1 [CASE NUMBER] [PRECEDENT] THE HIGH COURT OF MEGHALAYA AT SHILLONG : ORDER :
[CASE NUMBER] Shri [PRECEDENT] Date of Order 02.06.2017 PRESENT HON'BLE SHRI JUSTICE [ENTITY], CHIEF JUSTICE Shri [ENTITY], for the petitioner Shri [ENTITY], for the respondents AFR BY THE COURT: (ORAL) By way of this application under [SECTION] of the [ACT] [the Act of 1996], the petitioner seeks appointment of an arbitrator to adjudicate upon and decide its dispute with the respondent arising out of, and relating to, the work of "provision of AMN (Ammunition) Dump Military Station, Umroi, Ri-Bhoi District, Meghalaya" under the contract agreement No.CESZ/UMR/12 of 2008-09 dated 18.05.2008.
The petitioner has made this request while stating the facts that the work aforesaid was to be completed within 24 months from the date of its commencement i.e., 06.02.2009, but could not be completed within the stipulated time due to various reasons not attributable to the petitioner including the delay in handing over the site and site plans and delay in supplying the requisite material. It is submitted that the petitioner requested the respondents to grant extension of time explaining the reasons for delay under the letter dated 26.12.2014 but did not receive any response. The case of the petitioner is that upon the respondents failing to pay the final bill, a schedule of claims was submitted to them with a request to settle the matter but again, without any response.
[PRECEDENT] It is submitted that after exhausting all efforts to settle the dispute, the petitioner ultimately sent a letter dated 28.08.2015 to the respondent No.2, the Engineer-in-Chief Head Quarters in terms of the condition 70 of the General Conditions of Contract [IAFW 2249] requesting him to appoint an arbitrator to adjudicate upon the dispute but, the respondent No.2 did not make any effort to appoint the arbitrator. It is further submitted that the aforesaid letter was followed up with another letter dated 01.10.2015, again requesting the Engineer-in-Chief to appoint the arbitrator while indicating that upon his failure to do so, the petitioner would be approaching the appropriate forum for appointment of an arbitrator.
With the aforesaid submissions and while asserting that the respondent No.2, the Engineer-in-Chief has failed to discharge the obligation of appointing the arbitrator, the petitioner filed this application on 03.05.2016; and, on 05.05.2016, learned counsel for the respondents was granted time to complete his instructions.
Thereafter, an affidavit came to be filed on behalf of the respondents with the submissions that under Memo No.13600/EC/578/06/E8 dated 19.05.2016, the Engineer-in-Chiefs Branch, Integrated HQ of MoD (Army), Kashmir House, Rajaji Marg, New Delhi, has appointed a sole arbitrator, being the Chief Engineer in the standing panel of arbitrators, to adjudicate upon the dispute pertaining to the agreement in question. With these submissions, it is contended that in view of the aforesaid appointment of the arbitrator, the instant application under [SECTION] the Act of 1996 is rendered infructuous and deserves no further consideration by the Court.
Having heard learned counsel for the parties and having examined the record with reference to the law applicable, this Court is clearly of the view that while overruling the belated attempt on the part of the Engineer-in-Chief, [PRECEDENT] an independent arbitrator deserves to be appointed to adjudicate upon and decide the dispute between the parties.
It is not a matter of much debate that after the amendment of the Act of 1996 by the [ACT], consideration in this application is confined to the extent, as to whether there exists an arbitration agreement between the parties. In fact, existence of the arbitration agreement in this matter is not in dispute. The arbitration agreement, as contained in clause 70 of the General Conditions of Contract reads as under:-
"70. Arbitration - All disputes, between the parties to the Contract (other than those for which the decision of the C.W.E. or any other person is by the Contract expressed to be final and binding) shall, after written notice by either party to the Contract to the other of them, be referred to the sole arbitration of an Serving Officer having degree in Engineering or equivalent or having passed final/direct final Examination of [SECTION] of Institution of Surveyor (India) recognised by the Govt. of India to be appointed by the authority mentioned in the tender documents.
Unless both parties agree in writing such reference shall not take place until after the completion or alleged completion of the Works or termination or determination of the Contract under Condition Nos. 55, 56 and 57 hereof. Provided that in the event of abandonment of the Works or cancellation of the Contract under Condition Nos. 52, 53 or 54 hereof, such reference shall not take place until alternative arrangements have been finalised by the Government to get the Works completed by or through any other Contractor or Contractors or Agency or Agencies.
Provided always that commencement or continuance of any arbitration proceeding hereunder or otherwise shall not in any manner militate against the Government's right of recovery from the contractor as provided in [SECTION] hereof.
If the Arbitrator so appointed resigns his appointment or vacates his office or is unable to unwilling to act due to any reason whatsoever, the authority appointing him may appoint a new Arbitrator to act in his place. The Arbitrator so appointed resigns his appointment or vacates his office or is unable or unwilling to act due to any reason whatsoever, the authority appointing him may appoint a new Arbitrator to act in his place. The Arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties, asking them to submit to him their statement of the case and pleadings in defence.
