{"id":48292,"date":"2007-03-01T00:00:00","date_gmt":"2007-02-28T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/c-m-c-ltd-vs-unit-trust-of-india-ors-on-1-march-2007"},"modified":"2015-12-30T23:32:33","modified_gmt":"2015-12-30T18:02:33","slug":"c-m-c-ltd-vs-unit-trust-of-india-ors-on-1-march-2007","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/c-m-c-ltd-vs-unit-trust-of-india-ors-on-1-march-2007","title":{"rendered":"C.M.C. Ltd vs Unit Trust Of India &amp; Ors on 1 March, 2007"},"content":{"rendered":"<div class=\"docsource_main\">Supreme Court of India<\/div>\n<div class=\"doc_title\">C.M.C. Ltd vs Unit Trust Of India &amp; Ors on 1 March, 2007<\/div>\n<div class=\"doc_author\">Author: P Balasubramanyan<\/div>\n<div class=\"doc_bench\">Bench: P.K. Balasubramanyan, V.S. Sirpurkar<\/div>\n<pre>           CASE NO.:\nAppeal (civil)  1119 of 2007\n\nPETITIONER:\nC.M.C. LTD\n\nRESPONDENT:\nUNIT TRUST OF INDIA &amp; ORS\n\nDATE OF JUDGMENT: 01\/03\/2007\n\nBENCH:\nP.K. BALASUBRAMANYAN &amp; V.S. SIRPURKAR\n\nJUDGMENT:\n<\/pre>\n<p>J U D G M E N T<br \/>\n(Arising out of SLP(C) No. 69 of 2004)<\/p>\n<p>P.K. BALASUBRAMANYAN, J.\n<\/p>\n<p>\t\tLeave granted.\n<\/p>\n<p>1.\t \tThe appellant and respondent No. 1 entered into an<br \/>\nagreement dated 23.10.1992 for a Technology Upgrade Project<br \/>\nof the latter.  The said agreement contained an arbitration<br \/>\nclause.  The same read:\n<\/p>\n<p>&#8220;20.\tIn the event of any dispute or difference<br \/>\nrelating to the interpretation or<br \/>\napplication of any of the provision of this<br \/>\nAgreement or as to the performance of<br \/>\nany obligation by either party shall be<br \/>\nsettled by arbitration.  Each party shall<br \/>\nappoint an arbitrator and the arbitrators<br \/>\nso appointed shall appoint an umpire to<br \/>\nwhom the matter on which the<br \/>\narbitrators disagree will be referred.  The<br \/>\ndecision of the arbitrators and in the<br \/>\nevent of there being disagreement<br \/>\nbetween the arbitrators, the decision of<br \/>\nthe umpire shall be final, conclusive and<br \/>\nbinding on the parties with respect to the<br \/>\nmatter referred to arbitration.  The<br \/>\ndecision of the arbitrators or the umpire<br \/>\nas the case may be shall constitute<br \/>\narbitrators award for the purpose of<br \/>\nIndian Arbitration Act, 1940.  The<br \/>\narbitration proceedings shall be<br \/>\nconducted in accordance with the rules<br \/>\nprescribed by the Indian Council of<br \/>\nArbitration.&#8221;\n<\/p>\n<p>2.\t\tDisputes arose between the parties.  On 16.5.2002,<br \/>\nrespondent No. 1 issued a notice invoking the arbitration<br \/>\nclause and calling upon the appellant to refer the dispute and<br \/>\ndifferences to be settled through arbitration in terms of the<br \/>\narbitration agreement.  Respondent No. 1 named an arbitrator<br \/>\nwith the suggestion that he may be accepted as the sole<br \/>\narbitrator.  But, if the appellant was not willing to treat him as<br \/>\nsuch, it was stated that the arbitrator named by respondent<br \/>\nNo. 1 may be treated as the one appointed by it in terms of the<br \/>\narbitration agreement and in that event, the appellant was<br \/>\ncalled upon to name its arbitrator and the said two arbitrators<br \/>\ncan then appoint a Presiding arbitrator.   The appellant replied<br \/>\nstating that the parties have agreed to follow the Rules<br \/>\nprescribed by the Indian Council of Arbitration by<br \/>\nincorporating the said Rules by reference in the arbitration<br \/>\nclause and since respondent No. 1 had not acted in terms of<br \/>\nthe said Rules, the appellant regretted its inability to accept<br \/>\nthe stand of respondent No. 1 or to appoint an arbitrator in<br \/>\nterms of the arbitration agreement.  