JUDGMENT
V.S. Sirpurkar, C.J.
1. This is an application under Section 11 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the Act), for appointment of an arbitrator. There was a contract between the petitioners herein and the Union of India, represented by Divisional Engineer (Co-ordination), Eastern Railway Sealdah. The petitioner company Was awarded a contract of lifting of track from km 5/25 to km 8/21 all four lines, and PQS station limit for provision of ballast cushion with other ancillary works at a cost of Rs. 12,33,968/- This contract was awarded to the petitioner company vide letter dated 14th April, 2004. The work was to be completed within four months from the date of issue of the contract. In pursuance of this offer an agreement was executed on 13th September, 2004. It seems that the petitioner company’s claim is that due to default and breaches on the part of the respondents the execution of the work was prolonged and the extensions were also granted by the respondents without any penalty and when the work in question was successfully executed to the extent of 90% before the expiry of the extended period, a notice was sent to the petitioner company making some allegations. The petitioner company had given reply to the notice. However, it seems that the petitioner company has not been paid for the financial losses suffered by it on account of breach of contract by the respondents. The petitioner company by its letter dated 22nd February, 2005 claimed that its dues should be paid. However, no reply was ever received by the petitioner company.
2. Thus since this contract took place within the local Jurisdiction of this Court, this Court has the territorial jurisdiction to try and entertain this application and there is also a live issue in between the parties. Clause 63(1)(i) of the agreement provides for the arbitration clause, which is as under:
63(1)(i) Demand for Arbitration.
In the event of any dispute or difference between the parties hereto as to the construction or operation of this contract, or the respective rights and liabilities of the parties on any matter in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the contractor may claim to be entitled to, or if the Railway fails to make a decision within 120 days, then and in any such case but except in any of the ‘excepted matters’ referred to in Clause 62 of these conditions, the contractor, after 120 days but within 180 days of his presenting his final claim on disputed matters, shall demand in writing that the dispute or difference be referred to arbitration.
3. Thus, there is a valid arbitration clause in the agreement between the parties. The petitioner company’s case is that in pursuance of this clause, the petitioner company sent a letter dated 22nd February, 2005 mentioning therein that in case nothing was heard or the letter was not complied with, the petitioner company would be compelled to invoke the arbitration agreement. It is an admitted position that the Divisional Railway Manager, to whom this letter was sent, received this letter and in that letter the petitioner company had claimed a sum of Rs. 22,03,317/- However, there was no decision taken even within 120 days, as provided in the arbitration agreement, and the petitioner company therefore by letter dated 11th July, 2005 invoked the arbitration clause and requested the General Manager to refer the dispute to the arbitration as per the arbitration clause quoted above. It is apparent that no action was taken and therefore the petitioner company filed the present application.
4. It is the case of the respondent that after this application was filed the Railway went on to appoint an arbitrator. However, as per the law settled by the Supreme Court in the case of Datar Switchgears Limited v. Tata Finance Ltd. there will be no question of now the Railway appointing any arbitrator. It is clearly held in that case that the right comes to an end once the party demanding arbitration moves an application under Section 11 of the Act before the Chief Justice to appoint an arbitrator. Accordingly the matter has now come up before me to appoint an arbitrator.
5. The learned Counsel appearing on behalf of the Railways insists that even if the Railway has lost the right to appoint arbitrator on account of the right not having been exercised before filing of the present application, still I should appoint an arbitrator in terms of the arbitration agreement between the parties whereunder the Railways officials could be appointed as arbitrator. The petitioner company is now opposed to the appointment of any railway officials as an arbitrator. The advocate appearing for the Railways mainly bases his argument on the principle that even if the Railway administration has lost its right yet considering the language of Section 11(6) of the Act in contradistinction to Sub-section (4) and (5) thereof the agreement should still be honoured and therefore I should appoint an arbitrator only in terms of the arbitration agreement whereunder a panel of three gazetted Railway officials could act as arbitral tribunal, more particularly because of Clause 63(3)(a)(ii). Learned advocate suggests that the procedure under Clause 63(3)(a) and the various sub-clauses there under should be adhered to by me and the appointment of the arbitrator should be made only in terms of such procedure. In support of his argument, learned Counsel for the respondent has relied on few reported cases, namely, Kamala Solvent v. Manipal Finance Corporation Limited Bel House Associate Pvt. Ltd. v. GM Southern Railway reported in AIR 2001 Ker 163 and Subhas Projects
and Marketing Ltd. v. South Eastern Coal Fields Ltd. . Besides these rulings the other ruling relied upon by the learned Counsel for the petitioner company are Central Bank of India v. Hart Ford Fire Insurance International Airport Authority of India v. K. D. Bali Secretary to the Govt. Transport Dept Madras v. Munuswamy and A. Mohammed Yunus v. FCI reported in 2000 (7) Supreme Today 722. The other cases barring the first lot of cases are all relating to the Arbitration Act, 1940 and, therefore, they would be of no consequence.