The Arbitrator may proceed with the arbitration, ex-parte, if either party, inspite of notice from the Arbitrator fails to take part in the proceedings. The Arbitrator may, from time to time with the consent of the parties, enlarge, the time for making and publishing the award. The Arbitrator shall give his award within a period of six months from the date of his entering on the reference or within the extended time as the case may be on all matters referred to him and shall indicate his findings, along with sums awarded, separately on each individual, item of dispute. The arbitrator shall give reason for the award in each and every case irrespective of the value of claims or counter claims.
[PRECEDENT] The venue of Arbitration shall be such place or places as may by fixed by the Arbitrator in his sole discretion.
The Award of the Arbitrator shall be final and binding on both parties to the Contract."
The only subsidiary question raised by the learned counsel for the respondent is that the appointment of arbitrator by the Chief Engineer as per the terms of agreement renders this application infructuous. It is also submitted that the arbitrator so appointed carries the qualification prescribed by the arbitration agreement and would be competent to deal with the arbitration in this case; and no other arbitrator not having such qualification could be appointed in this matter. These contentions are countered by the learned counsel for the petitioner with the submissions that on 28.08.2015, the petitioner did serve a written notice for appointment of arbitrator under the appointment procedure agreed upon by the parties; and reiterated the request by another notice dated 01.10.2015 and only thereafter, filed the application in this Court on 03.05.2016. According to the learned counsel for the petitioner, the respondent No.2 having failed to make the appointment of arbitrator even until filing of the application in this Court, forfeited his right to make any such appointment; and the appointment subsequently made, after appearance in this application, is of no effect. Learned counsel has referred to the decision of the Honble Supreme Court in [PRECEDENT].
The submissions made on behalf of the respondents in this case remain untenable for the clear scheme of [SECTION] of the Act of 1996. The relevant clauses of amended [SECTION] of the Act of 1996 could be noticed as follows:-
11. Appointment of arbitrators. - (1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
(3) to (4) (5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty [PRECEDENT] days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court.
(6) Where, under an appointment procedure agreed upon by the parties, -
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. (6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.
(6B) (7)
(8) The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of [SECTION], and have due regard to -
(a) any qualifications required for the arbitrator by the agreement of the parties; and
(b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.
In the aforesaid decision in [PRECEDENT], a three-Judge Bench of the Honble Supreme Court, while endorsing the previous decisions in the case of Datar Switchgears Ltd. v. Tata Finance Ltd.:
(2000) 8 SCC 151 and [ENTITY] Ltd. v. [ENTITY] MHB Ltd.: (2006) 2 SCC 638, has explained the law relating to the right of a party to appoint the arbitrator and forfeiture of this right, while holding in no uncertain terms that the appointment of arbitrator by the party during pendency of the proceedings under [SECTION] of the Act of 1996 is of no consequence; and that on failing to appoint the arbitrator within time, the party concerned forfeits its right to appoint the arbitrator. The Honble Supreme Court has held, inter alia, as under:-
"15. In [PRECEDENT], a two-Judge Bench of this Court considered the scheme of [SECTION], noted the distinguishing features between [SECTION] and [SECTION] and then considered the question whether in a case falling under [SECTION], the opposite party [PRECEDENT] cannot appoint an arbitrator after the expiry of thirty days from the date of demand. This court held that in cases arising under [SECTION], if the opposite party has not made an appointment within thirty days of the demand, the right to make appointment is not forfeited but continues, but such an appointment has to be made before the first party makes application under [SECTION] seeking appointment of an arbitrator. If no appointment has been made by the opposite party till application under [SECTION] has been made, the right of the opposite party to make appointment ceases and is forfeited.
16. In [ENTITY] (SCC pp.639-40, para 3), the agreement entered into between the parties contained arbitration clause. The disputes and differences arose between the parties. [ENTITY] (the appellant) served a notice on [ENTITY] (the respondent) demanding appointment of an arbitrator and reference of disputes to him. [ENTITY] failed to act. On expiry of thirty days, [ENTITY] moved the Chief Justice of the High Court for appointment of the arbitrator under [SECTION]. [ENTITY] had not made appointment till the date of moving the application. The designate Judge refused to appoint the arbitrator holding that the remedy available to it was to move in accordance with the agreement. Aggrieved by the said order, a writ petition was filed which was dismissed and the matter reached this Court. A three- Judge Bench of this Court referred to Datar Switchgears and held that the matter was covered squarely by that judgment and the view taken by the designate Judge in dealing with the application under [SECTION] and the Division Bench was not right. This Court restored the application under [SECTION] before the Chief Justice of the High Court for fresh consideration and appointment of the arbitrator in accordance with [SECTION].