The appellant regretted its<br \/>\ninability to act on the basis of the notice issued by respondent<br \/>\nNo.1.\n<\/p>\n<p>3.\t\tRespondent No. 1 thereupon moved the Chief<br \/>\nJustice of the High Court under Section 11(6) of the<br \/>\nArbitration and Conciliation Act, 1996.  Respondent No.1<br \/>\ncontended that the appellant had failed to act in terms of the<br \/>\nprocedure for appointment of an arbitrator and hence the<br \/>\nChief Justice or his Judge designate, may appoint an<br \/>\narbitrator to act along with the arbitrator named by<br \/>\nrespondent No.1 and direct the two arbitrators to appoint the<br \/>\nthird, a Presiding Arbitrator, within the time fixed and to refer<br \/>\nall disputes and differences between respondent No.1 and the<br \/>\nappellant arising out of or in connection with the Technology<br \/>\nUpgrade Agreement as per the provisions of the Act.  The<br \/>\nappellant resisted the application essentially pleading that the<br \/>\nRules of the Indian Council of Arbitration and the mandate<br \/>\nthereof had not been complied with by the applicant before the<br \/>\nChief Justice and that the arbitration clause had not been<br \/>\nproperly invoked and there is no failure on the part of the<br \/>\nappellant herein to act in accordance with the procedure<br \/>\naccepted by the parties.  No occasion had therefore arisen for<br \/>\nthe Chief Justice to appoint an arbitrator in terms of Section<br \/>\n11(6) of the Act.  It is said that the appellant as directed by the<br \/>\ncourt had named an arbitrator without prejudice to its<br \/>\ncontentions and it is common ground before us that the said<br \/>\ntwo arbitrators have also named the Presiding Arbitrator and<br \/>\nan Arbitral Tribunal had come into existence, but subject to<br \/>\nthe decision in this appeal filed by the appellant.\n<\/p>\n<p>4.\t\tThe learned designated Judge of the High Court<br \/>\nheld that on a true construction of clause 20 of the Agreement<br \/>\nwhich is the arbitration agreement, the right or duty to<br \/>\nappoint or name an arbitrator each, rested with the parties to<br \/>\nthe contract and what was provided for in the arbitration<br \/>\nagreement was only regarding the following of the procedure of<br \/>\nthe Rules of the Indian Council of Arbitration.  The arbitration<br \/>\nagreement did not contemplate the appointment of the<br \/>\narbitrator to be as per the Rules of the Indian Council of<br \/>\nArbitration or only from the panel of arbitrators maintained by<br \/>\nthe Council.  Thus, on a construction of the arbitration<br \/>\nagreement in the light of the decisions brought to his notice,<br \/>\nthe designated Judge, noticing that the appellant had also<br \/>\nnamed an arbitrator without prejudice to its contentions and<br \/>\nthat the two arbitrators had nominated a Presiding Arbitrator<br \/>\nand that Tribunal can proceed to arbitrate on the dispute<br \/>\nallowed the application and constituted the Tribunal as<br \/>\nchosen by the parties.  The designated Judge also noticed that<br \/>\nthe question about the jurisdiction of the Arbitral Tribunal<br \/>\ncould be decided by the Tribunal itself.\n<\/p>\n<p>5.\t\tIt may be noted that his decision was rendered<br \/>\nbefore this Court spoke on the nature of the jurisdiction of the<br \/>\nChief Justice or of the designated Judge in SBP &amp; CO. VS.<br \/>\nPATEL ENGINEERING LTD. &amp; ANR. [(2005) 8 S.C.C. 618]<br \/>\nand held it as a judicial function.  The appellant therefore,<br \/>\nfiled a petition under Article 226 of the Constitution of India<br \/>\nchallenging the decision of the designated Judge, on the basis<br \/>\nthat the said order was only an administrative order.   