ORDER
R. Ramanujam, J.
1. This Arbitration Application is filed under Section 11 of the Arbitration and Conciliation Act, (for short “the New Act”) read with Para 2 of the Scheme for Appointment of Arbitrators framed by the Chief Justice under Sub-section(10) of Section 11 of the Arbitration and Conciliation Ordinance, 1996 seeking appointment of an independent Arbitrator for adjudicating the disputes that arose between the parties in connection with the work of “improvements to the circulating area, dismantling Block No. 6, cycle stand, portico and shifting of MCO” under Agreement No. SK/89 dated 15-2-1989.
2. The material facts leading to filing of this application are the following:
The applicant a partnership firm — is a Railway Contractor. It was entrusted with the aforesaid work by the South Central Railway (hereinafter referred to as “the Rail-
ways” for short) under the said agreement. The approximate value of the work that was to be done under the agreement was Rs. 1,96,316-25ps.
3. The agreement contains an Arbitration Clause in Clause 64 of the General Conditions of the Contract, which forms part of the agreement. The relevant portions of the said Clause are as under :–
“64 (1)(i). 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 decision within a reasonable time, then and in any such case, save the ‘excepted matters’ referred to in Clause 63 of these conditions, the contractor, after 90 days but within 180 days of his presenting his final claim on disputed matter, shall demand in writing that the dispute ‘or difference’ be referred to arbitration.
(1)(ii)&(iii) …..
(2) ……
(3) (a) Matters in question, dispute or difference to be arbitrated upon shall be referred to for decision to –
(3) (a) (i) …..
(3) (a) (ii) Two Arbitrators who shall be Gazetted Railway Officers of equal status to be appointed in the manner laid in Clause 64(3) (b) for all claims of Rs. 5,00,000/- (Rs. Five lakhs) and above, and for all claims irrespective of the amount or value of such claims if the issues involved are of a complicated nature. The General Manager shall be the sole judge to decide whether the issues involved are of a complicated nature or not. In the event of the two Arbitrators being divided in their opinions the matter under disputes will be referred to an Umpire to be appointed in the manner laid down in Clause (3)(b) for his decision.
(3) (a)(ii)…..
(3) (b) For the purpose of appointing two arbitrators as referred to in Sub-clause (a) (ii) above, the Railway will send a panel of more than three names of gazetted Railway Officers of one or more departments of the Railway to the Contractor, who will be asked to suggest to the General Manager one name
out of the list for appointment as the contractor’s nominee. The General Manager, while so appointing the contractor’s nominee, will also appoint a second arbitrator as the Railway’s nominee …..”
4. The work was scheduled to be completed within one month from the date of acceptance of the offer on 3-2-1989. However, the work could not be completed by that date mainly because several additional works to be executed by the applicant as per the directions of the Railways. Consequently, the date of completion of the work was extended from time to time up to 30th June, 1989. According to the applicant, the work was completed by that date, but, according to the Railways, the work was completed only in July, 1999. It appears that the Railways prepared a final bill for the work done, including the additional works, for Rs. 13.27 lakhs. However, the amount was not paid to the applicant. On 22-10-1996 the applicant submitted a claim for payment of the final bill amount and other claims. The case of the applicant is that in spite of several written requests thereafter, the Railways have not responded. However, it appears that there were negotiations between the parties on 15-11-1996 for payment of the amount towards the excess quantities/additional quantities of work done. It appears that the applicant offered a rebate of 1% if the amount claimed by it were paid before 30-11-1996, but there was no response from the Railways even thereafter.
5. Disputes having thus arisen between the parties, the applicant, through its Lawyer’s Notice dated 16-4-1999, called upon the General Manager of the Railways 1st respondent herein, and the other officers to release the undisputed final bill amount of Rs. 13.27 lakhs and security deposit amount of Rs. 1,50,000/- within fifteen days and refer the other claims (four in number) to arbitration. It was further stated therein that if the Railways fail to refer the disputes to arbitration within 15 days, it would be taking appropriate steps under the New Act for referring the disputes to an independent Arbitrator. Since there was no response and the Railways have failed to refer the disputes to arbitration, the applicant filed the present application.
