JUDGMENT
The Court
1. A.P. No.498 of 1998 is filed under section 11 of the Arbitration and Conciliation Act, 1996 (for short the Act).
2. G.A. No. 4178 of 1998 is filed by the petitioner under section 9 of the said Act praying infer alia, for an injunction restraining the respondent from invoking and/or taking any step for invoking the bank guarantee dated 19th March, 1996.
3. G.A. No. 61 of 1999 is an application filed by the petitioner under section 14(2) of the said Act infer alia, praying for a declaration that the mandate of the respondent to appoint an Arbitrator ceased prior to 3rd December. 1998, declaration that the Arbitrator appointed by the respondent has jurisdiction or authority to function as Arbitrator and for consequential injunction restraining the respondent as also the Arbitrator appointed by it from taking any steps or further steps for adjudication of the disputes relating to claim of the petitioner against the respondent.
4. All the three above applications have been heard anologously and are being disposed of by this common judgment and order.
5. After having heard the learned counsel for the respective parties and on perusal of the documents filed and relied upon by the respective parties, it is seen that the controversy in the instant application lies in a narrow compuss. For the said reason, it is not necessary to refer to all the facts or pleadings except those which have a bearing and are relevant for resolving the questions arising for consideration.
6. There is no dispute that a formal contract being No. EDCON/E-IV/ 141-4/1972 dated 5.5.1991 was entered into between the parties for commissioning of NTPC line. In so far as the contract related to Malthan Majal line i.e. transmission line for Kalyaneswari to Majal is concerned, certain disputes arose between the contracting parties. The contract in question contains an Arbitration clause being No. 1.37 for resolving the disputes, which reads as under;
“Except where otherwise provided into the contract, all questions and disputes relating to the meaning of specifications designs, drawings and instructions herein contained and as to the quality of the workmanship or materials used on the work, or as to any other question claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or those conditions or otherwise concerning the works or the execution or failure to execute the same whether arising, during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitration of a person appointed by the DVC who may or may not be a DVSC’s Officer.
Such appointment shall not be objected on the ground that the arbitrators appointed is a DVC Official or that he had to deal with matters to which the Agreement rules and in the course of his duties as DVC Official he had expressed views on all or any of the matter in disputes or difference. The award of the arbitrator so appointed shall be final, conclusive and binding on all parties to the contract.”
7. The petitioner has by a letter dated 8.6.98 requested the respondent to resolve the disputes amicably or in the alternative to appoint an Arbitrator within 15 days invoking the arbitration clause in the agreement. The said letter was received by the respondent on 8.6.98.
8. The respondent appointed Shri A.K. Sil Chief Engineer as the Sole Arbitrator to adjudicate the disputes between the parties by a letter dated 4.12.98 being annexure ‘C’ to the application G.A. No.61 of 1999.
9. According to the petitioner, the said appointment of Shri A.K. Sil, as Arbitrator by the respondent is without jurisdiction, illegal null and void. The purported appointment, it is contended is a counter blast to the above proceedings initiated by the petitioner against respondent under section 11 of the Act in this connection Application G.A, No.61 of 1999 is filed by the petitioner praying for the reliefs set out supra.
10. The petitioner had in terms of the said contract furnished a bank guarantee dated 2.5.91 towards the security deposit. According to the petitioner, the respondent is to forthwith return the bank guarantee, however, as the respondent threatened to invoke the bank guarantee in case it was not renewed, the petitioner renewed the bank guarantee.
11. According to the petitioner, the time for releasing the bank guarantee has already expired and the respondent has not returned the bank guarantee and is not entitled to invoke the same, as according to the petitioner he has suffered loss and damages and is entitled to compensation therefor.
12. Application G.A. No. 4178 of 1998 is filed praying for an injunction restraining the respondent from invoking the bank guarantee.
