Arbitration Case No. 80 of 2006 [ 1]
IN THE HIGH COURT OF PUNJAB & HARYANA AT
CHANDIGARH
1) Arbitration Case No. 80 of 2006
Date of decision: February 27, 2009
M/s Bhagwan Dass & Sons, through Shri Sudesh
Kumar son of Shri Bhagwan Dass, it s partner,
179, The Mall, Ambala Cantt. ...Petitioner
Versus
Union of India represented by the Garrison
Engineer, Air Force, Ambala Cantt.
and other ...Respondents
2) Civil Revision No. 3888 of 2006
M/S Bhagwan Dass & Sons. ...Petitioner
Versus
Union of India and another. ...Respondents
3) Arbitration Case No. 84 of 2006
M/s Unique Construction co. 1024, Subhash
Street, Amrik Singh Road, Bathinda through
its partners ...Petitioner
Versus
Union of India and others ...Respondents
Arbitration Case No. 80 of 2006 [ 2]
4) Arbitration Case No. 47 of 2007
M/s Precto Engineers 188-B Industrial
Area-I, Chandigarh through its Partner ...Petitioner
Versus
Punjab State Electricity Board through the
Chief Engineer/ MM The Mall Patiala ...Respondents
5) Arbitration Case No. 48 of 2007
M/s Precto Engineers 188-B Industrial
Area-I, Chandigarh through its Partner ...Petitioner
Versus
Punjab State Electricity Board through the
Chief Engineer/ MM The Mall Patiala ...Respondents
CORAM: HON’BLE MR. JUSTICE T.S.THAKUR, CHIEF JUSTICE
Present: Mr. S.K.S. Bedi, Advocate
for appellant in Arbitration Case No. 80 of 2006
Mr. Ashwini Bansal , Advocate
for respondents in Arbitration Case No. 80 of 2006
Mr. S.K.S. Bedi, Advocate
for appellant in C.R. No. 3888 of 2006
Mr. Ashwini Bansal , Advocate
for respondents in C.R. No. 3888 of 2006
Mr. D.K.Singal, Advocate
for appellant in Arbitration Case No. 84 of 2006
Mr. Puneet Jindal, Advocate
Arbitration Case No. 80 of 2006 [ 3]
for respondents in Arbitration Case No. 84 of 2006
Mr. P.S.Rana, Advocate,
for appellant in Arbitration Case No. 47 of 2007
Mr. Sunil Kaushik, Advocate
for respondents in Arbitration Case No. 47 of 2007
Mr. P.S.Rana, Advocate,
for appellant in Arbitration Case No. 48 of 2007
Mr. Sunil Kaushik, Advocate
for respondents in Arbitration Case No. 48 of 2007
T.S.THAKUR, CHIEF JUSTICE
A common question of law arises for consideration in all
these petitions filed under Section 11 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as `the Act’). The
question precisely is whether the appointment of an Arbitrator by the
respondents in each one of these cases after the filing of the present
petitions is legally valid? While the respondents argue that the
appointments are valid, the petitioners contend that such
appointments are of no legal consequence as the same were made
after the authority competent to make the appointment had forfeited
its right to do so. Reliance, in support of that submission, is placed
upon the decisions of the Supreme Court to which I shall presently
refer. Suffice it to say that the validity of appointments already made
is the only impediment in the grant of the prayers made by the
petitioners and in the making of fresh appointments in each one of
these cases.
In Arbitration Case No.80 of 2006 and so also in all the
connected petitions being disposed of by this order, the existence of
Arbitration Case No. 80 of 2006 [ 4]
an Arbitration Clause providing for adjudication of disputes between
the parties is not denied. It is also not denied that a demand for
reference of disputes to the Arbitrator was made on 30.12.2002 in
Arbitration Case No.80 of 2006. Upon failure of competent authority
to make such an appointment an Arbitration application under
Section 11(6) of the Act was filed before the Civil Judge (Senior
Division), Ambala on 17.2.2003, which upon transfer to this Court
has been registered as Arbitration Case No.80 of 2006. The
Arbitrator appointed by the competent authority, in the meantime,
appears to have entered upon the reference and started proceedings
but since the petitioners did not participate in the proceedings on
account of the petitions filed by it for reference of disputes to an
independent Arbitrator, the said proceedings were terminated by the
Arbitrator. That order of the Arbitrator was challenged by the
petitioner before the Additional District Judge in a petition under
Section 34 of the Act, who declined the prayer holding that the
appointment of Arbitrator made by the competent authority was
valid. The order passed by the Additional District Judge has been
assailed in Civil Revision No.388 of 2006 by the petitioners, which
too has been heard alongwith these petitions and shall stand
disposed of by this order.