The<br \/>\nDivision Bench held that in view of the restricted jurisdiction<br \/>\nthat the court had in such matters and in the absence of any<br \/>\ninjury of any kind to the appellant, there was no reason to<br \/>\ninterfere with the decision of the designated Judge merely<br \/>\nbecause a writ petition was maintainable to challenge the<br \/>\nsame.  The Petition for Special Leave to appeal was filed<br \/>\noriginally challenging the decision of the Division Bench in the<br \/>\nwrit petition.  But subsequent to the decision in SBP &amp;<br \/>\nCompany (supra), the appellant was permitted to convert the<br \/>\nPetition for Special Leave to Appeal as one challenging the<br \/>\norder of the designated Judge and pursue its challenge thereto<br \/>\ndirectly in this Court.  Thus, this appeal challenges the<br \/>\ndecision of the designated Judge interpreting the arbitration<br \/>\nclause quoted above and holding that the parties retained the<br \/>\nright to nominate the respective arbitrators and there was no<br \/>\nobligation on any of the parties to choose only an arbitrator as<br \/>\nper the Rules of Arbitration of the Indian Council of<br \/>\nArbitration or to proceed only in terms of those Rules for<br \/>\nappointment of an arbitrator.\n<\/p>\n<p>6.\t\tIt is settled that getting resolution of a dispute by<br \/>\narbitration is a matter of contract between the parties.  So long<br \/>\nas the contract does not militate against the provisions of the<br \/>\nArbitration Act, nothing in law prevents the arbitration<br \/>\nagreement between the parties being given effect to in full.<br \/>\nWhat is contended by learned counsel for the appellant is that<br \/>\nthe arbitration agreement clearly specifies that &#8220;the arbitration<br \/>\nproceedings shall be conducted in accordance with the Rules<br \/>\nprescribed by the Indian Council of Arbitration&#8221; and this<br \/>\nwould mean that the procedure for appointment of an<br \/>\narbitrator and making a claim for arbitration must all be in<br \/>\nterms of the Rules of the Indian Council of Arbitration.<br \/>\nLearned counsel points out that under Rule 15 any party<br \/>\nwishing to commence arbitration proceedings under the Rules<br \/>\nof the Council had to give a notice of the request for<br \/>\narbitration to the Registrar of Indian Council of Arbitration<br \/>\nand to the opposite party and had to follow the procedure laid<br \/>\ndown in those Rules.  Learned counsel submits that the Rules<br \/>\nof the Indian Council of Arbitration had been incorporated in<br \/>\nthe arbitration agreement by the parties and any mode of<br \/>\nexercise of right for invoking an arbitration clause other than<br \/>\nthe one prescribed by the Rules of the Council would be futile.<br \/>\nTherefore, the notice issued on behalf of respondent No.1<br \/>\nintimating the appellant of the appointment of an arbitrator<br \/>\nand calling upon the appellant to appoint an arbitrator, would<br \/>\nnot amount to a proper invocation of the arbitration agreement<br \/>\nand there is no failure on the part of the appellant to follow the<br \/>\nprocedure agreed to between the parties for appointment of an<br \/>\narbitrator resulting in conferment of jurisdiction on the Chief<br \/>\nJustice to appoint an arbitrator in terms of Section 11(6) of the<br \/>\nAct.  In this context, we may specifically record that the<br \/>\nlearned counsel for the appellant agreed that the arbitration<br \/>\nwas governed by the Arbitration and Conciliation Act, 1996.<br \/>\nRespondent No.1 had, of course, invoked that very Act.\n<\/p>\n<p>7.\t\tEven going by the Rules of arbitration of the Indian<br \/>\nCouncil of Arbitration, it is seen that the parties are not<br \/>\nprecluded from having a different procedure for appointment<br \/>\nof an arbitrator.   