Arbitration Case No.23 of 2008 1 IN THE HIGH COURTOF PUNJAB AND HARYANA, CHANDIGARH. Arbitration Case No.23 of 2008 Date of decision: 6.2.2009 M/s Vijay H.P.Filling Centre ....Petitioner. vs. Hindustan Petroleum Corporation Limited and others ..Respondents CORAM: HON'BLE MR.JUSTICE J.S.KHEHAR. --- Present: Mr.Sandeep Khunger, Advocate, for the petitioner. Mr.Anil Malhotra, Advocate, for the respondents. -- J.S.KHEHAR,J. (Oral) The agreement which is the basis of the claim in the instant arbitration case was executed on 19.6.2004. Clause 66 incorporated in the aforestated agreement is being extracted hereunder for facility of reference:- “ Any dispute or difference of any nature whatsoever or regarding any right, liability,act,omission or account of any of the parties hereto arising out of or in relation to this agreement shall be referred to the sole arbitration of the Managing Director of the Corporation or of some officer of the Corporation who may be nominated by the Managing Director, the dealer will not be entitled to raise any objection to any such Arbitrator on the ground that the Arbitrator is an officer of the Corporation or that he has to deal with the matters to which the contract relates or that in the course of his duties as an officer of the corporation. He had expressed views on all or any of the matters in dispute or difference. In theevent of the Arbitrator to Arbitration Case No.23 of 2008 2 whom the matters is originally referred being transferred or vacating his office or being unable to act for any reason the Managing Director as aforesaid at the time of such transfer, vacation of office or inability to act shall designate another person to act as Arbitrator in accordance with the terms of the agreement such person shall be entitled to proceed with the reference from the point at which it was left by his predecessor. It is also a term of this contract that no person other than the Managing Director or a person nominated by such Managing Director of the Corporation as aforesaid shall act as Arbitrator hereunder. The award of the Arbitrator so appointed shall be final,conclusive and binding on all parties to the agreement subject to the provisions of the Arbitration Act, 1940 or any statutory modification of or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceedings under this clause. The award shall be made in writing within six months after entering upon the reference or within such extended time not exceeding further four months as the sole Arbitrator shall by a writing under his own hands appoint.” On account of disputes having arisen between the petitioner and the respondent, the petitioner claims to have submitted a request dated 19.10.1007, to the respondents to appoint an Arbitrator. Since no action was taken on the aforesaid request, the petitioner issued a legal notice dated 19.12.2007. Yet again, it is the contention of the learned counsel for the petitioner, that inaction at the hands of the respondents to appoint an Arbitrator led to the filing of the instant arbitration case on 30.1.2008. Consequent upon the issuance of notice to the respondents on 1.2.2008 and 7.4.2008, the respondents entered appearance, and filed a joint written statement. In paragraph 3 of the preliminary submissions,it was Arbitration Case No.23 of 2008 3 averred that the respondents had appointed an Arbitrator under clause 66 extracted hereinabove , by a letter dated 24.3.2008. The solitary issue that needs to be adjudicated upon for the disposal of the present arbitration case is; whether the appointment of the Arbitrator by the respondents through the letter dated 24.3.2008, renders the instant arbitration case infructuous; or whether the respondents had lost their authority to appoint an Arbitrator in terms of clause 66 of the agreement dated 19.6.2004. The stances adopted by the learned counsel for the parties are diagonally averse. Whilst it is the contention of the learned counsel for the petitioner, that the authority to appoint an Arbitrator was lost by the respondents when the petitioner approached this Court on 30.1.2008 after waiting for a period of more than one month (to be counted from the date when the legal notice dated 19.3.2007 was issued). The contention of the learned counsel for the respondents however is, that the delay in appointing an Arbitrator was not intentional, and therefore, could not be treated as the basis of negating the very right of the petitioner to appoint an Arbitrator. In this behalf, learned counsel for the respondents has placed reliance on facts disclosed in paragraph 3 of the preliminary objections. The relevant facts brought to the notice of this Court are being extracted hereunder:- “The delay in the fore said appointment