13. It is the contention of Mr. Abhrajit Mitra, learned counsel for the petitioner that the respondent not having appointed the Arbitrator within the time stipulated in the notice, such failure constitutes waiver of or the abdication of the power to appoint the Arbitrator and vests jurisdiction in the Court under the Act to appoint an Arbitrator.
14. On behalf of the respondent, it is submitted by Mr. Gautam Dutta the learned advocate that in view of the appointment of Arbitrator already made (annexure ‘C’), the instant application filed under section 11 is not maintainable and is otherwise rendered infractuous. It is the contention of Mr. Goutam Dutta appearing with Mr. A. Gangopadhyay for the respondent that no time limit is specified, either under the Arbitration Clause or in the Act within which the Arbitrator is to be appointed by the authority i.e. the respondent who is so vested with the power under the contract. The conduct of the parties. It was submitted would disclose that there has been neither failure nor neglect to appoint the Arbitrator. The Arbitrator, it was submitted has been duly appointed within reasonable time.
15. In the light of the submissions as above, the short question for consideration is whether the petitioner is entitled to the relief as prayed for with respect to the appointment of an arbitrator by Court under section 11 of the Act.
16. Section 11 of the Act deals with the appointment of Arbitrators and reads as under;
“Appointment of Arbitrators:–
(1) A person of any nationality may be an Arbitrator, unless otherwise agreed by the parties.
(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the Arbitrator or Arbitrators;
(3) Falling any agreement referred to in sub-section (2), in an arbitration with three Arbitrators, each party shall appoint one Arbitrator, and the two appointed Arbitrators shall appoint the third Arbitrator who shall act as the Presiding Arbitrator;
(4) If the appointment procedure in sub-section (3) applies and-
(a) a party fails to appoint an Arbitrator within thirty days from the receipt of a request to do so from the other party; or
(b) the two appointed Arbitrators falls to agree on the third Arbitrator within thirty days from the date of their appointment,
the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.
(5) Failing any agreement referred to in sub-section (2), in an arbitration with a Sole Arbitrator, if the parties fail to agree on the Arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him;
(6) Where, under an appointment procedure agreed upon by the parties-
(a) a party falls 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 proceeding; or
(c) a person including an institution falls 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,
(7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justice or the person or institution designated to him is final;
(8) The Chief Justice or the person or institution designated by him, in appointing an Arbitrator, shall have due regard to-
(a) any qualifications required of the Arbitrator by the agreement of the parties: and
(b) other considerations as are likely to secure the appointment of an independent and impartial Arbitrator;
(9) In the case of appointment of sole or third Arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an Arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities;
(10) The Chief Justice may make such scheme as he may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-section (5) or sub-section (6) to him;
(11) Where more than one request has been made under sub-section (4) of sub-section (5) or sub-section (6) to the Chief Justice of different High Courts or their designated, the Chief Justice or His designate to whom the request has been first made under the relevant subsection shall alone be competent to decide on the request;
(12) (a) Where the matters referred to in sub-sections (4). (5), (6), (7). (8) and (10) arise in an international commercial arbitration, the reference to “Chief Justice” in those sub-sections shall be construed as a reference to the “Chief Justice of India.”
(b) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in any other arbitration, the reference to “Chief Justice” in those sub-sections shall be construed as reference to the “Chief Justice of the High Court within whose local limits the principal Civil Court referred to in Clause (c) of sub-section (1) of section 2 is situate and, where the High Court itself is the Court referred to in that clause, to the Chief Justice of that High Court.”
17. Sub sections (1) to (4) of section 11 of the Act deal with appointment of Arbitrator by agreement of parties. Sub-section (5) permits intervention of the Court, only if the parties fail to agree upon the Arbitrator in accordance with the procedure prescribed in the agreement between the parties. Sub-section (6) of section 11 permits intervention by the Court, if the parties fall to act in accordance with the agreed procedure or the parties fall to reach an agreement as per agreed procedure, or if the person including the institution falls to perform any function entrusted to him or it under that procedure. It is only when any one of the requirements of subsection (5) or sub-section (6) of section 11 are fulfilled, the Court would have the jurisdiction to intervene and appoint an Arbitrator.