5.1 Learned Counsel for the petitioner, however, opposes this and claims that it would be for me now to appoint an arbitrator. As against these judgment Smt. Kumkum Das, learned Counsel for the petitioner, has relied upon the latest decisions of the Apex Court in the cases of Pan) Lloyd Ltd. v. Petronet MHB Ltd., reported in (2006) 2 SCC 638 and Shin Satellite Public Co. Ltd. v. Jain Studio Ltd. reported in who says that the question is no more res integra and it will be for the Chief Justice to make an appointment as per his choice, of course taking into consideration the various principles for appointment of the arbitrator. It will be seen the question is answered in the above cases.
5.2 In the Punj Lloyd Ltd. v. Petronet MHB Ltd. (supra) it is apparent that the decision in Datar Switchgears Limited v. Tata Finance Ltd. (supra) has been relied upon. It is no test therein that in spite of service of notice demanding appointment of arbitrator the respondent had failed to act and therefore the appellant had moved the Chief Justice’s Court for appointment of an arbitrator under Section 11(6) of the Act and even till the date of moving the application the respondent had not made appointment of the arbitrator in terms of the arbitration agreement. However, the Learned Judge designated by the Chief Justice of High Court refused to appoint arbitrator holding that the only remedy available to the appellant was to move in accordance with Clause 14.1 of the agreement. The said Clause 14.1 is as under:
14.1 Disputes or differences arising out of or in relation to agreement/contract shall be referred to the Functional Director of the owner who may either act himself as sold arbitrator or nominate some officer of the owner to act as an arbitrator to adjudicate the disputes and differences between the parties (except those in respect of which the decision of any person is by the contract expressed to be final and binding).
5.3 Accordingly, it seems that the Learned Judge directed the parties to get the arbitrator appointed in terms of the agreement. This was disapproved by the Supreme Court relying upon the case of Datar Switchgrars Limited v. Tata Finance Ltd. (supra) and the Chief Justice of the High Court was directed to make appointment of an arbitrator in accordance with Section 11(6). The decision does suggest that if after receipt of the notice the respondent fails to make appointment of the arbitrator within the life and in the meantime an application is already made then the right to make appointment of arbitrator is lost on the part of the respondent. Further it is obvious that then even the recourse to the clauses of the agreement in respect of the procedure for appointing the arbitrator cannot be taken. At least in this reported decision such recourse was not taken and the view of the High Court to that effect was not found to be correct by the Supreme Court. What follows from this judgment is once there is a default on the part of the respondent to appoint an arbitrator in terms of the agreement and once that right is lost then there will be no question of again falling back on the agreement for appointment of an arbitrator.
5.4 In the other decision also in the case of Shin Satellite Public Co. Ltd. v. Jain Studio Ltd. (supra) relied upon by Smt. Das, the Supreme Court has expressed in paragraph 30 in the similar terms as in Punj Lloyd Ltd. v. Petronet MHB Ltd. (supra). In Shin Satellite Public Co. Ltd. v. Jain Studio Ltd. (supra) the main question was as to whether the arbitration clause on account of some recitals therein was a valid arbitration clause or not. One party was contending that the said clause was not valid on account of those recitals, while the contentions of other party was that the offending part of the arbitration clause was severable and therefore there was nothing wrong in appointing an arbitrator. It was an admitted position therein that a notice as contemplated by Section 11 of the Act was given for appointment of the arbitrator by the first party and it had also appointed his arbitrator and called upon the other contracting party to appoint its arbitrator as per Clause 23 which provided the arbitration clause. However, in spite of naming its own arbitrator, the other party raised an objection on the validity of the arbitration clause i.e. Clause 23 of the agreement and refused to call it an arbitration clause. In short, it had not made any appointment as per Clause 23. The Supreme Court went into the validity of the arbitration clause and held that the offending portion of the clause was clearly severable and therefore ignoring that portion the rest of the arbitration clause could be worked by appointing the arbitrator. Thus, the Supreme Court held the arbitration clause to be valid. However, it was submitted that if the Court was not upholding the objection to the arbitration clause and was inclined to grant prayers of the petitioner to appoint the arbitrator then falling back on the same clause, that is Clause 23, some time should be granted to the respondent to name his arbitrator. According to the respondents the appointment of arbitrator on its part was not made because it had reservation about the validity of the arbitration clause itself. The Supreme Court did not accept this plea and rejected it in the following words:
The learned Counsel for the petitioner objects to such a prayer. According to him, a letter/notice was issued and in spite of request by the petitioner, the respondent had failed to exercise his right to appoint an arbitrator. At this belated stage, now, the respondent cannot be permitted to take advantage of its own default. In my opinion, since there is a failure on the part of the respondent in making appointment of an arbitrator in accordance with the agreement, the prayer cannot be granted.
