PETITIONER: STATE OF W.B. Vs. RESPONDENT: NATIONAL BUILDERS (Sahai, J) DATE OF JUDGMENT13/10/1993 BENCH: SAHAI, R.M. (J) BENCH: SAHAI, R.M. (J) PANDIAN, S.R. (J) ANAND, A.S. (J) CITATION: 1994 AIR 200 1994 SCC (1) 235 JT 1993 (6) 144 1993 SCALE (4)187 ACT: HEADNOTE: JUDGMENT:
The Judgment of the Court was delivered by
R.M. SAHAI, J.- The two questions of law that arise for
consideration in this appeal are if the refusal of an
arbitrator to resign while not accepting the joint request
of the parties to extend time for arbitration and leave it
to them to decide their future course of action amounts to
refusal to act by the arbitrator within the meaning of
Section 8(1)(b) of the Arbitration Act (in brief ‘the Act’)
and if it be so whether the power to appoint next arbitrator
vests in the court or it has once again to be in accordance
with the procedure provided in the agreement.
2. Dispute about settlement of claim in respect of
construction of 250 bed hospital at Basudevpura having
arisen between the respondent (contractor) and the appellant
(Public Works Department of the State of West Bengal) the
Chief Engineer nominated a Superintending Engineer as
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arbitrator in accordance with Clause 25 of the agreement,
the relevant part of which runs as under:
“Except where otherwise provided in the
contract all questions and disputes … shall
be referred to the sole arbitration of the
Chief Engineer of the department. Should the
Chief Engineer be for any reason be unwilling
or unable to act as such arbitrator, such
questions and disputes shall be referred to an
arbitrator to be appointed by the Chief
Engineer.”
3. When despite 59 sittings the proceedings did not come
to an end and the arbitrator entertained certain
applications of the appellant at a belated stage the
respondent sought his resignation for legal misconduct. The
application was decided by the arbitrator by a detailed
order with following observations:
“I have given my opinion that there has been
no misconduct on any of the grounds before me
by the learned claimant, yet I am of the
opinion justice delayed is justice denied
and since in this case there has been delay
and the process in which the learned Advocates
of both the parties are leading and pleading
the case, delay is inevitable, if the claimant
suffers from loss of confidence and apprehends
miscarriage of justice from the arbitrator
whose award is vital to him I shall not intend
to interfere in his way of pursuit for
justice.
I, therefore, direct that further extension of
time on consent of both the parties will not
be allowed by me and the extended date of
arbitration is being allowed to expire.
As regards claimants’ humble prayer to me that
I would be pleased to resign from the office,
I am restraining myself in issuing any order
as it concerns interest of both the parties
and I leave it to both the parties to decide.”
With this order the respondent approached the Chief Engineer
and sought for appointment of a retired Additional Chief
Engineer named in the application as the sole arbitrator.
The request was not accepted as according to the Chief
Engineer the arbitrator appointed was still continuing. The
respondent was however permitted to approach the court for
extension of time. Tile respondent, instead of filing
application for extension of time, approached the Court of
Assistant District Judge under Section 12(2) of the Act for
revoking authority of the sole arbitrator and filling the
vacancy by appointing another arbitrator. The application
was allowed as in the opinion of the court the arbitrator in
the circumstances of the case had refused to act. The order
was challenged by way of application under Article 227 of
the Constitution. The application was dismissed as the
inference drawn by the trial court that the arbitrator
refused to act was a plausible one. It is against this
order that this appeal has been filed. It is not clear if
during pendency of the application under Article 227 in the
High Court the appellant had applied for any interim order
for stay of further proceedings before the arbitrator.
However even if it was prayed for then it presumably was not
granted as,
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admittedly, during pendency of the application the
arbitrator appointed by the Assistant District Judge started
the proceedings in which the Executive Engineer appeared but
expressed his inability to participate in absence of any
instruction from the department and also because the
department had decided to challenge the order of the trial
court before the High Court. In any case it is not disputed
that the arbitrator, since, has given the award which has
not been challenged by the department. May be the
department might have been advised, that the finality of the
award could be subject to decision of this appeal as if the
appointment of the next arbitrator is held to be invalid the
proceedings consequent to it shall fall automatically.
4. To decide if the court was justified in assuming
jurisdiction to appoint another arbitrator as the arbitrator
appointed by the Chief Engineer under Clause 25 refused to
act, it is necessary to examine the scope of Section 8(1)(b)
of the Arbitration Act which reads as under:
“8. (1) In any of the following cases(a) ….
(b) If any appointed arbitrator or umpire
neglects or refuses to act, or is incapable of
acting, or dies, and the arbitration
agreement, does not show that it was intended
that the vacancy should not be supplied and
the parties or the arbitrators, as the case
may be, do not supply the vacancy; or
(c) ….
any party may serve the other parties or the
arbitrators, as the case may be, with a
written notice to concur in the appointment or
appointments or in supplying the vacancy.”