18. The intention of the Act is to facilitate the prompt resolution of disputes by recourse to arbitration. To render this effective, interference by the Court is designedly kept to a minimum. Even the issue of the existence of the arbitration agreement is now brought under the competence of the arbitrator under section 16 of the 1996 Act, Primacy has been given, as it were, to resolution of disputes by arbitration without resort to courts. This intention is expressed unequivocally in section 5 of the Act which provides;
“5. Extent of judicial intervention : Notwithstanding anything contained in any other law for the time being in force, in matters governed by this part, no judicial authority shall intervene except where so provided in this part.
19. This makes it clear that the Court is confined to the statutory provisions. It is restricted from exercising the powers otherwise.
20. As held by the Division Bench of the Delhi High Court in Delhi Development Authority v. Alkaram, (D) the competence of Court is restrained in order not to make the arbitration process the beginning of litigation instead of its end. In other words, the arbitration process must commence and proceed without control by the Courts except to the limited extent provided in the statute. This is reinforced by section 8 of the Act which deals with the powers of the Courts to refer parties to arbitration where there is an arbitration agreement.
21. Keeping in view the scope and intendment of the Act let us now examine the contentions of the respective parties in the matter under consideration.
22. In the instant case, reliance has been placed upon sub-section (6) of section 11 of the Act for sustaining the relief as prayed for by the petitioner with respect to appointment of an Arbitrator by Court. The main ground on which the relief is prayed for, as noticed above, is that as the respondents failed to appoint an Arbitrator within the stipulated time, the respondents have forfeited their right to appoint an arbitrator and now the arbitrator should be appointed by the Court.
23. It must at once be noticed that there is no time limit prescribed in sub-section (6) of section 11 of the Act for appointing an arbitrator. Also a perusal of the Arbitration clause of the agreement, extracted supra, shows that no such time limit has been prescribed. It is only in the letter dated 8.6.98 of the petitioner whereby the arbitration clause was invoked, request was made for appointment of an Arbitrator within 15 days thereof.
24. Mr. Mitra, learned counsel for the petitioner has relied upon several judgments of the Supreme Court all of which have been referred to in the judgment of a learned single Judge of the A.P. High Court in Marshall Corporation Ltd. Vishakhapatname v. Union of India, Rep. by The Engineer-In-Chief, Army Head Quarters, New Delhi & Ann, reported in 1998(2) Arb. LR 175.
25. On the other hand, Mr. Dutta learned counsel for the respondent has referred to the conduct of the parties and to the various actions taken to buttress his submission that the said conduct of the parties belles the contention of the petitioner that there has been any waiver or abdication of the power to appoint an arbitrator by the respondent which can constitute forfeiture of the right of the respondent to make the appointment as per the arbitration clause contained in the agreement executed by and between the parties.
26. Learned counsel for the respondent relied upon a judgment of the Delhi High Court in Avtar Singh Chadha v. Municipal Corporation Delhi & Anr., reported in 1998(1) Arb LR 397. Mr. Dutta, learned counsel for the respondent also sought to distinguish the judgments of the Supreme Court which have been referred to and relied upon by the learned Judge of A.P. High Court in Marshall Corporation’s case (cited supra) on the ground that the said judgment have been rendered in the light of the provisions contained in the Old Arbitration Act, 1940 whereby period was prescribed for appointment of the Arbitrator whereas no such time period is prescribed under section 11(6) of the Act and further submitted that the appointment has been made within reasonable time by the respondents.
27. There is no doubt that certain disputes and differences existed between the parties with respect to the Contract in question. The petitioner had requested for fore-closure of the subject contract by their letter dated 24.12.94 on “as is where is basis” with the effect from 1.7.1994 i.e. from the time when the respondent allegedly stopped work. According to the petitioner, the contract thus stood terminated with the effect from 1.7.94. This contention, it is stated was without prejudice to the petitioner’s contention that the contract stood expired on 1.12.92.
