Section 11(6), a

petition can be filed against a defaulting party and a defaulting party,

without resorting to the terms of the agreement, cannot move the Court

under Section 11(6) of the Act. It is also submitted that the petitioner itself

is a guilty party. It is submitted that as per arbitration clause 39, a procedure

has been prescribed and the petitioner has not adhered to the said procedure

and, therefore, cannot invoke the jurisdiction of this Court under Section

11(6) of the Act. Reliance has been placed on India Household and

Healthcare Ltd. vs. LG Household and Health Care Ltd. (2007) 5 SCC

510, National Highways Authority of India and Anr. vs. Bumihiway DDB

Ltd. (JV) and Anr. (2006) 10 SCC 763 and Indo Pacific Aviation Private

Ltd. vs. Pawan Hans Helicopters Ltd. (2007) 145 DLT 61.

7. It is argued that in all the above-mentioned cases, it has been held that

whenever an arbitration clause has been invoked and the other party has

defaulted in following the procedure of the arbitration clause, the aggrieved

party can approach the Court. It is argued that in the present case, the

defaulting party, i.e., the party, who has failed to comply with the terms and

conditions of the arbitral clause, is the petitioner and the defaulting party

cannot approach the Court.

8. I have given due consideration to the arguments of the parties and also

the relevant case laws relied upon.

9. The dispute in this case revolves around the interpretation of clause

39.2 which governs the arbitration agreement between the parties. The said

clause is reproduced as under:-

"Clause 39.2- The arbitration shall be conducted by three arbitrators, one each to be nominated by the Contractor and the Employer and the third to be appointed by both the arbitrators in accordance with the Indian Arbitration Act. If either of the parties fails to appoint its arbitrator within sixty (60) days after receipt of a notice from the other party invoking the Arbitration clause, the arbitrator appointed by the party invoking the arbitration clause shall become the sole arbitrator to conduct the arbitration."

10. This arbitration clause has two parts. One part lays down the

procedure for appointment of the Arbitrator. It requires that the arbitration

shall be conducted by three Arbitrators. Both the parties, contractor and the

employer has to first nominate their Arbitrator and thereafter both the

Arbitrators, so appointed, has to appoint a third Arbitrator. The clause also

requires that both the parties shall nominate their Arbitrator within 60 days

after receipt of a notice from the party invoking the arbitration clause. The

second part of this arbitration clause prescribes the procedure to be followed

by the parties in case either of the parties fail to appoint an Arbitrator within

60 days. The clause prescribes that in such eventuality, the Arbitrator

appointed by the party invoking the arbitration clause shall become the sole

Arbitrator to conduct the arbitration.

From the bare reading of this clause, it is apparent that the clause

itself prescribes a mode of appointment of an Arbitrator in case of default of

either of the parties to nominate its Arbitrator for constitution of the Arbitral

Tribunal, within 60 days

11. In the present case, the admitted facts clearly show that the respondent

invoked the arbitration clause and nominated its Arbitrator and the petitioner

did not nominate his Arbitrator within 60 days, the period prescribed in the

clause. The contention of the petitioner is that on receiving a letter from the

respondent invoking the arbitration clause, they wrote a letter dated

20.05.2014 and asked the respondent to give them time up to 01.08.2014 for

appointment of the Arbitrator. It is pertinent to mention here that the

petitioner did not appoint their Arbitrator even by 01.08.2014, the time they

sought from respondent for appointment of the Arbitrator. Their contention

that they did so is contrary to their own documents placed on record. Their

letter dated 31.07.2014 clearly shows that till 31.07.2014, they had not

nominated any Arbitrator. Vide this letter, they had sought further time of 30

days from the respondent for appointment of the Arbitrator. The letter dated

13.08.2014 of the petitioner clearly shows that a letter for appointment of

the Arbitrator dated 02.08.2014 was signed by their Director only on

07.08.2014. Vide letter dated 02.08.2014 the petitioner had informed the

respondent that they had appointed Justice K.S. Gupta (Retd.) as the

nominee Arbitrator. Since the letter dated 02.08.2014, appointing the

Arbitrator by the petitioner, was executed only on 07.08.2014, it cannot be

said that the petitioner had nominated his Arbitrator before 07.08.2014.

Even if we presume that the respondent by remaining silent on the letter of

the petitioner for seeking time till 01.08.2014 to appoint an Arbitrator

amounts to consent or acquiescing to the request, still the petitioners were

bound to nominate their Arbitrator atleast by 01.08.2014. It is also apparent

from the letter of the respondent dated 06.08.2014 that they turned down the

request of the petitioner in its letter dated 31.07.2014 for grant of further

time for nomination of the Arbitrator and pursuant to second part of the

arbitration clause appointed their nominated Arbitrator as the sole

Arbitrator. The respondent had done so before the petitioner appointed its

arbitrator. From these facts, it is apparent that while the respondent had

acted as per the procedure prescribed under the arbitration clause binding the

parties, it was the petitioner, who had failed to comply the procedure under

the arbitration clause. This clearly shows that the petitioner is a defaulting

party.