6. In the written statement filed along with the application, the applicant requested appointment of an independent Arbitrator
for settling the following six claims :
“1.
Final Bill amount :
Rs. 13,27,000/-
2.
Security Deposit :
Rs. 1,50,000/-
3.
Interest, Commission and other
charges being paid to Financiers and Bank on the above over-due amounts at
18% quarterly compound interest from August, 91 to March, 99:
Rs. 42,19,846/-
4
Loss of Business and profits
thereon at 10% per year on Rs. 14.77.000/- for 7 2/3 years up to March, 1999:
Rs. 11,31,382/-
5
Expenditure being incurred on
Head Office overheads and establishment to maintain accounts /transactions
with various private parties, Govt., Organisations etc. , at 5% per year on
Rs. 14.77.000/- for 7 2/3 years :
Rs. 5,65,691/-
6
Additional contingent
expenditure in charging the payments at 3% per year on Rs. 14.77.000/- for 7
2/3 years :
Rs. 3,39,415/-
Rs. 77,33,334/-
7. In the counter-affidavit filed on behalf of the Railways, four objections were taken, which were reiterated by their Standing Counsel, Sri T. Ramakrishna Rao, They are :
1. The application filed under the New Act is not maintainable inasmuch as the cause of action for the claims, if any, had arisen under the Arbitration Act, 1940 (hereinafter referred to as “the Old Act”)
2. The additional items of work executed by the applicant fall outside the scope of the Agreement dated 15-2-1989 and, therefore, there is no arbitration agreement to refer the disputes relating to such works.
3. All the claims are excepted matters inasmuch as the applicant has signed the final bill and also the final measurements without any demur.
4. The claims are barred by limitation. 8. In support of his 4th objection, the
learned Standing Counsel for Railways relied upon a decision of the Supreme Court in Steel Authority of India Ltd. v. J.C. Budharaja, Govt. & Mining Contractor, . In support of his second objection, he relied upon the decision of the Supreme Court in U.P. Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd. .
9. Mr. A. Ramalingeswara Rao, the learned counsel for the applicant, submits that none of the objections raised by the Railways is tenable. He submits that the objections 2 to 4 are nothing but contentious issues, which should be left for the decision of the Arbitrator in view of the authoritative pronouncement of the three Judge Bench of the Supreme Court in Konkan Railway Corporation Ltd. v. M/s Mehul Construction Co.. He further submits that the 1st objection also does not survive in view of the decision of the Supreme Court in Shetty Constructions Co. Pvt. Ltd. v. Konkan Railway Construction
10. The first objection raised by the Railways regarding the maintainability of the present application, in my considered view, is wholly misconceived and untenable. The application of the New Act is not dependant either on the date of execution of the contract or the date of completion of the work or the date of preparation of the final bill or on the date when cause of action has arisen to raise claims. It depends upon the date of commencement of arbitral proceedings relating to the disputes in question. If the arbitral proceedings have commenced before coming into force of the New Act, then the provisions of the Old Act will apply. If the arbitral proceedings have commenced after the New Act came into force, then the provisions of the New Act will apply. This would be clear from Section 85(2)(a) of the New Act. The relevant provision of Section 85 of the New Act is as under :–
“85. Repeal and Saving :
(1) The Arbitration (Protocol and Convention) Act, 1937 (6 of 1937), the Arbitration Act, 1940 (10 of 1940) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of 1961) are hereby repealed.
(2) Notwithstanding such repeal, -(a) the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force:
(b) …..”
11. Section 21 of the New Act states that the arbitral proceedings in respect of a particular dispute commence on the date on which a request for referring that dispute to arbitration is received by the other side.