The Rules, even at the inception, suggests<br \/>\nthe incorporation by the parties of an arbitration clause in<br \/>\nwriting in their contracts in the following terms:<br \/>\n&#8220;Any dispute or difference whatsoever arising<br \/>\nbetween the parties out of or relating to the<br \/>\nconstruction, meaning, scope operation or<br \/>\neffect of this contract or the validity or the<br \/>\nbreach thereof shall be settled by arbitration in<br \/>\naccordance with the Rules of Arbitration of the<br \/>\nIndian Council of Arbitration and the award<br \/>\nmade in pursuance thereof shall be binding on<br \/>\nthe parties.&#8221;\n<\/p>\n<p>Rule 4(c) which is relevant reads:\n<\/p>\n<p>&#8220;In case the parties have provided a different<br \/>\nprocedure for appointment of arbitrator or<br \/>\nschedule of cost including the arbitrator&#8217;s fee,<br \/>\nthe Council shall not be bound to process the<br \/>\ncase unless both the parties agree to follow<br \/>\nentire procedure or arbitration under Rules of<br \/>\nArbitration of the Council.&#8221;\n<\/p>\n<p>It is clear from the comparison of the arbitration agreement<br \/>\nsuggested by the council and the arbitration agreement<br \/>\nbetween the parties, that the arbitration agreement between<br \/>\nthe parties substantially differs from the one suggested by the<br \/>\nIndian Council of Arbitration.  Secondly, Rule 4(c) is specific<br \/>\nthat in case the parties had provided a different procedure for<br \/>\nappointment of an arbitrator, the Council was not bound to<br \/>\nprocess the case unless both the parties agreed to follow the<br \/>\nentire procedure or Arbitration Rules of the Council.<br \/>\nObviously, a different procedure for appointment of an<br \/>\narbitrator or arbitrators had been agreed to by the parties and<br \/>\nrespondent No.1 had obviously not agreed to follow the entire<br \/>\nprocedure or have an arbitration under the Rules of the<br \/>\nCouncil.  Therefore, even if one were to apply the Rules, it is<br \/>\ndifficult to accept the argument that respondent No.1 was<br \/>\nbound to invoke the Rules of the Council to put in motion an<br \/>\neffective machinery for arbitration.\n<\/p>\n<p>8.\t\tLearned counsel has referred to the decisions in<br \/>\n<a href=\"\/doc\/1106011\/\">FOOD CORPORATION OF INDIA vs. INDIAN COUNCIL OF<br \/>\nARBITRATION &amp; ORS.<\/a> [(2003) 6 S.C.C 564] and in<br \/>\nGESELLSCHAFT FUR BIOTECHNOLOGISCHE FORSCHUN<br \/>\nGMBH Vs. KOPRAN LABORATORIES LTD. &amp; ANR. [(2004<br \/>\n(13) S.C.C. 630] in support of his submission that respondent<br \/>\nNo.1  was bound to proceed in terms of the Rules of the<br \/>\nCouncil.  But on a scrutiny of those decisions, it is clear that<br \/>\nthe arbitration clauses in those cases were substantially in<br \/>\nconformity with the model arbitration clause prescribed by the<br \/>\nCouncil as quoted earlier and it was in that context that this<br \/>\nCourt observed that the Rules of the Council must be followed.<br \/>\nThe very appointment of the Arbitral Tribunal was to be<br \/>\naccording to those Rules.  But in this case, it is clear that the<br \/>\narbitration clause differs considerably from the agreements<br \/>\ninvolved in those cases and the parties retained in themselves<br \/>\nthe right to appoint the arbitrators.  Hence, those decisions<br \/>\ncannot be relied on for the purpose of non-suiting respondent<br \/>\nNo.1.\n<\/p>\n<p>9.\t\tThe argument that there is an incorporation of the<br \/>\nRules of the Council in the arbitration agreement and hence<br \/>\nthose Rules must be given effect to fully, does not take the<br \/>\nappellant far in this case.  On a true construction of the<br \/>\narbitration agreement, what we find is that the parties<br \/>\nretained in themselves the right to name an arbitrator of their<br \/>\nown, who in turn had to name a Presiding Arbitrator so as to<br \/>\nconstitute an Arbitral Tribunal.  