In Arbitration Petitions No. 47 and 48 of 2007 also, a
demand for reference of the disputes to an Arbitrator in terms of the
clause appearing in the agreement, executed between the parties,
was made on 28.3.2007 and 2.4.2007 respectively. On the failure of
the competent authority to make an appointment in terms of the
agreement, the petitioners filed the said petitions in this Court on
Arbitration Case No. 80 of 2006 [ 5]
24.5.2007. An Arbitrator was, however, appointed by the competent
authority on 12.9.2007 in both the cases. The validity of that
appointment is under challenge in these proceedings as noticed
earlier.
The position is no different in Arbitration Case No.84 of
2006 in which a demand for appointment of the arbitrator was made
by the petitioner on 20.12.2004. The failure of the competent
authority to make an appointment, led to the filing of the said petition
under Section 11 of the Act in the Court of Civil Judge at Bhatinda in
March, 2005, which was later transferred to this Court in terms of the
decision of the Supreme Court in SBP & Co. Vs. Patel Engineering
Company Limited and Others 2005(8) SCC 618 and registered as
Arbitration Case No.84 of 2006. An appointment of Arbitrator was,
however, made by the respondents on 26.6.2006. The petitioners’
case is that the contract between the parties in that case was signed
at Bhatinda and although a reference has been made by the
respondents for adjudication of the disputes between the parties, the
same has been restricted to a claim of Rs.8,24,690/- only.
Reference of the remainder of the claims made by the petitioners has
been refused on the ground that the said claims are based on
excepted matters, which are not arbitrable.
I have heard learned counsel for the parties at considerable
length and perused the record.
The legal position as regards the power of a party
designated to make an appointment of an Arbitrator to do so after the
filing of the petitions under Section 11 of the Act stands
authoritatively decided by a series of decisions rendered by their
Arbitration Case No. 80 of 2006 [ 6]
Lordships’ of the Supreme Court. The first of these decisions was
delivered in Datar Swithchgears Ltd. Vs. Tata Finance Ltd. and Anr.
(2000)8 SCC 151. The Court was in that case examining whether
there was any time limit applicable to cases filed under Section 11(6)
of the Act as was the position in cases filed under Section 11(4) and
11(5) thereof. Answering the question in the negative, the Court
observed that in so far as cases filed under Section 11(6) of the Act
were concerned, no time limit was statutorily prescribed.
Consequently, if one party demands that the opposite party should
appoint an arbitrator but the opposite party does not make an
appointment within thirty days, the power to make an appointment is
not lost after the expiry of 30 days. The appointment of an Arbitrator
made even after 30 days of the demand would remain valid provided
the party demanding the appointment of the Arbitrator had not, in the
meantime, moved the Competent Court under Section 11 of the Act.
It is only in cases where the party demanding the appointment of an
Arbitrator has moved the court under Section 11 of the Act, that the
power to make an appointment is forfeited by the party competent to
make such an appointment under the agreement. The following
passage is in this regard apposite:-
“So far as cases falling under Section 11(6)
are concerned — such as the one before us — no time
limit has been prescribed under the Act, whereas a period
of 30 days has been prescribed under Section 11(4) and
Section 11(5) of the Act. In our view, therefore, so far as
Section 11(6) is concerned, if one party demands the
opposite party to appoint an arbitrator and the opposite
Arbitration Case No. 80 of 2006 [ 7]party does not make an appointment within 30 days of
the demand, the right to appointment does not get
automatically forfeited after expiry of 30 days. If the
opposite party makes an appointment even after 30 days
of the demand, but before the first party has moved the
court under Section 11, that would be sufficient. In other
words, in cases arising under Section 11(6), if the
opposite party has not made an appointment within 30
days of demand, the right to make appointment is not
forfeited but continues, but an appointment has to be
made before the former files application under Section 11
seeking appointment of an arbitrator. Only then the right
of the opposite party ceases. We do not, therefore,
agree with the observation in the above judgments that if
the appointment is not made within 30 days of demand,
the right to appoint an arbitrator under Section 11(6) is
forfeited.”
