JUDGMENT
Manmohan Sarin, J.
1. This is a petition under Section 11 of the Arbitration and Conciliation Act filed by the petitioner seeking an appointment of the Arbitrator on the ground of the failure of the respondent to appoint an Arbitrator within the notice period as given by the petitioner.
2. Before coming to the legal issues arising for consideration, the salient facts may be noted.
(I) The petitioner had been awarded a contract for construction of a Five Star Deluxe Hotel, for the respondent-Corporation at Chandigarh, vide a work order issued on 7th May, 1999. (II) Disputes had arisen in execution of the construction contract. The construction contract contained an arbitration agreement between the parties in the following terms; Arbitration Clause-48
Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions herein before mentioned and as to the quality of 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 these 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 the Managing Director/Chief Engineer of the India Tourism Development Corporation or any other person appointed by him. There will be no objection to any such appointment that the Arbitrator so appointed is an employee of India Tourism Development Corporation and that he had to deal with the matters to which the contract relates and that in the course of his duties as Government he had expressed views on all or any of the matters in dispute or difference. The Arbitrator to whom the matter is originally referred being transferred or vacating his office or being enable to act, for any reason, Managing Director/Chief Engineer shall appoint another person to act as Arbitrator in accordance with the terms of the contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed by the Managing Director/Chief Engineer, as aforesaid should act as Arbitrator and if for any reason, that is not possible, the matter is not to
be referred to arbitration at all. In all cases where the amount of the claim in dispute is Rs. 50,000/- (Rupees fifty thousand) and above, the Arbitrator shall give reasons for the award.
Subject as aforesaid the provisions of the Arbitration Act, 1940 or any statutory modification or reenactment thereof and the Rules made there under and for the time being in force shall apply to the arbitration proceedings under this clause.
It is term of the contract that the party invoking arbitration shall specify the dispute or disputes to be transferred to arbitration under this clause together with the amount or amounts claimed in respect of each such dispute.
The Arbitrator(s) may from time to time with consent of the parties enlarge the time for making and publishing the award.
The work under the contract shall, if reasonably possible, continue during the Arbitration proceedings and no payment due or payable to the contract shall be withheld on account of such proceedings.
The Arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties fixing the date of the first hearing.
The Arbitrator shall give a separate award in respect of each dispute or difference.
The venue of arbitration shall be such place as may be fixed by the Arbitrator is his sole discretion.
The award of the Arbitrator shall be final, conclusive and binding on all parties to the Contract.”
(III) The petitioner aggrieved by the non-settlement of its claims, gave a notice on 20th August, 2001, invoking the arbitration agreement. It called upon the respondent-Corporation, to appoint an Arbitrator within 30 days, for adjudication of the disputes/claims as notified in the notice. The said notice was duly served by courier service on the respondents on 21st August, 2001. A photo copy of the courier receipt has been produced on record.
3. Petitioners did not hear anything from the respondent. Accordingly a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) was filed on 22nd September, 2001. Notice in the petition returnable on 5th November 2001 was issued on 24th September, 2001.
4. Mr. Sandeep Sharma, learned Counsel for the respondent submits that action for appointment of an Arbitrator was initiated by the respondent on 24th August, 2001 by the Senior Manager (Civil). General Manager (Legal) of respondent recommended that one Mr. K.L. Saigal, be appointed as the Arbitrator on a fee of Rs. 10,000/- plus misc, expenses, to be shared equally by both the parties. The
Chairman-cum-Managing Director on 30th August, 2001, approved the proposal and noted “appointment letter may please be issued to the Arbitrator by the General Manager (Legal)”. It is not in dispute that the Company Secretary issued the appointment letter to Mr. K.M. Saigal on 5th October, 2001, which was also copied to the petitioner.