12. Considering the aforesaid provisions, the Supreme Court in Shetty’s Constructions (supra) held thus:
“A mere look at Sub-section (2)(a) of Section 85 shows that despite the repeal of Arbitration Act, 1940, the provisions of the said enactment shall be applicable in relation to arbitration proceedings which have commenced prior to the coming into force of the new Act. The new Act came into force on 26-1-1996. The question therefore, arises whether on that date the arbitration proceedings in the present four suits had commenced or not. For resolving this controversy we may turn to Section 21 of the new Act which lays down that unless otherwise agreed to between the parties, the arbitration suit (the arbitral proceedings in respect of a dispute) in respect of arbitration dispute commenced on the date on which the request for referring the dispute for arbitration is received by the respondents. Therefore, it must be found out whether the requests by the petitioner for referring the disputes for arbitration were moved for consideration of the respondents on and after 26-1-1996”.
13. In the light of the aforesaid settled legal position the question that has to be considered is when the arbitration proceedings have commenced in this case.
14. As already noted the applicant, for the first time, made a request to refer the disputes to arbitration was on 22-10-1996, when it has submitted its claims. There is no dispute regarding this fact. It is, therefore, clear that the arbitral proceedings in this case have commenced only after the New Act has come into force on 26-1-1996. Hence, I have no hesitation to hold that the present application is maintainable.
15. Before examining the aforementioned
objections 2 to 4, raised by the learned Standing Counsel for the Railways, I consider it appropriate to note the drastic change that were brought in by the legislature in the Arbitration Law, particularly, in the matter of appointment of Arbitrator/Arbitrators, the power of the Court to decide the issues like existence of the arbitration agreement, its scope and the jurisdiction of the Arbitrator to decide such questions.
16. Under the provisions of the Old Act, the power to appoint an Arbitrator/Arbitrators, in cases where the parties have failed to do so, was conferred upon the Court under Sections 8 and 20. One important aspect that has to be noted here is that Section 20 of the Old Act not only empowers the Court to appoint an Arbitrator/Arbitrators, but also empowers it to make a reference of the disputes to such Arbitrator/Arbitrators. Such a power, of course, is not conferred under Section 8 of the Old Act.
17. Making a significant departure from the above noted position, Section 11 of the New Act now confers power of appointing an Arbitrator/Arbitrators, where the parties fail to do so or where the person or institution invested with such power under the agreed procedure fail to do so, not upon the Court but upon the Chief Justice or his designate of the concerned High Court in the case of Domestic Arbitration and upon the Chief Justice of India or his designate in the case of International Commercial Arbitration. It is also significant to note here that the legislature has deviated not only from the Old Act, but also from the UNCITRAL Model (Article 11), which authorises the Court to make appointment of an Arbitrator/Arbitrators. This deviation, in my considered view, was made, advisedly, with an intention to curtail the time consuming litigation regarding the matters relating to appointment of an Arbitrator/Arbitrators. Past experience shows that Sections 8 and 20 of the Old Act became good breading grounds for much of the avoidable litigation at the instance of the unscruptous litigants. Consequently, arbitration, which is intended to be a speedy and cheap remedy, became time consuming and costly. Arbitral proceedings were stalled for years together at the very threshold. To set right this alarming situation, the legislature has now conferred the power of making appointment of an Arbitrator/Arbitrators upon the Chief Justice, who is also empowered to
designate any person or institution to discharge that function. It is also significant to note here that the decision of the Chief Justice in making the appointment is made final under Sub-section (7). It may thus be seen that the intention of the legislature is to make the decision of the Chief Justice immune from judicial Intervention. This laudable object would have been remained unfulfilled, in normal course, for it is settled law that all judicial decisions are amenable to the power of the Supreme Court under Article 136 of the Constitution of India. Thus, there is a gap between the intention and its fulfilment. Fortunately, the Supreme Court has stepped in to fill this gap and declared in Sundaram Finance Ltd. v. NEPC India Ltd., , that the Chief Justice or his designate is not required to pass a judicial order while appointing an Arbitrator/Arbitrators, thereby making it clear that the decision of the Chief Justice or his designate in appointing an Arbitrator/Arbitrators is a mere administrative order. This decision was confirmed by another two Judge Bench of the Supreme Court in Ador Samia Private Limited v. Peekay Holdings Limited, . These two decisions of the Apex Court have the wonderful