IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Arb. Case No.37 of 2009 Date of decision: 18.05.2011 The Hisar Model Town Azad Co-operative …..Petitioner Labour & Construction Society Limited vs. The State of Haryana and others …..Respondents CORAM: - HON’BLE MR. JUSTICE HEMANT GUPTA Present: - M/s P.S.Rana and John Kumar, Advocates, for the petitioner. Mr. Pradeep Singh Poonia, Addl. AG, Haryana, for the respondents. HEMANT GUPTA, J. This is a petition for appointment of an Arbitrator to adjudicate the disputes between the parties arising out of contract work of “Upgradation of Rural Roads under MORD/PMOSY Scheme” as per Agreement No.13 of 2001-2001 executed with Executive engineer, Provincial Division, PWD B&R, Hissar. The brief background out of which the present petition arises is that the petitioner was allotted contract vide letter dated 21.06.2001. The approximate cost of the said work was Rs.454 lacs with a time limit of 9 months to complete the work allotted. The petitioner completed the work on 31.03.2003 i.e. within extended period to complete work. The petitioner sought payment of the final bills of the work done. The petitioner was paid a sum of Rs.20,70,000/-on 11.10.2004. The Arb. Case No. 37 of 2009 security amounting to Rs.20,93,171/- was also paid on 07.12.2004 though the same was to be released on 30.06.2003. The petitioner claimed that certain payments are still due and payable to it. It was on 08.06.2006, the petitioner sought appointment of an Arbitrator to settle the disputes in respect of entitlement of the petitioner for the payments now claimed as per the terms and conditions of the Agreement. The petitioner served a legal notice on 09.04.2007 for appointment of an Arbitrator under Section 11 of the Arbitration & Conciliation Act, 1996 (for short ‘the Act’) as the Arbitrator was not appointed even though notice was received by the respondents. The petitioner filed the present petition on 25.08.2008 when arbitrator was still not appointed. In reply filed on behalf of the respondents, it is inter alia pleaded that the final payment was made to the petitioner on 11.10.2004, whereas the request for appointment of an Arbitrator has been made beyond the time limit provided in under sub-clause 9 of Clause 25-A of the Contract Agreement. Therefore, the petitioner has forfeited its right to seek adjudication of disputes by an Arbitrator. It is also pleaded that the petitioner has not deposited the security as required by sub-clause 7 of Clause 25-A of the Agreement, therefore, the present petition is not maintainable. I have heard learned counsel for the parties, but find that the argument raised by the learned counsel for the respondents that the petitioner has not sought appointment of an Arbitrator within a period of six months of payment of final bill in terms of the contract agreement between parties, therefore, the right of the petitioner to seek appointment of an Arbitrator stands forfeited is not tenable after Section 28 of the Contract 2 Arb. Case No. 37 of 2009 was amended vide Indian Parliament Act No.1 of 1997, notified on 08.01.1997. This Court has the occasion to consider such amendment carried out in Section 28 of the Contract Act in Arbitration Case No.124 of 2010 titled ‘Sunil Goyal Vs. Haryana State Agriculture Marketing Board & others ’ (decided on 06.04.2011). It has been held that neither the right nor the remedy is extinguished by such a clause in the agreement. In the present case, the contract between the parties was executed in the year 2001 i.e. much after Section 28 of the Act was modified. In view of the judgment of this court, the amended Section 28 would be applicable to the facts of the present case and the extinguishment of right contemplated by Clause 25-A of the Agreement is not a valid clause. Therefore, the petitioner does not forfeit its right to seek resolution of dispute by an arbitrator only because it has not sought to dispute the payment of final bill within six months. The learned counsel for the respondent raised another argument that if the bar of six months in terms of the agreement is not applicable but still, the petitioner can seek resolution of dispute through an arbitrator only if an application to seek appointment of an arbitrator is filed within three years from the day, the cause of arbitration arises. It is contended that the final payment was made to the petitioner on 11.10.2004, therefore, the right to dispute the final payment or to claim any other amount arises on that day. The petitioner could initiate legal action for adjudication of disputes within the period of limitation from the date cause of action arises i.e. within three years from 11.10.2004 in terms of Article 137 of the schedule to the Limitation Act, 1963, therefore, the present petition filed on 25.8.2008 is beyond the period fixed for filing of such petitions. 