of Arbitrator took place due to a change in procedure for Appointment of Arbitrator by the Corporation. As per the earlier practice, only serving officers of the Corporation were appointed as Arbitrator. Now, as per the revised policy, retired officers of the Corporation can also be appointed as Arbitrators. There was a proposal to appoint a retired officer of the Corporation Arbitration Case No.23 of 2008 4 as an Arbitrator in the present case. However, the requisite consent of petitioner to appoint the retired officer as Arbitrator could not be obtained. Consequently, there was a delay in appointing serving officer of the Corporation as an Arbitrator in the present case. This has been done now as per the Dealership Agreement between parties and written request of the petitioner. In this process, the statutory period of thirty days for appointment of an Arbitrator could not be adhered to. It is respectfully submitted that in view of these circumstances this Honourable Court may kindly consider the request of answering respondent in sustaining the request for appointment of serving officer as an Arbitrator in the present case.” It is also the vehement contention of the learned counsel for the respondents, that the respondents could not be deemed to have lost their right to nominate an Arbitrator in view of the latest judgment rendered by the Supreme Court on the issue under reference. In view of the above, the first issue that arises for the consideration of this Court is, whether or not the respondents had lost their right to nominate an Arbitrator, in the facts and circumstances of the present case. So as to canvass the aforesaid legal proposition, learned counsel for the petitioner has invited this Court's attention first of all to the decision rendered by the Apex Court in Datar Switchgears Ltd. v. Tata Finance Limited, 2001(1)R.C.R.(Civil) 267. Learned counsel has invited this Court's attention to the observations recorded in paragraph 19 of the judgment. Paragraph 19 of the judgment is accordingly extracted hereunder:- “ So far as cases falling under Section 11(6) are concerned- Arbitration Case No.23 of 2008 5 such as the one before us-no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the Court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited”. Besides the aforesaid, learned counsel for the petitioner also invited this Court's attention to the judgment rendered by the Apex Court in Union of India v. M/s Bharat Battery Manufacturing Co.(P) Ltd. 2007(3) R.C.R. (Civil)858. From the instant judgment, learned counsel for the petitioner has invited this Court's attention to the observations recorded by the Court in paragraph 15. Paragraph 15 from the aforesaid judgment is being extracted hereunder:- “ As already noticed, the respondent filed Section 11(6) petition on 30.3.2006 seeking appointment of an arbitrator. The appellant, thereafter, said to have appointed one Dr.Gita Rawat on 15.5.2006 as a sole arbitrator, purportedly in terms of Arbitration Case No.23 of 2008 6 Clause 24 of the agreement. Once a party files an application under Section 11(6) of the Act, the other party extinguishes its right to appoint an arbitrator in terms of the clause of the agreement thereafter. The right to appoint arbitrator under the clause of agreement ceases after Section 11(6) petition has been filed by the other party before the Court seeking appointment of an arbitrator”. It is also the contention of the learned counsel for the petitioner, that the same issue also came up for consideration before a Division Bench of three Hon'ble Judges of the Supreme Court in Punj Lloyd Ltd. V Petronet MHB Ltd. 2006(1) Arbitration Law Reporter 528. It is the submission of the learned counsel for the petitioner, that the judgment in Datar Switchgears Ltd.'s case (supra) was followed in Punj Lloyd Ltd.'s case (supra) , as well.A collective analysis of the decisions relied upon by the learned counsel for the petitioner undoubtedly leads to the conclusion that a party having sought the appointment of an Arbitrator may approach a Court of competent jurisdiction on the expiry of 30 days. The authority to appoint an Arbitrator in terms of the contract executed between the rival parties subsists till a period of 30 days, and further, till such time as the concerned party does not approach a Court of competent jurisdiction for appointment of an Arbitrator. However, once the party concerned approaches High Court under Section 11 of the Arbitration and Conciliation Act,1996, the concerned party in terms of the contract executed between the parties ceases to have the authority to nominate an Arbitrator. Learned counsel for the respondents has also invited this Court's attention to judgments rendered