FAO No. 2530 of 2009 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH -- FAO No. 2530 of 2009 (O&M) Date of decision: August 4th, 2009 DHBVN and others ........ Appellants Versus M/s Contimeters Electricals Pvt. Ltd. And others .......Respondent(s) Coram: Hon'ble Ms Justice Nirmaljit Kaur -.- Present: Mr. Narender Hooda, Advocate for the appellants Mr. Puneet Bali, Advocate for respondent No. 1 -.- 1. Whether Reporters of local papers may be allowed to see the judgement? 2. To be referred to the Reporter or not? 3. Whether the judgement should be reported in the Digest? Nirmaljit Kaur, J. Facts of the case, in brief, are that the appellant Nigam issued tenders on 29.08.2000, inviting bids for consolidated supply of 3 Phase Static Energy Meters and Single Phase Static Energy Meters with meter box. In due course, bid offered by respondent No. 1, was accepted and Letter of Intent was issued on 14.02.2001. Thereafter, a dispute arose between the parties, which was referred to the Arbitrator, for decision, vide office order dated 21.11.2002 and the Director/Projects, DHVNL, Vidyut Sadan, Hissar was appointed as Arbitrator, for FAO No. 2530 of 2009 (O&M) 2 settlement of the dispute. Shri R S Malik, who was the then Director/Project, entered upon the reference and consequent upon his retirement, his successor Ms. Chanda Saini, respondent No. 2, took over the charge of office of the Director/Projects and she issued notices to the parties, for further proceedings in the arbitration matter. After considering the documents and pleadings of the parties, the Arbitrator has arrived at the following conclusion vide award dated 05.11.2003:- “After considering the aforesaid documents and pleadings in their claim petition and notice of the firm, I arrived at a conclusion that the petitioner firm is liable to pay to the respondents as under: (i) D.H.B.V.N.L. Amount paid in excess Rs.16,54,159.64 (ii) U.H.B.V.N.L. Amount paid in excess to the firm Rs.52,83,990.00 As regards interest, I have considered the authorities cited in (AIR 1984 J&K 48) (AIR 1979 Pb. And Hr.-179 FB) (1975 PLJ 42). In the electricity board and the successor companies, the normal rate of interest has been 19%. So,l in view of the situation the reasonable rate of interest should be 18% per annum. Petitioner firm is also liable to pay interest @ 18% per annum from the date of award to the date of payment by the firm.” Dissatisfied with the aforesaid award, the respondent-firm, challenged the same by filing a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter to be refer 'the 1996 Act') before the Additional District Judge, Panchkula, who allowed the petition and set aside the Award dated 05.11.2003 with liberty to the parties to have an Arbitrator FAO No. 2530 of 2009 (O&M) 3 appointed in accordance with law, vide order dated 13.02.2009. The aforesaid petition was allowed only on the ground that the Arbitrator was not appointed by the Chairman,himself, but was appointed by the Chief Engineer, DHBVNL, Hisar with the approval of the Managing Director, DHBVNL, Hisar. The Chief Engineer was not competent to appoint an Arbitrator and Ms Chanda Saini, could not have suo motu taken over the arbitration proceedings, since she was never appointed as an Arbitrator, in accordance with the terms of the Contract. While challenging the order dated 13.02.2009 passed by the Additional District Judge, Panchkula, learned counsel for the appellants raised the following arguments:- i) That the learned Trial Court has grossly erred in not appreciating the facts that the appointment of Arbitrator in the case was made through designation and not by name vide office order dated 21.11.2002. Accordingly, the then Arbitrator-cum-Director/Projects Shri R K Malik started the arbitration proceedings between the parties. However, Shri R S Malik, retired from the Nigam service on 31.03.2003 and, thereafter, Smt. Chanda Saini took over the charge of Director/Projects as well as Arbitrator and continued with the arbitration proceedings after duly intimating respondent No. 1. ii) That the appointment of predecessor of respondent No. 2, was never challenged by respondent No. 1 on her appointment as Arbitrator. Immediately, after the retirement of Shri R S Malik, his successor Smt. Chanda Saini, Director/Project, FAO No. 2530 of 2009 (O&M) 4 DHBVNL. Hisar, issued a notification in this regard which was available on the record and fixed the date of hearing for 29.04.2003. While meeting the first arguments raised by learned counsel for the appellants, that Shri R S Malik, was appointed as Arbitrator by designation and not by name and subsequently Ms Chanda Saini, having joined as Director/Project, rightly started the arbitration proceedings and, therefore, the Award cannot be set aside simply on this ground alone, learned counsel for respondent No. 1 referred to the judgement of the Apex Court rendered in the case of 'Construction of India etc. v. Secretary, Works Department, Govt. Of Orissa and others', 1998(1) Arbitration Law Reporter-127. In this case while deciding the legal