Case: City and Industrial Development Corporation of Maharashtra Limited Vs. Messrs Motiram Budharmal and Others

MOHAN, J. Leave granted2. The appellant is a government company being wholly owned by the Government of Maharashtra. Respondent 1 M/s. Motiram Budharmal is a partnership firm carrying on business as builders and contractors. Respondent 3 is a Chief Engineer of the appellant company3. On February 8, 1982, the appellant firm issued work order to the first respondent for construction of E type building in Sector 10, Vashi, New Bombay. It was stipulated that the work should be completed by August 7, 1983. The work was not completed by the first respondent within that date. On June 30, 1984, the work was completed. On June 29, 1987 the first respondent wrote to the appellants Executive Engineer alleging breach on the part of the appellant. He also put forth various claims. The first respondent invoked the arbitration clause in the agreement. It was contested by second respondent stating that claims put forth were not arbitrable. Thereafter, the first respondent by a letter dated October 15, 1987 protested and alleged bias against Respondent 3. He also prayed for removal of Respondent 3 as arbitrator. After a gap of nearly 2 1/2 years on May 15, 1990, the first respondent issued notice requesting Respondent 3 to proceed with the arbitration alleging that if this was not done, proceedings for revocation of his authority and/or for his removal would be adopted4. The first respondent filed Arbitration Petition No. 125 of 1990 in the Bombay High Court. In that proceeding, he prayed for removal of Respondent 3 as arbitrator and for revocation of his authority. It was directed that Respondent 3 should decide on the question whether the claims are arbitrable or not and to render a decision on the claims on merits by December 31, 1992. In view of this discretion, the third respondent wrote to the parties intimating that he proposed to enter upon the reference and fixed the meeting for that purpose. However, the letter erroneously stated that the meeting was to take place on February 17, 1992. On receipt of this letter, the first respondent stated that since the letter was received only on May 15, 1992, it was not possible to attend the meeting. Therefore, on April 15, 1993, the first respondent filed another Arbitration Petition No. 78 of 1993 seeking the removal of the third respondent as sole arbitrator. On this petition, the High Court passed the impugned order on June 14, 1993 directing the removal of third respondent as sole arbitrator and appointed an Advocate of the High Court as arbitrator in his place. It is the correctness of this order, which has been questioned in this appeal5. The learned counsel for the appellant would urge that having regard to the terms of arbitration clause where there is a named arbitrator namely, the Chief Engineer, it is not open to the court to appoint an advocate arbitrator. If the intention of the parties was that the dispute being technical in nature, it should be decided by a person with technical expertise, appointment of an advocate will not remedy the situation 6. In order the invoke Section 8 of the Arbitration Act (hereinafter referred to as the Act) it has to be decided first whether the parties intended to supply the vacancy. When the arbitration agreement evinces an intention not to supply the vacancy, the court will have no power under Section 8(1)(b) of the Act. This is not a case where the contract is silent about supplying the vacancy 7. The High Court, it is urged, had failed to take into account the conduct of the first respondent, the party applying for removal. Such a conduct clearly shows that he was not interested in proceeding with the arbitration. After writing the letter dated May 18, 1922, no step, whatever, was taken by the first respondent. When the first respondent was not interested, the High Court should have held that the arbitration agreement ceased to have effect. A declaration to that effect ought to have been made; that would have been in consonance with Section 12 of the Act8. In opposition to this, the learned counsel for the respondents would urge that this is a case in which the arbitration agreement stipulated only the Chief Engineer to be the arbitrator. The parties did not intend not to supply the vacancy. Therefore, the High Court was fully competent to appoint another arbitrator after the removal of named arbitrator. Such a power is available to High Court under Section 12(2)(a) of the Act. In support of this argument, reliance is placed on Chief Engineer, Rural Engineering Organisation v. R. C. Sahu ( 1980 (49) CLT 259 (Ori)). The present case falls under Sections 11 and 12 of the Act9. If the agreement is silent as regards supplying the vacancy, the law, it is urged, presumes that the parties intended to supply the vacancy. Where, therefore, the court is moved under Section 8 of the Act to appoint an arbitrator, it was well within its jurisdiction to appoint arbitrator. Reliance is placed on Prabhat General Agencies v. Union of India ( 1971 (1) SCC 79 : 1971 AIR(SC) 2298)10. The arbitrator named in the agreement was removed because he failed to use all reasonable dispatch in proceeding with the reference and making an award. Therefore, no exception could be taken to the impugned order11. Before we go into the question of law, a factual analysis may be highly necessary in this case to determine the applicability of Section 8 of the Act12. When on October 7, 1987, the third respondent wrote a letter in answer to the first respondent that the claims put forth were not arbitrable, what the first respondent did was to write a reply on October 15, 1987. In that letter, he alleged bias against the third respondent. On that score, he should be removed. After this letter, no action was taken for more than 