by the Supreme Court to negate the submission advanced by the learned counsel for the petitioner. In this Arbitration Case No.23 of 2008 7 behalf, learned counsel for the respondents in the first instance invited this Court's attention to the judgment rendered by the Supreme Court in Ace Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corporation Ltd. (2007) 5 SCC 304. It would be pertinent to mention that in the instant judgment the Supreme Court examined all the judgments relied upon by the learned counsel for the petitioner, and thereupon, recorded its conclusion in paragraph 11. Paragraph 11 is being extracted hereunder:- “ The observations made by their Lordships are very clear and their Lordships negatived the contention that 30 days should not (sic) be read in sub-section (6) of Section 11 of the Act; if the opposite party has not made an an appointment within 30 days of demand, the right to make appointment is not forfeited but continues. Their Lordships in para 20 have also very categorically held that in the present case the respondent made the appointment before the appellant filed the application under Section 11(6), though it was beyond 30 days from the date of demand, the appointment of the arbitrator by the respondent was valid and it cannot be said that the right was forfeited after expiry of 30 days from the date of demand. Their Lordships were also very clear in their mind in para 21 and observed: (Data Switchgears Ltd. Cases, SCC p.158) “21. We need not decide whether for purposes of sub- sections (4) and (5) of Section 11, which expressly prescribe 30 days, the period of 30 days is mandatory or not”. We are only concerned with reading of 30 days within sub- section (6) of Section 11. So far as the period of 30 days with regard to Section 11(6) is concerned, there is no manner of doubt that their Lordships had not invoked 30 days as mandatory period under Section 11(6) and beyond that it cannot be invoked by the appointing authority. Therefore, it is Arbitration Case No.23 of 2008 8 totally a misnomer to read 30 days in section 11(6) of the Act, though Shri Sorabjee, learned Senior Counsel appearing for the appellant tried to emphasise that the decision in Datar Switchgears Ltd.'s case (supra) has been affirmed by a three- Judge Bench and therefore, that 30 days should be read in Section 11(6) of the Act is also not correct”. In spite of the submission advanced by the learned counsel for the respondents, that a view different to the one adopted by the Supreme Court (in the judgments relied upon by the learned counsel for the petitioner) had been taken in ACE Pipeline Contracts (P) Ltd.'s case (supra), it is not possible for me to concur with the submission of the learned counsel for the respondents. I am satisfied from a plain reading of the conclusions drawn hereinabiove, that the earlier judgments rendered by the Supreme Court (referred to by the learned counsel for the petitioner) were duly followed, and no divergent view was taken by the Apex Court. Finally, the attention of this Court was invited by the learned counsel for the respondents to the decision rendered by the Apex Court in Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company Ltd., 2008(10) SCC 240. Although the judgment was extensively read by the learned counsel for the respondents during the hearing of the present case, yet in spite of specific queries made by the Bench learned counsel for the respondent could not invite the Court's attention to any observation wherein a conclusion contrary to the one recorded in the judgments relied upon by the learned counsel for the petitioner, had been taken. Cumulatively on the basis of the judgments relied upon by the Arbitration Case No.23 of 2008 9 learned counsel for the petitioner, as also the learned counsel for the respondents, I am of the view that the declared proposition of law on the issue in hand continues to be the one expressed by the Apex Court in Datar Switchgears Ltd.'s case (supra). Having recorded the aforesaid conclusion, it is natural to further conclude, that the appointment of an Arbitrator at the hands of the respondents (with the issuance of the letter dated 24.3.2008), was not in consonance with the law laid down by the Supreme Court. In the aforesaid circumstances, it is imperative for this Court to appoint an Arbitrator to determine the issues raised by the petitioner. Accordingly, Shri P.C.Singhal retired District and Sessions Judge (from the Superior Judicial Service of the State of Punjab) is appointed an Arbitrator. The Arbitrator shall determine his own fee and other terms. The Registry of this Court shall furnish a copy of this order to the Arbitrator appointed. ( J.S.Khehar ) Judge February 6, 2009 rk