proposition as to whether the Arbitrator has jurisdiction to continue with the arbitration proceedings even after demotion of his office, wherein it was held:- “6. The order of appointment clearly shows that the appointment of Shri G S Patnaik, Chairman of the Orissa Arbitration Tribunal, is of a named arbitrator. The order of appointment does not qualify this appointment either by prescribing that he can act as an Chairman of the Orissa Arbitration Tribunal; nor is there any implication to this effect in the sub Court's order. The reference to arbitration is also not to the Orissa Arbitration Tribunal. This would require three members constituting the Tribunal to sit together. Therefore, it is difficult to hold that the arbitrator, who was named was to act as an arbitrator only so long as he held the office of the Chairman of the Orissa Arbitration Tribunal. The parties may FAO No. 2530 of 2009 (O&M) 5 choose an arbitrator for various reasons. They may rely on his expertise or his special skills at the time when they choose the arbitrator. According to the respondents, they agreed to the name because there were departmental instructions to refer disputes to the arbitration of any member of the Orissa Arbitration Tribunal. But when the arbitrator is named, unless there is a clear intention spelt out in the agreement of reference to indicate that he would continue to be an arbitrator only so long as he holds a particular office, a mere reference to the office held by the arbitrator will not disqualify him from being an arbitrator after he ceases to hold that office. The arbitrator, therefore, had jurisdiction to give the awards.” While referring to the aforesaid observation, learned counsel for the respondent-firm submitted that once an Arbitrator is appointed, he should continue even after his retirement, whereas in the present case, the award is without jurisdiction either ways. If Mr. R S Malik, is held to be appointed by name, then he should have been allowed to continue. In case, he is held to be by designation, his appointment is bad in law and cannot be sustained as laid down in the judgement of Delhi High Court in the case of 'K C Goyal v. D D A and others', 2001(2) Arbitration Law Reporter-564, wherein, it was held that an appointment of Arbitrator by way of designation is not in accordance with law. Be that as it may, the main issue in the present case is, whether Shri R S Malik, appointed as an Arbitrator by designation or not, was in accordance with law, and subsequently whether Ms Chanda Saini, who assumed the power of the Arbitrator, was appointed as Arbitrator as per law or not. Learned counsel for respondent No. 1 referred to Clause 24 of FAO No. 2530 of 2009 (O&M) 6 Schedule-D of the contract entered into between the parties. The Arbitrator should have been appointed by the Chairman, himself whereas in the present case, the Arbitrator, admittedly, was appointed by the Chief Engineer, DHBVNL and Ms Chanda Saini having further continued as such on her own, after the retirement of the earlier Director/Projects, namely, Shri R S Malik, was in utter violation of the Clause 24 of Schedule-D of the Contract. Clause 24 of Schedule D of the Contract is being reproduced hereunder for facility of reference::- “ 24. Arbitration : All matter questions, disputes, differences and/ or claims arising out of and/or claims arising out of and/or concerning and/or in connection and/or in consequences or relating to this contract whether or not obligations of either or both parties under this contract be subsisting at the time of such dispute and whether or not tis contract has been terminated or purported to be terminated or completed, shall be referred to the Sole Arbitration of the Chairman or an officer appointed by the Chairman as his nominee. The Award of the Arbitrator shall be final and binding on this parties to this Contract.” A copy of the office order No. 68/SEW-12/DH-64/P-II/Xen(M) dated 21.11.2002, whereby the Director/Projects, DHBVN, Vidyut Sadan, Hisar was appointed as an Arbitrator by the Chief Engineer, is placed on record as EX PR20. It is evident from the aforesaid document that the Chief Engineer was not competent to appoint an Arbitrator. Either the Chairman, himself, should have acted as a Sole Arbitrator or appointed any other Officer as a nominee in his place. Admittedly, in the present case, the Arbitrator was never appointed by the FAO No. 2530 of 2009 (O&M) 7 Chairman. Learned counsel for the appellants, while raising his second argument stated that the appointment of Ms Chanda Saini-respondent No. 2 was never challenged, respondent-firm duly replied to her notices and, therefore, the respondent-firm cannot raise this issue at this belated stage. This is factually in correct. Attention was drawn by learned counsel for the respondent-firm to para 40 (c) and (w) of the petition under Section 34 of the 1996 Act, to show that the appointment of Ms Chanda Saini as an Arbitrator was duly challenged. The same read as follows:- “40(c). That as per the impugned Award, the learned Arbitrator was never appointed as Arbitrator, as per law, and she herself took over the charge and started conducting the arbitration proceedings, which was illegal and against the norms of principles of natural justice and also against norms of Arbitration and Conciliation Act. As per the own version of the learned Arbitrator, her predecessor-Director/ Projects started the proceedings and after his retirement, she tool the charge as Director (Projects) and started conducting the proceedings and finally passed the ex-parte orders. 