3 Arb. Case No. 37 of 2009 Learned counsel for the petitioner vehemently argued that in terms of Section 21 of the Act, the arbitral proceedings commences, when the notice requesting the reference of dispute to an Arbitrator is received by the respondent. It is contended that the notices dated 08.06.2006 and 09.04.2007 seeking appointment of arbitrators served on the respondents, are within the period of limitation i.e. 3 years from the date cause of arbitration arose to the petitioner, therefore, the present petition for appointment of an Arbitrator filed on 25.08.2008 is within the period of limitation. It is contended that once arbitration proceedings have commenced in terms of Section 21 of the Act, the petitioner can seek appointment of an Arbitrator from this court under section 11 of the Act at any point of time. Learned counsel for the petitioner relies upon judgment of this court in M/s Kartar Singh & Co. Vs. Punjab State Electricity Board and others 2007 (3) RCR (Civil) 205 and Prasar Bharti Vs. Maa Communication and etc. AIR 2011 Delhi 26. On the other hand, learned counsel for the respondents has argued that deemed fiction of commencement of arbitral proceedings contemplated under Section 21 of the Act is primarily to determine the applicability of the Arbitration & Conciliation Act, 1996 or the Arbitration Act, 1940 or for other ancillary purposes such as to determine when the lis commences to apply the doctrine of lis pendence in respect of subject matter of dispute. It is relevant only when arbitration proceedings are initiated and concluded without intervention of court. But, in cases where parties fail to appoint an arbitrator, the aggrieved party can seek intervention of the court within period of limitation, which has started running, on the day the cause of action has arisen. It is contended that in the event of non appointment of an Arbitrator even after serving of notice, the aggrieved party has to 4 Arb. Case No. 37 of 2009 approach Court within three years of the date of accrual of cause of arbitration. However, such party may be entitled to exclude the period required to serve statutory notice in terms of Section 15(2) of the Limitation Act, 1963. It is contended that to determine the period of limitation, there cannot be two starting points for start of the cause of action i.e. on accrual of cause of action i.e. final payment and another on account of respondent failing to appoint an Arbitrator. It is contended that the limitation period cannot be uncertain, therefore, the petition filed before this Court on 25.08.2008 is beyond the period of limitation from the date cause of action or arbitration arose to the petitioner. Having heard learned counsel for the parties for some time, I find that following question arise for consideration: 1. Whether Section 11 of the Act corresponds to the provisions of Section 8 and 20 of the Arbitration Act, 1940? 2. Whether there is any period of limitation to seek intervention of the court after the arbitration proceeding commenced in terms of Section 21 of the Act? 3. Whether, the cause of arbitration arises to seek appointment of an arbitrator from the date claim of the aggrieved party is denied or when the other party fails to appoint an arbitrator? Question No.1 To determine the above said question as well as the relevancy of the provisions of the Arbitration Act, 1940 (for short ‘1940 Act’) while interpreting the provisions of the Act, the relevant extract of the two statues need to be examined, i.e.: Arbitration Act, 1940 Arbitration & Conciliation Act, 1996 5 Arb. Case No. 37 of 2009 8. Power of Court to appoint arbitrator or umpire: -(1) In any of the following cases: - (a) where an arbitration agreement provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties, and all the parties do not, after differences have arisen, concur in the appointment or appointments; or (b) If any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied and the parties or the arbitrators, as the case may be, do not supply the vacancy; or (c) Where the parties or the arbitrators are required to appoint an umpire and do not appoint him; Any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy. (2) If the appointment is not made within fifteen clear days from the service of the said notice, the Court may, on the application of the party who gave the notice and after giving the other parties an opportunity of being herd, appoint an arbitrator or arbitrators or umpire, as the case may be who shall have like power to act in the reference and to make an award as if he or they had been appointed by consent of all parties. 20. Application to file in Court arbitration agreement: - (1) Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject-matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter of which the agreement relates that the agreement be filed in Court. 11. Appointment of Arbitrators xxx xxx xxx 4. If the appointment procedure in sub- section (3) applies and- (a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or (b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him. 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 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 Chief Justice or any person or institution designated by him. 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 Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. xxx xxx xxx 6 Arb. Case No. 37 of 2009 The provisions or the judgments interpreting the 1940 Act are not helpful in interpretation of the provisions of the Act. Hon’ble Supreme Court in Sundaram Finance Ltd. Vs. NEPC India Ltd. (1999) 2 SCC 479, Firm Ashok Traders v. Gurumukh Das Saluja, (2004) 3 SCC 155 and in Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. (2005) 7 SCC 234 has held that the provisions of Act are required to be examined independent of the provisions of the old Act. In Sundaram Finance Ltd. case (supra), the Hon’ble Supreme Court held to the following effect: “9. The 1996 Act is very different from the Arbitration Act, 1940. The provisions of this Act have, therefore, to be interpreted and construed independently and in fact reference to the 1940 Act may actually lead to misconstruction. In other words, the provisions of the 1996 Act have to be interpreted being uninfluenced by the principles underlying the 1940 Act. In order to get help in construing these provisions, it is more relevant to refer to