This provision vests the court with supervisory jurisdiction
to interfere with relationship between the parties and the
arbitrator if any of the situations as provided in this sub-
section comes into being. What was claimed by the
respondent, which has been accepted by the courts below, is
that the sole arbitrator appointed by the Chief Engineer
refused to act. The question, therefore, is what does this
expression mean? Refusal to act in legal sense means denial
to do something which one is obliged to do under law.
Black’s Law Dictionary explains it thus: ‘The act of one who
has, by law, a right and power of having or doing something
of advantage, and declines it’. In private law, of which
arbitration is a part with court’s power to supervise and
intervene in arbitral proceedings within statutory
framework, an arbitrator who is appointed, with common
consent of parties, may not proceed with arbitration for
various reasons. The refusal to act may be express or
implied. If an arbitrator resigns or informs the parties
his inability to act it would be express refusal. And even
the courts cannot force him to arbitrate. In Shibcharan v.
Ratiraman when despite his refusal the Subordinate Judge
directed the records to be sent back to the arbitrators to
submit the award
1 ILR (1885) 7 All 20: 1884 AWN 212
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within ten days who, thereafter, made the same it was set
aside by the High Court and it was held:
“Expression has recently been given by this
Court to the view, that one of the most
essential principles of the law of arbitration
is, that the adjudication of disputes by
arbitration should be the result of the free
consent of the arbitrator to undertake the
duties of arbitrating between the contending
parties who have agreed to repose confidence
in his judgment. Indeed, the finality of such
award is based entirely upon the principle
that the arbitrators are judges chosen by the
parties themselves, and that such judges are
willing to settle the disputes referred to
them.
This essential characteristic of the effect of
such adjudications is necessarily vitiated if
compulsion is employed by the Court.”
5. Refusal to act may be inferred as well. On what facts
such an inference can be raised cannot be laid down with
certainty. There can be no fixed principle for it. When an
arbitrator has failed to discharge his obligation so as to
give rise to an inference that he has refused to act it
shall have to be decided by the court on facts and
circumstances of each case. For instance in Priyabrata Bose
v. Phani Bhusan Ghose2 the High Court held that even when
the arbitrator was not willing to proceed unless his fees
were paid in advance, it was refusal to act. Inaction by
the arbitrator or inordinate delay in rendering the award
are yet some of other reasons due to which courts have
raised an inference that the arbitrator refused to act. (See
Manohar Singh Sahay & Co. v. Jogendra Singh Kalra3, State of
U.P. v. Sardul Singh Kulwant Singh4 and Gajanand Sita Ram v.
Phul Chand Fateh Chand5. The parties appoint an arbitrator
by consent and he undertakes to decide the dispute out of
his free will. He may withdraw his consent expressly or may
act in a manner giving rise to inference that he was not
willing to act any more. In either case the basic principle
is that the arbitrator cannot be forced to act. But such an
inference should not be readily raised. The court’s primary
concern should be to uphold the arbitration. But once the
court is satisfied that the arbitrator has refused to
discharge his obligations then it has statutory duty to
intervene and act in accordance with Section 8(1)(b) of the
Act. From the order of the arbitrator extracted earlier
what is made out is that he felt that the respondent had
lost confidence in him. With opinion, thus formed, he
refused to accede to the request of the parties to extend
the time for the award and directed parties to decide their
future course of action. True that he did not resign. It
is also true that the Chief Engineer insisted that the
arbitrator was continuing. But where the arbitrator refused
to extend time and brought arbitration to an end leaving it
open to parties to decide their future course of action as
one of the parties whose vital stakes were involved did not
have confidence in him, the courts
2 AIR 1937 Cal 523
3 AIR 1984 Pat
3: 1983 BBCJ (HC) 606
4 AIR 1985 All 67: 1985 All CJ 117
5 AIR 1930 All 675: 1930 ALJ 1373
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do not appear to have committed any error of law in drawing
inference that the arbitrator had refused to act.
6. More important issue than this that was urged was that
since Clause 25 of the agreement empowered the Chief
Engineer to nominate any other person to act as arbitrator
the intention was to fill the vacancy in the same manner as
provided in the agreement. This raises an important issue
as to whether the power of the Chief Engineer to arbitrate
himself or to nominate any other person as arbitrator is
exhausted or revived after the earlier arbitrator nominated
by him refused to act. In other words does the power to
appoint a sole arbitrator under the agreement come to an end
with such appointment or every time an arbitrator refuses to
act the parties are to take recourse to appoint another
arbitrator as provided in the agreement itself. Settlement
of dispute between the parties through medium of an
independent person in whom both parties repose confidence is
the basic foundation on which the entire law of arbitration
is founded. When the agreement provides that dispute
between parties shall be referred to the person named in an
agreement it is an appointment by consent. But where the
arbitrator so appointed refuses to act the next appointment
could again be made either as agreed between the parties and
provided for in the arbitration clause or by consensus. But
where either is absent no party to the arbitration agreement
can be forced to undergo same procedure, for the simple
reason that the arbitrator having refused to act he cannot
be asked to arbitrate again. In law the result of such
refusal is that the agreement clause cannot operate. It,
therefore, follows that in a case where the arbitration
clause provides for appointment of a sole arbitrator and he
had refused to act then the agreement clause stands
exhausted. And it is for the court to intervene and appoint
another arbitrator under Section 8(1)(b), ‘if arbitration
agreement does not show that it was intended that the
vacancy should not be supplied’. That is, the agreement
should not debar any further arbitration. If it is provided
in the agreement that if the arbitrator appointed in
accordance with the agreement refuses to act then the
dispute shall be resolved by another arbitrator, there is an
end of the matter. But if the agreement does not show this
then the next arbitrator can be appointed by the court only.