effect of making the order of the Chief Justice or his designate, an administrative order and, consequently, insulating it from attacks under Article 136 of the Constitution. Subsequently, a three Judge Bench of the Supreme Court in Konkan Railway Corporation Ltd. (supra), while confirming the aforesaid two decisions, went further and declared that it is only in cases of refusal by the Chief Justice or his designate to appoint an Arbitrator/Arbitrators, the aggrieved party can challenge the same by seeking a Writ of Mandamus under Article 226 of the Constitution, thereby making it clear that the decision of the Chief Justice or his designate appointing an Arbitrator/ Arbitrators is immune even from attacks under Article 226 of the Constitution of India. While making this aspect clear, it was held by the Supreme court in the said decision thus : (Para 4)
“If it is held that an order under Section 11(6) is a judicial or quasi-judicial order then the said order would be amenable for judicial intervention and any reluctant party may frustrate the entire purpose of the Act by
adopting dilatory tactics in approaching a Court of law even against an order of appointment of an arbitrator. Such an interpretation has to be avoided in order to achieve the basic objective for which the country has enacted the Act of 1996 adopting Uncitral Model. If on the other hand, it is held that the order passed by the Chief Justice under Section 11(6) is administrative in nature, then in such an event in a case where the learned Chief Justice or his nominee refuses erroneously to make an appointment then an intervention could be possible by a court in the same way as an intervention is possible against an administrative order of the executive. In other words, it would be a case of non-performance of the duty by the Chief Justice or his nominee, and therefore, a mandamus would lie. If such an interpretation is given with regard to the character of the order that has been passed under Section 11 (6) then in the event an order of refusal is passed under Section 11(6) it could be remedied by issuance of a mandamus”.
18. Another important aspect which should be noted here is that unlike Section 20 of the Old Act, Section 11 of the New Act does not empower the Chief or his designate to make a reference of the disputes to the Arbitrator/ Arbitrators appointed by him. This makes the Intention of the legislature very clear that the Chief Justice or his designate while making appointment is not required to decide the questions like arbitrability of a dispute/disputes i.e., whether a particular dispute/disputes can be referred to arbitration or not and leave such questions for the decision of the Arbitrator.
19. Section 33 of the Old Act conferred power, exclusively, on the court to decide the questions relating to existence, validity and scope of an arbitration agreement. Experience shows that this is yet another provision which has been misused by the unscrupulous litigants to stall the arbitral proceedings at the very inception, It is no doubt true that the Supreme Court in Renusagar Power Co. Ltd. v. General Electric Company, , has ruled that the Arbitrator also can decide the question about existence, validity and scope of an arbitration agreement if the said agreement is wide enough. But this decision fell short of remedying the situation as the final decision on these matters was still left to the Court. That gap was now filled by the legislature under
the New Act. In the New Act there is ho provision like Section 33 of the Old Act. Such power is now conferred upon the Arbitrator under Section 16(1)(a) of the New Act, which reads thus :
“16. Competence of arbitral to rule on its jurisdiction :–
(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for the purpose,–
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b)…….”
20. Now if we read Sections 11 and 16 of the
New Act together, keeping in view the nature of the power conferred upon the Chief Justice under Section 11 of the New Act, it would be clear that the Chief Justice or his designate, while exercising his power under Section 11 of the New Act, cannot entertain or decide the issues like existence of an arbitration agreement, its validity or scope or the jurisdiction of the Arbitrator to decide the disputes that are sought to be referred to his arbitration. The duty of the Chief Justice or his designate is only to appoint an Arbitrator/Arbitrators, if the parties fail to do so or if the person or institution empowered under the agreed procedure to make the appointment fails to do so, and leave all such questions to the decision of the Arbitrator/Arbitrators. This is what exactly the three Judges Bench of the Supreme Court in Konkan Railway Corporation Ltd., (supra) declared by holding thus : (Para 4)
“When the matter is placed before the Chief Justice or his nominee under Section 11 of the Act it is imperative for the said chief Justice or his nominee to bear in mind the legislative intent that the arbitral process should be set in motion without any delay whatsoever and all contentious issues are left to be raised before, the arbitral tribunal itself. At that stage it would not be appropriate for the Chief Justice or his nominee to entertain any contentious issue between the parties and, decide the_ same. …….