Datar Swithchgears (Supra) was followed by the Apex Court in
Punj Lloyd Ltd. Vs. Petronet MHB Ltd. (2006) 2 SCC 638. That too
was a case in which a similar question arose, which a three Judge
Bench of the Supreme Court answered relying upon the earlier
decision of their Lordships in Datar Switchgears Ltd. case (supra).
To the same effect is the decision of their Lordships in Union of India
and another Vs. M/s V.S Engineering (P) Ltd., 2007(1) RCR (Civil)
293 where the Court reiterated the legal position stated in the case
of Datar Switchgears Ltd. case (Supra) and held:-
Arbitration Case No. 80 of 2006 [ 8]
“However, before parting with this case we may also
observe that Railways and Public institutions are very
slow in reacting to the request made by a contractor for
appointment of the arbitrator. Therefore, in case
appointment is not made in time on the request made by
the contracting party, then in that case the power of the
High Court to appoint arbitrator under Section 11 of the
Act will not be denuded. We cannot allow administrative
authorities to sleep over the matter and leave the citizens
without any remedy. Authorities shall be vigilant and their
failure shall certainly give rise to cause to the affected
party. In case, the General Manager, Railway does not
appoint the arbitral tribunal after expiry of the notice of 30
days or before the party approaches the High Court, in
that case, the High Court will be fully justified in
appointing arbitrator under section 11 of the Act. It is the
discretion of the High Court that they can appoint any
railway officer or they can appoint any High Court Judge
according to the given situation.”
Reference may also be made to the decision of the Supreme
Court in Union of India Vs. Bharat Battery Manufacturing Co.(P)
Ltd., 2007(3) Arbitration Law Reporter, 282, where again the Court
declared that once a party filed an application under Section 11(6) of
the Act, the other party forfeits its right to appoint an arbitrator in
terms of the agreement. Reliance was placed by their Lordships
Arbitration Case No. 80 of 2006 [ 9]
upon the decision of the Supreme Court in Datar Switchgears Ltd.
case (supra) and Punj Lloyd Ltd. case (supra). The Court held that
the appointment of the sole arbitrator after a petition under Section
11(6) of the Act had been filed was invalid as the right to make such
an appointment ceased after the aggrieved party had approached the
Court seeking the appointment of an arbitrator. The Court observed:-
“As already noticed, the respondent filed Section 11(6)
petition on 30.03.2006 seeking appointment of an
arbitrator. The appellant, thereafter, said to have
appointed one Dr. Gita Rawat on 15.05.2006 as a sole
arbitrator, purportedly in terms of Clause 24 of the
agreement. Once a party files an application under
Section 11(6) of the Act, the other party extinguishes its
right to appoint an arbitrator in terms of the clause of the
agreement thereafter. The right to appoint arbitrator
under the clause of agreement ceases after Section 11(6)
petition has been filed by the other party before the court
seeking appointment of an arbitrator. “
On behalf of the respondents, reliance was placed upon the
decision of the Supreme Court in Ace Pipelines Contracts (P) Ltd.
Vs. Bharat Petroleum Corpn. Ltd. (2007) 5 Supreme Court Cases
304. The contention was that the decision rendered by the Supreme
Court in Datar Switchgears Ltd. case (supra) and Punj Lloyd Ltd.