28. The respondents by its letter dated 26.5.98 informed the petitioner that financial liabilities on either side is to be identified and settled before acceptance of such closure of contract. It was recapitulated therein that request had been made to the petitioner for sending its representative at site with relevant documents so that the materials reconciliation was completed but that the response from the petitioner’s side was not encouraging. A request was made in the said letter by the respondent to the petitioner to come forward with positive approach to resolve the subject issue by discussions with the engineers of the respondent and, thereafter, if necessary, a meeting may be convened with the higher level of officers of the corporation and the higher authorities of the petitioner.
29. It appears that a meeting was held in the office of the respondent on 26.5.98 whereas the representatives of the petitioner also participated and request was made on their behalf for appointment of an arbitrator. It has been observed in the Minutes of that meeting that since the closure of the contract was proposed by the petitioner, necessary action for foreclosure of the contract after ascertaining the lossess will be made as per the contract.
30. The above are matters which have taken place prior to invocation of the arbitration clause by the letter dated 8.6.98. By the said letter dated 8.6.98, the petitioner had asked for resolving the dispute amicably and it is in the alternative that the petitioner has requested for appointment of an Arbitrator.
31. The respondents at their meeting held on 8.9.98 passed the following resolution No.6711.
“1. M/s. PCC may be asked to enter into an agreement with DVC for foreclosure of the contract and to agree for arbitration towards settlement of claims by DVC.
2. To foreclose the contract by DVC after carrying out the above agreement.
3. To appoint an Arbitrator by DVC for settlement of the claim of DVC.
The decision, as above, was subject to the condition that in case DVC invites Tender for completion of the balance work and awards the contract to any other contractor, M/s. PCC will not raise any objection to that. A clause to that effect be incorporated in the said agreement.”
32. Thereafter, by a letter dated 24.9.88, the petitioner was informed that “before such foreclosure of the contract as well as settlement of the claims through arbitration an agreement is to be entered into between the parties.” The agreement format was under process of preparation and the petitioner was requested to call at the office of the respondent for signing the agreement in second week of October, 1998. It was further informed therein that after resolution of the agreement, the foreclosure of the contract would be done followed by initiation of arbitration proceedings. Thereafter, by a letter dated 13.10.98, the draft of the agreement of foreclosure was forwarded to the petitioner (annexure ‘Z’ to the affidavit of respondent by Manoranjan Sarkar affirmed on 17.3.99).
33. The draft agreement stipulates that the contract shall be foreclosed with immediate effect. The sole Arbitrator shall be appointed for adjudication of the dispute. The petitioner shall extend bank guarantee until the time of the Award of the Arbitrator is received. The petitioner shall not object in any manner whatsoever if the balance work is completed by respondent through another agency.
34. The petitioner did not execute the said agreement and filed the instant application.
35. It is the contention of the petitioner as reiterated by his learned advocate before Court that the insistance of the respondent on execution of the foreclosure agreement is a variation of the arbitration agreement and the petitioner cannot be compelled to enter into the said agreement. The further submissions of the petitioner is that the insistance on execution of the agreement as a condition precedent to the appointment of an arbitrator constitutes that the mechanism for appointment of arbitrator as stipulated in the contract having failed. Thereby, the authority of the respondent to appoint an arbitrator has thus been extinguished and the subsequent appointment made, after the filing of the instant application under section 11 of the Act of Shri A.K. Sil as Arbitrator, is null and void.