The power to appoint has not<br \/>\nbeen ceded to the Indian Council of Arbitration.  Once the<br \/>\nappointments are made and the Arbitral Tribunals are<br \/>\nconstituted, the parties have also agreed that the arbitration<br \/>\nproceedings shall be conducted in accordance with the Rules<br \/>\nprescribed by the Indian Council of Arbitration.  The provision<br \/>\nthat the proceedings shall be conducted in accordance with<br \/>\nthe Rules prescribed by the Indian Council of Arbitration does<br \/>\nnot in any manner militate against the retention of the power<br \/>\nby the parties of appointing an arbitrator or constituting an<br \/>\nArbitral Tribunal.  Only if there exists any inconsistency<br \/>\nbetween the two provisions we would be called upon to<br \/>\nundertake the existence of reading down one or ignoring one<br \/>\nas ineffective or inconsistent and giving effect to the other.<br \/>\nHere in this case, there is no difficulty in reconciling both the<br \/>\nclauses in the arbitration agreement.  As we have noticed,<br \/>\nresolution of disputes by way of arbitration is a matter of<br \/>\nagreement between the parties.  If while contemplating such a<br \/>\nresolution of disputes they also retain in themselves the power<br \/>\nto constitute an Arbitral Tribunal, it cannot be said that there<br \/>\nis anything wrong in such a provision or that the same cannot<br \/>\nbe given effect to.    Therefore, the power retained by the<br \/>\nparties to name an arbitrator each, does not militate either<br \/>\nagainst the provisions of the Act or against the Rules of the<br \/>\nIndian Council of Arbitration.  That Arbitral Tribunal once<br \/>\nconstituted in terms of the Act, may have to follow the Rules of<br \/>\nIndian Council of Arbitration in that behalf.  But as rightly<br \/>\npointed out by the learned Additional Solicitor General who<br \/>\nappeared on behalf of respondent No.1, when an Arbitral<br \/>\nTribunal of persons well versed in law is constituted, surely, a<br \/>\nproper procedure will be followed by them and there is no<br \/>\nreason to insist on a particular procedure to be followed.   But<br \/>\nobviously, it is not a matter on which we need pronounce now.<br \/>\nSuffice it to say, that we find no infirmity in the interpretation<br \/>\nof the arbitration agreement by the designated Judge and in<br \/>\nthe constitution of the Arbitral Tribunal as presently<br \/>\nconstituted.  We are also inclined to think that no prejudice is<br \/>\ncaused to the appellant and no injustice is involved in the<br \/>\nconstitution of the Arbitral Tribunal.  We therefore affirm the<br \/>\norder of the designated Judge and dismiss this appeal.  We<br \/>\nexpect the Arbitral Tribunal to enter upon the reference<br \/>\nwithout any further delay and pronounce its award within<br \/>\nnine months of its entering upon the reference.\n<\/p>\n<p>10.\t\tThe appeal is thus dismissed with the above<br \/>\nexpectation. The parties are directed to suffer their respective<br \/>\ncosts.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Supreme Court of India C.M.C. Ltd vs Unit Trust Of India &amp; Ors on 1 March, 2007 Author: P Balasubramanyan Bench: P.K. Balasubramanyan, V.S. Sirpurkar CASE NO.: Appeal (civil) 1119 of 2007 PETITIONER: C.M.C. LTD RESPONDENT: UNIT TRUST OF INDIA &amp; ORS DATE OF JUDGMENT: 01\/03\/2007 BENCH: P.K. BALASUBRAMANYAN &amp; V.S. SIRPURKAR JUDGMENT: J U [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-48292","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.6 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>C.M.C. 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