5.5 In short, the Supreme Court rejected the request on behalf of the respondent to fall back upon the arbitration clause in the agreement for appointment of the arbitrator. The situation is no different here. Here, also the petitioner had approached the Railway officials by a proper notice whereupon the Railways could have proceeded in terms of the agreement and more particularly Clause 63 whereunder a panel of Railway officials of certain standards could have been suggested and could have been considered for appointment of an arbitrator or arbitral tribunal as the case may be, that was not done in time, instead the petitioner company was driven to file this application before this Court. It is only after this application was filed that the machinery of the Railways moved to take steps for appointment of the arbitrator which action was clearly barred by time. However, now the Railway administration is insisting to fall back upon the procedure as emerges from Clause 63 of the agreement. In my opinion such a course cannot be taken in view of the aforementioned judgments of the Supreme Court. It is not possible now for the respondent to contend that the agreement should still be adhered to an the appointment of the arbitrator should be made in accordance with that agreement.
6. On this backdrop, it would be necessary to examine the rulings relied upon by the respondent. In a Ruling of the Madras High Court in Kamala Solvent v. Manipal Finance Corporation Limited (supra) the Learned Single Judge of that Court took a view that under Section 11(6) of the Act the Chief Justice is not to make any appointment but to enforce or direct the parties to appoint in terms of the agreement entered into between them. For this view, the Learned Single Judge has relied on the observation in paragraph 5 of the off quoted decision in Konkan Railway Corporation Limited v. Mehul Construction Co. . In my opinion those observations do not pertain to the situation covered in the present case. In my opinion, the decision is not applicable. It is not even suggested in paragraph 5 that the Chief Justice would have to revert back to the appointment procedure. In my opinion, the words “party may request the Chief Justice or any person or institution designated by him to take necessary measure” suggest a wider discretion in the Chief Justice. He has to use his judicial discretion for taking measures. The situation is now settled that the act of the Chief Justice in appointing an arbitrator under Section 11 is not an administrative act, but a Judicial function. If that is so, a wider discretion has to be read in the Chief Justice for taking the necessary measures and such measures could be even an appointment of an arbitrator, independent of the appointment procedure agreed upon by the parties.
6.1 In the decision of the Kerala High Court in the case of Bel House Associate Pvt. Ltd. v. GM. Southern Railway AIR 2001 Ker 163 (supra) the Learned single Judge of that Court took the view that where the procedure for appointment has been agreed upon by the parties, the Chief Justice has to take necessary measures for securing the appointment in terms of the arbitration agreement. The Learned Judge had taken a view that while Sub-section (4) and (5) of Section 11 of the Act authorise the Chief Justice to appoint an arbitrator. The wording of Section 11(6) was different where-under the Chief Justice had to take measures for securing the appointment and therefore when the procedure has been agreed upon between the parties for appointment of an arbitrator, the Court has only to implement the above procedure and there was no scope for appointing any independent arbitrator at the first instance. In taking this view the Learned Judge dissented from the views taken by the Andhra Pradesh High Court in the case of Deepak Galvanising and Engg. Industries P. Ltd. v. Govt. of India reported in (1997) (30) Arbi LR 635 Delhi High Court in the case of Continental Construction Limited v. N.H.P.C. Ltd. reported in (1998) 1 Arbi LR 534 and R. P. Souza & Co. v. Chief Engineer P.W.D. The Bombay decision is irrelevant. Learned Counsel very heavily relied on this Kerala High Court judgment to suggest that even if there was a default on the part of the Railways, I should again revert back to the procedure stipulated in Clause 63 of the agreement and not to appoint an independent arbitrator. It has already been shown that this case is no different from the case of Punj Lloyd Ltd. v. Petronet MHB Ltd. (supra). There also a specific procedure vide Clause 14.1 in the agreement was contemplated for appointment of the arbitrator. However the Supreme Court did not allow the parties to revert back to that procedure and also disapproved of the view taken by the High Court to that effect. The High Court had also asked the parties to act in terms of Clause 14.1 and, thus, had directed the parties to act as required under the procedure agreed upon. In short, therefore, the High Court had taken the necessary measure, which was not approved by the Supreme Court.