case (supra) had not found favour with their Lordships in the said
case. The law declared in Ace Pipelines Contracts (P) Ltd case
Arbitration Case No. 80 of 2006 [ 10]
(supra) , argued the learned counsel, permitted the appointment of
arbitrators even beyond the period of 30 days stipulated for such
appointments under Section 11(4) and 11(5) of the Act in cases filed
under Section 11(6) thereof. The appointments made in the cases at
hand could not, therefore, be faulted on the ground that the same
were beyond the period stipulated by the statute. I regret my inability
to accept that contention. I have carefully gone through the decision
rendered in Ace Pipelines Contracts (P) Ltd ( supra) but find it
difficult to accept the legal position has been stated differently from
what has been stated in the case of Datar Switchgears Ltd. case
(supra) and affirmed in Punj Lloyd Ltd. case (supra). Apart from the
fact that Punj Lloyd Ltd. case (supra) is a decision by a three Judge
Bench of the Supreme Court, which affirmed the view taken in Datar
Switchgears Ltd. case (supra), I am of the view that the proposition
of law stated in the said two decisions remains unaltered by the
decision of their Lordships in Ace Pipelines Contracts (P) Ltd
( supra). As noticed earlier, the legal position as stated in Datar
Switchgears Ltd. case (supra) and affirmed in Punj Lloyd Ltd. case
(supra) is that although the period of 30 days stipulated in terms of
Section 11(4) and 11(5) of the Act has no application to cases under
Section 11(6) of the Act and although an appointment under Section
11(6) of the Act could be made even after the expiry of 30 days, yet
the power to do so is forfeited by the party concerned once the
aggrieved party demanding the appointment of an arbitrator
approaches the Court under Section 11(6) of the Act. There is
nothing in Ace Pipeline’s case that can constitute a divergent view so
Arbitration Case No. 80 of 2006 [ 11]
far as forfeiture of the right of the party to make an appointment by
filing of the petition under Section 11(6) of the Act is concerned. I
have, in that view, no hesitation in holding that the appointments
made in the cases in hand after the filing of the petition under
Section 11(6) of the Act are nonest in the eyes of law and would not
prevent the appointment of independent arbitrators by this Court.
That being the position, the failure of the petitioner in Arbitration case
No.80 of 2006 to appear and participate in the proceedings before
the Arbitrator, the termination of the arbitration proceedings by the
latter on that ground and the order passed by the Additional District
Judge in proceedings under Section 34 of the Act, holding the
appointment to have been properly made must also be rendered
inconsequential. If the appointment itself was nonest in the eyes of
law, the Additional District Judge before whom the same was
challenged in the proceedings under Section 34 of the Act was not
justified in holding otherwise. Civil Revision No.388 of 1986 filed by
the petitioner in the said case challenging the order of the Additional
District Judge must also consequentially succeed.
That brings me to the argument that the filing of a petition under
Section 11(6) of the Act in a Court, which was not competent to
entertain the same would not result in forfeiture of right to make an
appointment. In Arbitration Case No.84 of 2006, the aggrieved party
had approached the Court of Civil Judge at Bhatinda in terms of 11
(6) of the Act, which Court, according to the respondents, had no
jurisdiction to entertain the petition. Consequent upon the decision of
the Supreme Court in Patel Engineering Company Limited case
Arbitration Case No. 80 of 2006 [ 12]
(supra) and with the transfer of the case from the Court of Civil
Judge, Bhatinda to this Court, the question of jurisdiction of the Civil
Court to entertain the petition under Section 11(6) of the Act is in my
opinion rendered academic. The petition under Section 11(6) of the
Act filed by the petitioner must be deemed to have been presented in
the Court of competent jurisdiction especially when the agreement
between the parties, which contain the arbitration clause relied upon
by the petitioner, was executed at Bhatinda. Since the appointment
of the arbitrator in that case was also made after the filing of the said
petition, the same too is nonest in the eyes of law.
In the result, I allow Arbitration Case Nos. 80, 84 of 2006 and 47
and 48 of 2007. I also allow Civil Revision No.388 of 2006 and set
aside the order dated 10.12.2005 passed by the Additional District
Judge and appoint Justice Bakhshish Kaur as an Arbitrator in all the
cases to adjudicate upon the disputes between the parties, and make
an award in each one of them. The Arbitrator shall be free to fix her
fee.
The parties shall through their respective counsel appear before
the Arbitrator on 28th March, 2009 at 3.00 P.M. for further directions.
February 27, 2009 ( T. S. THAKUR ) `Kalra' CHIEF JUSTICE