The expression used in the subsection is clear indication
that the court is precluded from exercising its power only
if the parties intended that the vacancy should not be
filled. In other words the court shall exercise
jurisdiction to appoint another arbitrator except where it
is specifically debarred from doing so. The word ‘show’
used in the clause appears to be significant. It in fact
furnishes the key to the construction of the expression.
Mere neglect or refusal to act alone is not sufficient to
empower the court to intervene. The agreement must not
further show that the parties intended that the vacancy
shall not be supplied. To put it affirmatively in absence
of clear words or explicit language to the contrary the
court may appoint another arbitrator. The true effect of
the word is that it extends jurisdiction of the court to
exercise power, if the agreement does not specifically debar
it from doing so. To put it simply the court’s power to
interfere and appoint an arbitrator comes into operation if
the arbitrator
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refuses to act and the agreement does not show that the
parties did not intend that the vacancy shall not be
supplied. In Prabhat General Agencies v. Union of India6 it
was held by this Court: (SCC p. 82, para 4)
“… that the language of the provision is not
‘that the parties intended to supply the
vacancy’ but on the other hand it is that ‘the
party did not intend to supply the vacancy’.
In other words if the agreement is silent as
regards supplying the vacancy the law presumes
that the parties intended to supply the
vacancy. To take the case out of Section
8(1)(b) what is required is not the intention
of the parties to supply the vacancy but their
intention not to supply the vacancy.”
In Chander Bhan Harbhajan Lal v. State of Punjab7 it was
held that where a committee of arbitrators nominated by the
Government becomes incapable of acting as such “it was
within the competency of the Court to proceed to appoint a
new committee”. In Union of India v. R.B. Ch. Raghunath
Singh & Co.8 the arbitration clause provided for settlement
of dispute and differences by the Chief
Commissioner/Director of Storage, Ministry of Food,
Government of India and his decision was to be final and
binding. The post of Director of Storage was abolished and
the Chief Commissioner refused to act. The question arose
whether the Court could appoint an arbitrator in exercise of
power under Section 8(1)(b). It was claimed on behalf of
the Union of India that where there was a named arbitrator
even though he was named by office, it was not open to the
Court to supply the vacancy in his place under Section
8(1)(b) of the Act. The contention was repelled and it was
held that the argument was without any substance as: “the
Court had no power to supply the vacancy under Section
8(1)(b) only if the arbitration agreement did show that the
parties did not intend to supply the vacancy. If no such
intention could be culled from the arbitration clause, the
court could supply the vacancy.” (SCC p. 22, para 4) It is
thus settled that even where an authority is named by office
to be the sole arbitrator but he refuses to act then the
jurisdiction to appoint another arbitrator vests in the
court. Since Clause 25 of the agreement extracted earlier
does not indicate that the parties did not intend to supply
the vacancy the court in our opinion rightly assumed
jurisdiction under Section 8(1)(b) to appoint another
arbitrator.
7. Basis for assuming such jurisdiction, as stated
earlier, is that the clause is rendered inoperative. Where
the agreement provides for appointment of a specific person
either by name or by designation and that person refuses to
act then the question of appointing him again cannot arise.
Refusal by such a person results in the agreement clause
ceasing to operate. When two parties agree for appointment
of A or B by name or designation and the person so named
refuses to act then the agreement shall be deemed to have
exhausted itself. The person so named having refused to
act, he
6 (1971) 1 SCC 79
7 (1977) 2 SCC 715
8 (1979) 4 SCC 21
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cannot be asked again to arbitrate. That would be contrary
to the very basis of arbitration that no one can be forced
to act against his free will. It would also be contrary to
the agreement and if there is no agreement to appoint
another person, the only remedy is to approach the court to
exercise its statutory power and appoint another arbitrator.
Same result follows where the arbitration clause empowers
the sole arbitrator either to arbitrate himself or to
nominate anyone else. It was urged that the principle of
agreement clause coming to an end cannot apply where the
sole arbitrator has been given power to nominate another
person. According to the learned counsel once the nominee
refused to act the Chief Engineer was again empowered to
nominate another person in his place. In our opinion the
submission is not well founded in law. A person nominated
by the sole arbitrator stands substituted in his place. He
does not have any independent personality. The power and
authority exercised by him is the same as the authority
which nominated him. Therefore, once the nominee refuses to
act it shall be deemed that the arbitrator mentioned in the
arbitration clause has refused to act and therefore, the
clause would cease to operate in the same manner as the
Chief Engineer himself has refused to act. The appointment
of next arbitrator could, only be in accordance with Section
8(1)(b) of the Act.
8. For these reasons the appeal fails and is dismissed
with costs.
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