7. In view of this it would not be possible for me to accept the contention that now the appointment of the arbitrator should be made in terms of the procedure agreed upon between the parties. In my view there has to be an independent arbitrator particularly because the opposite party would be deemed to have abdicated their authority and have forfeited their right to appoint the arbitrator as per the arbitration clause and therefore the Court would be entitled to appoint an independent arbitrator of its choice to decide the dispute. In my view the wording of Section 11(6) of the Act cannot be narrowly interpreted and secondly. I would hold that the Chief Justice would have the discretion to appoint the arbitrator as per his own choice in his own discretion.
7.1 There would be one other way of looking at this problem. If the interpretation as suggested by the counsel for the railways is accepted and if it is to be held that the Chief Justice has no discretion in the matter and has to stick to the arbitration agreement then the party to the agreement would not be required to act at all in pursuance of the notice sent to it for appointment of an arbitrator because even if the other party is required to go on account of the default of the other party to the Chief Justice under Section 11(6) of the Act, the same results would have to ensure. Then the Chief Justice would have to again direct the parties to act in terms of the agreement. One party to the agreement would in such case have an unfair advantage on the other in the sense that it would be possible for such a party to take advantage of its own default. The defaulting party is likely to perpetrate the dispute or gain the time and thus would be able to steal an unfair advantage over the other sheerly by committing default by not acting in terms of the notice sent to it by the opposite party. Such cannot be the interpretation of Section 11(6). The learned Judges of the Madras High Court Kamala Solvent v. Manipal Finance Corporation Ltd. (supra)] Kerala High Court Bel House Associate Pvt. Ltd. v. GM, Southern Railway AIR 2001 Ker 163 (supra) and Madhya Pradesh High Court Subhas Projects & Marketing Ltd. v. South Eastern Coal Fields Ltd. (supra) have not considered this particular angle. It would be for the Chief Justice to consider as to whether the party which was supposed to take action as per the notice has gained unfair advantage over the other sheerly by committing default in spite of services of notice by the other party. The Chief Justice may feel that way and would be perfectly within his right to appoint an independent arbitrator ignoring the procedure in the agreement.
8. There is nothing in the language of Section 11(6) to suggest that the Chief Justice has to only enforce agreement. The words ‘a party may request the Chief Justice or any person or institution designated by him to take necessary measure’ would have to be read broadly to include the discretion in the Chief Justice appoint an independent arbitrator of his choice. Taking this view it has to be held that the submission on the part of the counsel for the Railways to fall back on the agreement would be of no consequence and is to be rejected.
9. I, therefore, hold that the view expressed by the Madras High Court in Kamala Solvent v. Manipal Finance Corporation Ltd. (supra), Kerala High Court in Bel House Associate Pvt. Ltd. v. GM, Southern Railway AIR 2001 Ker 163 (supra) and Madhya Pradesh High Court in Subhas Projects & Marketing Ltd. v. South Eastern Coal Fields Ltd. (supra) is not the correct view. I therefore, choose to agree with the view expressed by the Andhra Pradesh High Court in the case of Deepak Galvanising and Engg. Industries P. Ltd. v. Govt. of India (supra) Delhi High Court in the case of Continental Construction Limited v. N.H.P.C. Ltd. (supra).
10. Accordingly, I hold that there has been a default on the part of the respondent which would require appointment of an arbitrator. In my opinion, the arbitrator would have to be a person who is conversant with the Railway laws and contracts and an experienced High Court Judge would be a proper person to act as an independent arbitrator. I accordingly proceed to appoint Hon’ble Justice D. P. Kundu, a retired Judge of this Court as the sole arbitrator in the matter on such terms as would be decided by the Arbitrator.
11. At this stage Sri Mukherjee, learned Counsel for the respondent, sought for stay of operation of the order. It will not be fair to stay the operation of the order now as considerable time has elapsed since the petitioner approached the Railways for appointment of arbitrator. The request is, therefore, rejected.
12. The Arbitrator and all parties are to act on a xerox signed copy of this judgment.