5. Mr. Sandeep Sharma relying on the reply filed by the respondent to the application under Section 11 of the Act, urged that the appointment of the Arbitrator as per the noting produced on record was made on or before 30th August, 2001. He urged that on the date of filing of the application under Section 11 of the Act, the appointment of the Arbitrator had already been made. He submits that petitioner despite being aware of the appointment made, rushed to the Court and filed this petition. Mr. Sharma submits that the petition is liable to be dismissed as the Arbitrator already stands appointed.
6. The question which arises for consideration is whether the Arbitrator stood appointed on 30th August, 2001, the date on which the Chairman-cum-Managing Director took a decision that Mr. K.L. Saigal may be appointed or it would be 5th October, 2001 when the letter of appointment was actually issued?
7. Learned Counsel for the petitioner, Mr. Arvind Nigam relies on Bachhittar Singh v. State of Punjab & Anr., where the Constitution Bench of the Supreme Court while considering the requirement of communication of an order for it to become legally effective observed as under:
“thus it is of essence that the order had to be communicated to the person who would be affected by that order before the State and that person can be bound by that order. For until the order is communicated to the person affected by it, it would be open to the Council of Ministers to consider the matter over and over again and, therefore, till its communication the order cannot be regarded as anything more than provisional in character”.
In view of the aforesaid dictum, as laid down by the Constitution Bench of the Supreme Court, it is clear that the order of appointment of the Arbitrator would be taken to have been made when communicated and received by the Arbitrator and the concerned party i.e. by the order dated 5th October, 2001.
8. The next question arising for consideration is that whether the respondent could appoint an Arbitrator after the Court has been seized of the request for appointment of an Arbitrator, made through a petition under Section 11(6) of the Arbitration & Conciliation Act, 1996. Mr. Sharma submits that the decision of appointment was taken on 30th August, 2001 and as such the Court should take cognizance of the same and a new Arbitrator need not be appointed. Reference in this connection is invited to Datar Switchgears Ltd. v. Tata Finance Ltd. & Anr. 2000(3) Arb. LR 447 (SC). In the cited case, Court considered as to when a party forfeits its right to appoint an Arbitrator, if it fails to comply with the demand made for appointment of the Arbitrator. The appointment of the Arbitrator was made, but it was not within the 30 days’ period. It was held that the appointment of the Arbitrator by the respondent was valid as it cannot be said that
the right was forfeited after expiry of 30 days from the date of demand. In other words, the ratio deddendi appears to be that there is no automatic forfeiture of the right to appoint an Arbitrator upon expiry of 30 days. However, the Court held that in case, before an Arbitrator is appointed, if the opposite party files an application under Section 11 seeking the appointment of an Arbitrator then the right of the party to appoint an Arbitrator ceases.
9. This becomes amply clear from the para 19 of the judgment, which is reproduced for the sake of convenience :
“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 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 31(6) is forfeited.”
10. In the instant case, it has been found that the appointment order for the Arbitrator was issued on 5th October, 2001. The petitioner had preferred the petition under Section 11(6) on 22nd September, 2001. Accordingly, the respondents had forfeited their rights to nominate and appoint an Arbitrator after it had failed to comply with the demand made and the petitioner having already filed the petition on 22nd September, 2001. The Arbitrator could not have been appointed by respondent after 22nd September, 2001.
11. In view of the foregoing, it is held that the appointment of the Arbitrator by the respondent is without authority of law. Accordingly, the Arbitrator is to be appointed by the Court. In exercise of the powers conferred under Section 11 of the Arbitration & Conciliation Act, 1996,1 hereby nominate and appoint Mr. V.N. Bajaj, BE (Civil), MIE, (Ind), Former Executive Director NHPC, C-656, Sarita Vihar, New Delhi-110044 (Tel.26091723 (Off), 26943052, 6947458 (Res) as the sole Arbitrator to adjudicate upon the disputes, claims and counter claims of the parties. The fee of the Arbitrator is fixed at Rs. 10,000/- per hearing, subject to ceiling of Rs. 1,20,000/-. The fee shall be shared equally by both the parties, subject to outcome of the award. Petition stands allowed in the aforesaid terms.