Section 16 empowers the arbitral tribunal to rule on its own as well as on objections with respect to the existence or validity of the arbitration agreement. Conferment of such power on the arbitrator under 1996 Act
indicates the intention of the legislature and its anxiety to see that the arbitral process is set in motion. This being the legislative intent, it would be proper for the Chief Justice or his nominee just to appoint an arbitrator without wasting any time or without entertaining any contentious issues at that stage, by_a party objecting to the appointment of an arbitrator”.
21. It is no doubt true that the matter has been again referred to for fresh consideration to a larger Bench of the Supreme Court in Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd., 2000 (Supp) 2 JT(SC) 150 : (2000)7 Supreme 125 : (2000 AIR SCW 3908). But that cannot be a ground to reject the applicant’s application or to defer the matter indefinitely. I am bound to follow the law laid down by the Supreme Court till it is overruled or modified by a larger Bench of the Supreme Court.
22. In the light of the aforementioned discussion, I shall now consider the objections 2 to 4 raised by the learned Standing Counsel for the Railways.
23. As already noted, the second objection relates to existence of an arbitration agreement to decide the disputes that are sought to be referred to arbitration. Likewise, the third objection relates to the jurisdiction of the Arbitrator to decide the claims. The fourth objection is that the claims are barred by limitation. It can thus be seen that all these objections raise contentious issues, which should be left to the decision of the Arbitrator in view of the aforementioned legal position.
24. The two decisions of the Supreme Court Steel Authority of India Ltd., (supra) and U.P. Rajkiya Nil-man Nigam Ltd., (supra) which were rendered under the Old Act, relied upon by the learned Standing (jounsel for railways, will not be of any help to him in view of the clear legal position explained hereinabove. Furthermore, those decisions were rendered in proceedings under Section 30 and 33 respectively, but not either under Section 8 or 20 of the Old Act.
25. In this view of the matter, I have no hesitation to overrule all the objections raised by the learned Standing Counsel for the Railways.
26. The question that still remains for consideration is – how to constitute the Arbitral Tribunal? Is it by appointing a sole Arbitrator or two Arbitrators as agreed between the parties?
27. The answer to the said question is to be found in Section 10 of the New Act, which is as under :
“Sec. 10. Number of Arbitrators :–
1. The parties are free to determine the number of arbitrators, provided that such number shall not be an even number.
2. Failing the determination referred to in Sub-section (1), the arbitral tribunal shall consist of a sole arbitrator”
A close reading of the aforesaid provision clearly shows that the parties are at liberty to determine the number of Arbitrators, but such number shall not be an even number. Sub-section (2) further provides that if the parties fail to provide for an odd number of Arbitrators, the arbitral tribunal shall be constituted by a sole Arbitrator.
28. In this case, as already noted Sub-clause (3)(a)(ii) and (3)(b) of Clause 64 of the General Conditions of the Contract provides for arbitration by two Arbitrators i.e., even number of Arbitrators. Therefore, the arbitral tribunal in this case shall consist of a sole Arbitrator in view of the aforesaid mandatory provision contained in Sub-section (2) of Section 10 of the New Act.
29. For all the aformentioned reasons, I have no hesitation to hold that an independent and impartial Arbitrator has to be appointed as a sole Arbitrator in this case.
30. Having regard to the fact that the agreement does not prescribe any qualifications for the Arbitrator and the dispute between the parties is not of technical nature, I deem it appropriate’ to appoint a retired Judge of High Court of Andhra Pradesh as a sole Arbitrator.
31. Accordingly, Ms. Justice S. V. Maruthi, a retired Judge of A.P. High Court, is appointed as the sole Arbitrator, The Arbitrators at liberty to fix her own fee. The applicant is, however, directed to deposit, initially, an amount of Rs. 25,000/- (Rupees twenty five thousand only) with the Arbitrator as an advance towards her fee.
32. The Application is accordingly allowed. No costs.