36. The letter dated 26.5.98 and thereafter, the decision taken at the meeting held on 8.9.98 show that the proposal of the petitioner was considered and decision was taken by the respondent to appoint an arbitrator. The draft agreement forwarded to the petitioner by the respondents by their letter dated 13.10.98 at page-54 of the affidavit-in-opposition shows that the contract shall be closed with immediate effect. The next clause states that the sole arbitrator shall be appointed by respondent for adjudication of the disputes. Clause 3 deals with extension of the bank guarantee until the time of the Award by the Arbitrator. Clause 4 states that the petitioner shall not object in any manner whatsoever if the balance work is complete by DVC through any other company. Clause 5 states that in default of any of the terms of the agreement, respondent shall be at liberty to invoke the bank guarantee even during pendency of arbitration proceedings.
37. To my mind, the said agreement merely fulfils the object of the petitioner with respect to fore-closure of the contract and also with respect to the appointment of an arbitrator as requested by the petitioner. The remaining terms of the foreclosure agreement dealing with the bank guarantee and for completion of the balance work do not in any manner militate against, nor have they been made condition precedent for appointment of the arbitrator. The said agreement, therefore, cannot be construed as one which varies or alters the mechanism for appointment of an arbitrator as stipulated in the arbitration clause contained in the agreement.
38. The terms of the draft foreclosure agreement merely provide for foreclosure of the contract, having the work completed by another agency that may be appointed by the respondent without any objection from the petitioner and above all, appointment of an arbitrator for adjudication of
the disputes between the parties and keeping alive the bank guarantee till the conclusion of the arbitration proceedings.
39. It has, therefore, to be held that the conduct of the respondent has not been such as to constitute waiver or abdication of the power vested in it to appoint an arbitrator.
40. As noticed above, no period has been prescribed under sub-section (6) of section 11 of the Act within which the Arbitrator is to be appointed. It is, therefore, a question of reasonable period within which the power should be exercised. Where the question is one of exercising the power as in the instant case, the only question that arises for consideration is whether the power has been exercised within a reasonable time. What is reasonable lime would undoubtedly be depended upon the facts and circumstances of each case.
41. As already noticed the conduct of the respondent has not been such as to constitute waiver or abdication of the power and I am, therefore, of the view that the Arbitrator in the instant case has been appointed in terms of the arbitration clause and within a reasonable period.
42. The challenge of the petitioner on the sole ground that the appointment was not made within a stipulated period has, therefore, to be rejected. After the repeal of the Arbitration Act, 1940, the ground of delay beyond 15 days is no longer available to the petitioner as held in Avtar Singh’s case (cited supra) with which view, I am in respectful agreement.
43. From the close scrutiny of the judgment of the A.P. High Court in Marshall Corporation’s case (cited supra), relied upon by the learned counsel for the petitioner, it will be seen that the learned Judge came to the conclusion, as he did, upon the conduct of the parties. The learned Judge has noticed that inspite of notices issued as long back as in 1992 and inspite of the fact that the respondents agreed to appoint the arbitrator, no steps were, however, taken by them to appoint the arbitrator till August, 1996.” in view of such conduct of the respondents, in that case in not appointing the arbitrator, it was held in that case that the respondent forefeited their right to appoint an arbitrator and as such, alleged appointment of an arbitrator during the pendency of the applications before Court, it was held, cannot be said to be valid. Such is not the case in the matter on hand.
44. In the light of the above, the application for appointment of an arbitrator under section 11 of the Act has to be rejected and is accordingly rejected.
G.A. No. 61 of 1999.
The application G.A. No.61 of 1999 filed under section 14(2) of the Act, in my view, has consequently to be dismissed. The said application has been made only on the technical ground that the arbitrator appointed by the respondent was not made within the stipulated period.
46. Sub-section(1) of section 13 permits parties to agree on a procedure for challenging an Arbitrator. In this case, the parties have not agreed upon any such procedure for challenging the Arbitrator. Sub-section (2) of section
13 provides that in the absence of an agreement regarding, the procedure to be followed for challenging the Arbitrator, the parry who intends to challenge the Arbitrator shall within fifteen (15) days after becoming aware of the Constitution of the Arbitral Tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12 send a written statement of the reasons for the challenge to the Arbitral Tribunal. By sub-section (3} of section 13, the arbitral tribunal is empowered to decide on the challenge, unless the arbitrator who is challenged withdraws from his office, or other party agrees to the challenge. Sub-section (4) of section 13 permits the Arbitral Tribunal to continue the proceedings and make an award, if the challenge is not successful. The remedy to the unsuccessful challenger is provided by section 13(5) which enables such a party to make an application for setting aside Arbitral Award in accordance with section 34.