40(w). Further, the appointment of Respondent No. 6 as an Arbitrator was not in accordance with the Agreement between the petitioner and respondent No. 1 as all the documents, including the arbitration Agreement and the petitioner was not given an ample opportunity to choose the Arbitrator of his choice in order to submit the dispute to Arbitration.” FAO No. 2530 of 2009 (O&M) 8 Moreover, respondent No. 1 challenged the ex parte award before this Court in CWP No. 20350 of 2003 and one of the grounds of challenge was with respect to the jurisdiction of the Arbitrator. However, the aforesaid writ petition was dismissed with liberty to seek redressal of its grievance by way of a petition under Section 34 of the Act, on the grounds enumerated therein. Hence, the learned counsel for the appellants cannot say that the appointment of Ms Chanda Saini, respondent No. 2 as an Arbitrator was never challenged. Even otherwise, there is no estoppel against the statute. A reference is required to be made to Clause 34(2)(v) of the 1996 Act, which reads as follows:- 34. Application for setting aside arbitral Award- (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub section (2) and sub section (3). (2) An arbitral award may be set aside by the Court only if- (a) the party making the application furnishes proof that- (i) to (iv) xx xx xx xx. (v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) xx xx xx xx” It has already been mentioned above that Clause 24 of Schedule D of the Contract, has specified the composition of the arbitral tribunal. The procedure for FAO No. 2530 of 2009 (O&M) 9 the appointment of the Arbitrator has been duly provided in Clause 24 of schedule D of the Contract, which requires the appointment of the sole Arbitrator to be the Chairman, himself, or his nominee. Since in the present case, the Arbitrator has not been appointed by the Chairman,himself, the award is liable to be set aside and there is no estoppel against the statue. The argument of learned counsel for the appellant that respondent firm had accepted the appointment of the Arbitrator-respondent No. 2, as it had replied to her notices, is neither here nor there and cannot be considered as a consent to the appointment of Arbitrator. Admittedly, respondent-firm had not joined the arbitration proceedings, thereafter. Learned counsel for the appellants has also tried to take advantage from the written statement, wherein it was mentioned that the earlier Director Shri R S Malik was appointed by the Chairman. Fact remains that the appointment of Shri R S Malik, as an Arbitrator was on behalf of the Chief Engineer and not by the Chairman. It is evident from the office order EX PR20. This has not been denied by learned counsel for the appellants. From the pleadings and the arguments of learned counsel for the parties, it is apparent that neither was the earlier Arbitrator (Shri R S Malik), nor Ms Chanda Saini, who took over the charge of Director after the retirement of Shri R S Malik, was appointed by the appropriate authority. In fact, Ms Chanda Saini, was appointed by none and she suo motu assumed the power of the Arbitrator. The appointment of Ms Chanda Saini, as an Arbitrator is also bad in law, in view of the fact that the appointment of the Arbitrator is a matter of an agreement arrived at between the parties. It is not possible for one of the parties FAO No. 2530 of 2009 (O&M) 10 to the arbitration to change the arbitrator. In the present case, respondent No. 2 suo motu assumed the power of the Arbitrator. As per Clause 24 of schedule D of the Contract, the Chairman was required to nominate an Officer to act as an Arbitrator on his behalf. The same having not been done, the Arbitrator, in the present case, had no jurisdiction to adjudicate upon the dispute. The award in the present has been made by a person, who is not legally appointed. Needless to say that the appointment of the Arbitrator was in violation of the terms and conditions of the agreement. The entire proceedings stand vitiated on account of that and the award, therefore, cannot sustain in the eyes of law. The arbitration proceedings require to be construed strictly and any defect in the appointment of the arbitrator would vitiate the arbitration proceedings. The arbitrator, in the present case, had no legal authority to proceed with the matter. In view of the discussion made above, there is no merit in the appeal and the same is accordingly dismissed. (Nirmaljit Kaur) Judge August 4th, 2009 mohan Whether to be referred to the Reporter : Yes/No