17. We are in full agreement with the legal position stated by this Court in Datar Switchgears which has also been followed in [ENTITY].
18. [SECTION] provides that Chief Justice or the designated person or institution, in appointing an arbitrator, shall have due regard to two aspects:
(a) qualifications required of the arbitrator by the agreement of the parties;
and (b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator. In Northern Railway Admn., a three- Judge Bench of this Court considered the scheme of [SECTION]. Insofar as [SECTION] is concerned, this court stated that the appointment of the arbitrator or arbitrators named in the arbitration agreement is not a must, but while making the appointment the twin requirements mentioned therein have to be kept in view.
19. If we apply the legal position exposited by this Court in Datar Switchgears to the admitted facts, it will be seen that the corporation has forfeited its right to appoint the arbitrator. It is so for the reason that on 9-8- 2004, the dealer called upon the corporation to appoint the arbitrator in accordance with the terms of Clause 29 of the agreement but that was not done till the dealer had made application under [SECTION] to the Chief Justice of the Allahabad High Court for appointment of the arbitrator. The appointment was made by the Corporation only during the pendency of the proceedings under [SECTION]. Such appointment by the Corporation after forfeiture of its right is of no consequence and has not disentitled the dealer to seek appointment of the arbitrator by the Chief Justice under [SECTION]. We answer the above questions accordingly.
20. [SECTION] does not help the Corporation at all in the fact situation. Firstly, there is no qualification for the arbitrator prescribed in the agreement. Secondly, to secure the appointment of an independent and impartial arbitrator, it is rather necessary that someone other than an officer [PRECEDENT] of the Corporation is appointed as arbitrator once the Corporation has forfeited its right to appoint the arbitrator under Clause 29 of the agreement."
(underlining supplied for emphasis) It is noticed that since after the aforementioned enunciation by the Supreme Court, various sub-sections of [SECTION] of the Act of 1996 have gone through amendment under the [ACT], whereby, amongst other changes, now: (i) the request for appointment of arbitrator is made to the Court concerned or its designate and not to the Chief Justice concerned or his designate; (ii) the scope of enquiry in such a request is confined the examination of existence of the arbitration agreement [vide sub-section (6A)]; (iii) the procedural requirements of ensuring disclosure by the proposed arbitrator are added in sub-section (8). However, on the aspects that are relevant and material for the present purpose, the scheme of [SECTION] ibid. remains unaltered and remains exactly the same. Hence, the consequence of omission, of a party to appoint the arbitrator under the agreed procedure until filing of the application under [SECTION], shall be invariably governed by the principles in [PRECEDENT] (supra).
In the present case, it remains indisputable that before filing the instant application in this Court, the petitioner indeed made a request for appointment of arbitrator on 28.08.2015 to the respondent No.2 (Annexure- VI) and the request was reiterated on 01.10.2015 (Annexure-VII). For the reasons best known to the respondent No.2, such communications were simply ignored and no appointment was made. That being the position, in view of the decision in [PRECEDENT] case (supra), this Court has no hesitation in holding that had the respondent No.2 made the appointment of arbitrator before filing of this application, such an appointment might not have been disapproved but, the respondent No.2 having failed to do so, his right of making appointment ceased and stood forfeited.
[PRECEDENT] In the totality of circumstances and for the reason of failure of the procedure for appointment of arbitrator, it is just and proper that an independent arbitrator be appointed to adjudicate upon and decide the dispute between the parties including their claims, counter claims and objections.
During the course of submissions, learned counsel for the petitioner Shri [ENTITY] has submitted that he has conferred with Mr. Justice [ENTITY], a former Judge of Gauhati High Court residing at 6th Mile, VIP Road, Radha Nagar, Sai Mandir Road, Near Hill View Apartment, Guwahati- 22, who has expressed willingness to take up the arbitration in this matter without any impediment. Shri [ENTITY], learned CGC concurs with the submissions made by the learned counsel for the petitioner. In view of these submissions ad idem, it appears just and proper to appoint Mr. Justice [ENTITY], a former Judge of Gauhati High Court as the arbitrator in this case.
All the other aspects relating to the cost of proceedings and fees are left to be determined by the Arbitrator while keeping in view the law applicable, including the provisions contained in [SECTION] to the [ACT], [as amended by the [ACT]].
With the observations foregoing, Honble Mr. Justice [ENTITY], a former Judge of Gauhati High Court is appointed to act as the Sole Arbitrator to adjudicate upon and decide all the disputes between the parties including their claims, counter claims and objections relating to the contract in question. The requirements of the [ACT], [as amended by the [ACT]] shall be complied with by all the concerned.
This arbitration petition stands disposed of accordingly.
[PRECEDENT] Needless to observe that all the questions arising between the parties in this matter shall remain open for determination in the arbitration proceedings.
CHIEF JUSTICE [ENTITY] Item No.1