47. In the instant application, the petitioner has not followed the procedure for challenging the arbitrator, as above, nor has made any grievance against the arbitrator on any grounds in section 12 of the Act. The instant application is filed on the ground that the mandate of the Arbitrator has to be terminated under section 14(1)(a). This is on the ground that the arbitrator having been appointed beyond stipulated period cannot be allowed to perform his function, as an arbitrator has now to be appointed by Court under section 11(6) of the Act.
48. The application filed under section 11(6) of the Act having been rejected, it cannot be said that the mandate of the arbitrator appointed by the respondent has to be terminated or that the Arbitrator so appointed by the respondent has become de-jure or de-facto unable to perform his function. The application being G.A. No. 61 of 1999 has accordingly to be dismissed.
G.A. No. 4178 of 1998.
The instant application is filed under section 9 of the Act praying for an injunction from invoking the bank guarantee.
50. The facts pleaded have already been noticed supra,
51. In a Division Bench judgment to which I was a party in Hindusthan Copper limited v. Rana Builders Ltd., A.P. No. 8 of 1998 dated 9th February, 1998 [Since reported in (1999)2 Cal LT 95], the principles that emerged from the various judgments of the Supreme Court in relation to the grant of injunction relating to bank guarantees have been analysed as under:
“(a) That there should be serious dispute and there should be good prima facie case of fraud and special equities in the form of preventing irretrievable injustice to the party approaching the Court in order to restrain the operation of bank guarantee. Otherwise, the very purpose of bank guarantee would be negatived and the fabric of trading operation will get jeopardised.
(b) The Supreme Court has frowned upon the approach of the Court that has proceeded on the basis that the injunction sought was not against the bank but was sought against the appellant. The Supreme Court has observed that the net effect of the injunction is to restrain
the bank from performing the bank guarantee and that cannot be done. One cannot do indirectly what one is not free to do directly and further observed that the aggrieved party in such circumstances is not remedyless. He can sue for damages.
(c) The autonomy of bank guarantee/irrevocable letter of credit was entitled to protection and except in very exceptional circumstances, court should not interfere with that autonomy. The reasons stated are that bank guarantees involve many of the trading transactions. The commitments of banks must be honoured free from interference by the Courts. Otherwise, trust in commerce, national and international would be irreparably damages. It is not only in exceptional cases, that is to say in cases of fraud or in case of irretrievable injustice be done, the Court should interfere.
(d) Fraud in relation to bank guarantee is fraud of exaggerated nature as to vitiate the underlying transaction.”
52. In the instant case, though fraud and special equities in the form of preventing irretrievable in justice have been pleaded, the same, however, are not of such nature as to warrant the grant of the injunction as prayed for.
53. It was, however, sought to be contended by Mr. Mitra that in view of the statement by the respondents that they have no intention of invoking the bank guarantee if the petitioner keeps the bank guarantee alive, an order of injunction may be passed by this Court. The statement was in the context of the draft foreclosure.
54. Agreement which contained a similar clause. The petitioner herein has not accepted the said agreement nor executed the same. In the circumstances, it is not appropriate for the petitioner to seek an order of injunction based thereon. It is, however, open to the petitioner to make an appropriate representation or furnish undertaking to the satisfaction of the respondent authority. This Court, however, cannot pursuade itself to issue any positive direction in that behalf or any injunction as prayed for.
In the result, the application for injunction being G.A. No. 4178 of 1998 is liable to be dismissed and is accordingly dismissed with costs.
Costs shall be costs in the cause.
55. Application dismissed