2 1/2 years by the first respondent. It was only on July 9, 1990, he filed an arbitration petition for removal of the arbitrator. But the learned Single Judge dismissed the petition on January 6, 1992 and directed the third respondent to hold a preliminary meeting on the question as to whether the claims are arbitrable. The third respondent informed the parties that he proposes to enter upon reference and fixed the meeting on February 17, 1992. No doubt, the date mentioned as February 17, 1992 was a mistake. But after writing the letter on May 18, 1992 the first respondent, took no step whatever, for almost a year. All these facts will clearly point out the remiss on the part of first respondent. If really the third respondent did not fix a meeting, nothing prevented the first respondent to call upon him to fix the meeting. In the context of unexplained delay of first respondent from October 7, 1987 to May 10, 1990, from May 15, 1992 to April 15, 1993, the delay on the part of the arbitrator from May 1992 to December 1992 was not such as to warrant the removal nor could it be said that there was a lack of such dispatch on his part warranting removal. Therefore, we find it difficult to appreciate when the learned Single Judge in his impugned order dated June 14, 1993 held that on May 18, 1992, first respondent addressed a letter to Respondent 3 regarding convening of meeting but respondent 3 did nothing and that he did not fix any meeting for conducting the arbitration13. Hence, this is not a case which would fall under Section 11 of the Act. Accordingly, the exercise of the power by the High Court under the order appealed against cannot be upheld. Once, we reach this conclusion, it is unnecessary to go into the legal aspect and decide whether the parties intended that the vacancy should not be supplied and, therefore, a new arbitrator should not have been appointed. Besides, this is a case in which the parties intended that Respondent 3, Chief Engineer, alone should be the arbitrator, having regard to the facts that he is possessed of technical expertise the dispute itself being of technical nature in relation to building construction.

Decision:
1[ds]Therefore, the High Court was fully competent to appoint another arbitrator after the removal of named arbitrator. Such a power is available to High Court under Section 12(2)(a) of the Act. In support of this argument, reliance is placed on Chief Engineer, Rural Engineering Organisation v. R. C. Sahu ( 1980 (49) CLT 259 (Ori)). The present case falls under Sections 11 and 12 of the Act9. If the agreement is silent as regards supplying the vacancy, the law, it is urged, presumes that the parties intended to supply the vacancy. Where, therefore, the court is moved under Section 8 of the Act to appoint an arbitrator, it was well within its jurisdiction to appoint arbitrator. Reliance is placed on Prabhat General Agencies v. Union of India ( 1971 (1) SCC 79 : 1971 AIR(SC) 2298)10. The arbitrator named in the agreement was removed because he failed to use all reasonable dispatch in proceeding with the reference and making an award. Therefore, no exception could be taken to the impugned order11. Before we go into the question of law, a factual analysis may be highly necessary in this case to determine the applicability of Section 8 of the Act12. When on October 7, 1987, the third respondent wrote a letter in answer to the first respondent that the claims put forth were not arbitrable, what the first respondent did was to write a reply on October 15, 1987. In that letter, he alleged bias against the third respondent. On that score, he should be removed. After this letter, no action was taken for more than 2 1/2 years by the first respondent. It was only on July 9, 1990, he filed an arbitration petition for removal of the arbitrator. But the learned Single Judge dismissed the petition on January 6, 1992 and directed the third respondent to hold a preliminary meeting on the question as to whether the claims are arbitrable. The third respondent informed the parties that he proposes to enter upon reference and fixed the meeting on February 17, 1992. No doubt, the date mentioned as February 17, 1992 was a mistake. But after writing the letter on May 18, 1992 the first respondent, took no step whatever, for almost a year. All these facts will clearly point out the remiss on the part of first respondent. If really the third respondent did not fix a meeting, nothing prevented the first respondent to call upon him to fix the meeting. In the context of unexplained delay of first respondent from October 7, 1987 to May 10, 1990, from May 15, 1992 to April 15, 1993, the delay on the part of the arbitrator from May 1992 to December 1992 was not such as to warrant the removal nor could it be said that there was a lack of such dispatch on his part warranting removal. Therefore, we find it difficult to appreciate when the learned Single Judge in his impugned order dated June 14, 1993 held that on May 18, 1992, first respondent addressed a letter to Respondent 3 regarding convening of meeting but respondent 3 did nothing and that he did not fix any meeting for conducting the arbitration13. Hence, this is not a case which would fall under Section 11 of the Act. Accordingly, the exercise of the power by the High Court under the order appealed against cannot be upheld. Once, we reach this conclusion, it is unnecessary to go into the legal aspect and decide whether the parties intended that the vacancy should not be supplied and, therefore, a new arbitrator should not have been appointed. Besides, this is a case in which the parties intended that Respondent 3, Chief Engineer, alone should be the arbitrator, having regard to the facts that he is possessed of technical expertise the dispute itself being of technical nature in relation to building construction.