12. The petitioner has also raised a contention that in view of the findings

in Bharat Sanchar Nigam Limited (supra), he could appoint an Arbitrator

at any time before the filing of the present case and since he has done so, his

appointment of the Arbitrator is valid and the Court should appoint the third

Arbitrator. It is argued on behalf of the respondent that the facts in this case

and the facts in Bharat Sanchar Nigam Limited (supra) are entirely

different and the findings of that case is not applicable on the facts of this

case, especially when the petitioner himself is a defaulting party. On this

point, I have given careful consideration to the rival contention and has also

gone through the case law relied upon by the petitioner. From the facts of

the case supra, it is apparent that it was the respondent Dhanurdhar

Champatiray who had invoked the arbitration clause and when the appellant,

i.e., BSNL failed to appoint the Arbitrator within the stipulated period,

approached the Court under Section 11(6) of the Act for appointment of the

Arbitrator. The contention of BSNL was that they had already appointed an

Arbitrator before the respondent Dhanurdhar Champatiray could approach

the Court under Section 11(6) of the Act. Herein in this case, the petitioner

is the defaulting party, who had failed to appoint/nominate his Arbitrator in

terms of the arbitration clause binding both the parties. He could not take

advantage of his own wrong. In view of this, the ratio laid down by the

Supreme Court in Bharat Sanchar Nigam Limited (supra) has no

application to the facts of this case.

13. An arbitration agreement is an independent agreement and is binding

on both the parties. It is a settled law that neither of the parties can

unilaterally change the terms and conditions of any agreement. The

petitioner under this agreement was bound to nominate its Arbitrator within

60 days, but admittedly, he did not do so for some reason given by him in

his letter dated 20.05.2014 and requested the respondent to give him the

time to nominate his Arbitrator till 01.08.2014. Even if I say that the silence

on the part of the respondent to this request of the petitioner amounts to

consent and grant of time to petitioner for nominating the Arbitrator till

01.08.2014, still, admittedly, the petitioner did not appoint the Arbitrator

within that extended period. There is therefore a complete violation of

procedure of Arbitration clause by the petitioner. The contention of the

petitioner that the respondent has waived his right to object in view of

Section 4 of the Act and, therefore, even if the petitioners had appointed an

Arbitrator beyond 01.08.2014, still the respondent cannot object to it, has no

merit in it because the petitioner had failed to appoint the Arbitrator even

within the time it asked for. The contention of the petitioner that vide its

letter dated 31.07.2014 the petitioner had further asked for the extension of

time by 30 days for nomination of his Arbitrator and since the respondent

had not objected to the earlier extension of time, so they bona fidely

believed that the respondent would not object to the further extension of

time but still as an abundant caution within 3 days of their writing the letter

dated 31.07.2014, they nominated their Arbitrator and informed the

respondent vide letter dated 02.08.2014. These arguments of petitioner are

contrary to record. Firstly, because when the petitioner did not appoint the

Arbitrator by 01.08.2014 and again wrote a letter dated 31.07.2014, the

respondent vide their letter dated 06.08.2014 did not agree to any further

extension of time and in terms of arbitration clause appointed their

nominated Arbitrator as a sole Arbitrator. It is pertinent to mention here that

the sole Arbitrator was appointed by the respondent vide their letter dated

06.08.2014, before even the petitioner had informed respondent about

nomination of their Arbitrator. Although the petitioner has contended that

vide their letter dated 02.08.2014 they informed the respondent of

appointment of their nominated Arbitrator, but, in their own letter dated

13.08.2014, they have clearly stated that the said letter dated 02.08.2014 was

sent by them on 07.08.2014 as their Director was out of station and could

not sign the letter earlier.

14. The relevant portion of the said letter is reproduced as under:-

"The said letter dated 02.08.2014 was sent by us on 07.08.2014 as our Director was out of station and could not sign the letter earlier. You have also received our letter dated 02.08.2014 after you have issued the letter dated 06.08.2014 and before we received your letter dated 06.08.2014."

If the petitioner is himself a defaulting party, he cannot move the

Court under Section 11(6) of the Act. Provisions under Section 11(6) of the

Act can be invoked against a defaulting party and not by a defaulting party.

15. In case of National Highways Authority of India (supra), the

Supreme Court has held as under:-

"The parties have entered into a contract after fully understanding the import of the terms so agreed to from which there cannot be any deviation. The courts have held that the parties are required to comply with the procedure of appointment as agreed to and the defaulting party cannot be allowed to take advantage of its own wrong."

16. In the case of India Household and Healthcare (supra), the Supreme

Court, after discussing various case laws, has held as under:-

"An application for appointment of an arbitrator, therefore, is not maintainable unless the procedure and mechanism agreed to by and between the parties is complied with."

17. In Datar Switchgears Ltd. vs. Tata Finance Ltd. (2000) 8 SCC 151,

the Supreme Court has held as under:-

"An application under sub-section (6) of Section 11 can be filed when there is a failure of the procedure for appointment of Arbitrator. This failure of procedure can arise under different circumstances. It can be a case where a party who is bound to appoint an Arbitrator refuses to appoint the Arbitrator or where two appointed Arbitrators fail to appoint the third Arbitrator. If the appointment of Arbitrator or any function connected with such appointment is entrusted to any person or institution and such person or institution falls to discharge such function, the aggrieved party can approach the Chief Justice for appointment of Arbitrator."

Thus, the ratio of these judgments clearly stipulate that the parties are

required to act as per procedure agreed upon by them for appointment of an

Arbitrator and if a party defaults, the aggrieved party can move to the Court

against the defaulting party.

18. In the present case, as discussed above, it was the petitioner who had

failed to follow the procedure of appointment of Arbitrator and thus is a

defaulting party. Since the petitioner had failed to appoint its nominee

Arbitrator in terms of Arbitration agreement, it cannot be said that the

appointment of nominee Arbitrator by him is as per the agreed procedure.

19. The another contention of the petitioner is that since the nominated

Arbitrators had already met on 22.08.2014 for appointment of a principal

arbitrator, but could not reach to any consensus, therefore, this Court should