the UNCITRAL Model Law rather than the 1940 Act.” In Firm Ashok Traders case (supra), the Hon’ble Supreme Court held that: “13. The A&C Act, 1996 is a long leap in the direction of alternate dispute resolution systems. It is based on UNCITRAL Model. The decided cases under the preceding Act of 1940 have to be applied with caution for determining the issues arising for decision under the new Act.” Thus, the provisions of the Act are required to be examined keeping in view UNCITRAL model or the judgments considering the same or similar provisions contained in other statutes. In Prasar Bharti’s case (supra), the petitioners approached the Director General, Doordarshan for appointment of an Arbitrator vide notice dated 03.05.2003, but the Arbitrator was not appointed till January 2005, when an application under Section 11(6) was filed before the Court. The 7 Arb. Case No. 37 of 2009 question whether the claim is within the period of limitation was left to the Arbitrator for decision, as it was held that without further investigations, it cannot be said that the claims are long dead. But the Division Bench also held that Section 8 of Arbitration Act, 1940 is analogous to Section 11 of the Arbitration and Conciliation Act, 1996. I am unable to persuade myself to follow the said finding. In Union of India Vs. Shri Om Prakash, AIR 1976 SC 1745, the Hon’ble Supreme Court considered the scope of Sections 8 and 20 of the Arbitration Act, 1940. It was held that Section 8 does not contain any provision empowering the Court to make an order of reference to arbitration as is contained in sub-section 4 of Section 20. It was held that the Court had no jurisdiction after appointing any Arbitrator under Section 8(2) of the Arbitration Act, 1940 to proceed further to make an order referring the disputes to the Arbitrator. Such findings were necessitated on account of seven applications filed by the Contractor before the Civil Judge under Section 8(2) of the Act stating that the offices by reference to which the Arbitrators were selected in the agreements have been abolished; therefore, it is necessary to appoint new Arbitrators. Certain Arbitrators were named and the Court appointed an Arbitrator, who was not in the list submitted by the contractor. Such Arbitrator was given two months’ time to give his award. Subsequently, the said Arbitrator returned the papers. The Small Cause Court appointed Director of Farms, General Headquarters, Simla to act as an Arbitrator with further direction to file his award within one month. The contractor did not participate in the proceedings before such Arbitrator, but the Arbitrator gave his award in respect of which Union of India moved an application for making such award as rule of the Court. The learned trial Court made award as rule of the Court, but the High Court 8 Arb. Case No. 37 of 2009 allowed the appeals holding that the Court was functus officio after appointing the arbitrator under Section 8(2) and had no jurisdiction to refer the cases to the arbitrator. The Court held that it was for the parties to refer their disputes to Arbitrator after he was appointed by the court and the reference by the court was without jurisdiction and, thus, the awards were invalid. It is the said view, which has been affirmed by the Hon’ble Supreme Court. In M/s Harbans Singh Tuli and sons Builders Private Limited Vs. Union of India (1992) 2 Supreme Court Cases 25, the Hon’ble Supreme Court considered the aforesaid judgment in Om Parkash’s case (supra) and found that Section 8 provides a simple machinery for appointment of an Arbitrator as is seen from sub-section 1(a) or for supplying the vacancy under sub-section 1(b). The Court held that: “21. Sub-section (1) (a) would apply to a case of initial appointment of an arbitrator or arbitrators. The implication is in the arbitration agreement, the arbitrator or arbitrators must not have been named. Where, therefore, they are named, this section will have no application. Similarly, the arbitrator or arbitrators are required to be appointed by all parties to the reference with consent. On the contrary, if there is some other mode of appointment, for example, Section 4, where the parties to the agreement agree that the arbitrator has to be appointed by a person designated in the agreement either by name or hold, for the time being in office, certainly, this section will not apply. It has also been held by this Court in Chander Bhan Harbhajan Lal vs. State of Punjab AIR 1977 SC 1210 that even in cases where by agreement between the parties, one of them alone is given power to make the appointment without consulting others, this sub-section would apply.” In view of the said judgment, the following conditions are necessary before the proceedings under Section 8 of 1940 Act could be initiated: (i) The Arbitrator or Arbitrators must not have been named in the arbitration agreement. (ii) The Arbitrator or Arbitrators are required to be appointed by all parties to the reference with consent. 9 Arb. Case No. 37 of 2009 (iii) Section 4 of the Act would be applicable where the parties to the agreement agree that the arbitrator has to be appointed by a person designated in the agreement either by name or holding office for the time being. (iv) If the agreement between the parties gives power to appoint to one of the party, then such party alone can appoint without consulting the others, such appointment would be part of sub-section 1 (a) of Section 8. (v) Sub-section 1 (b) deals with the situation when vacancy arises in any of the contingencies mentioned. Since the present case does not pertain to filling up of vacancy, reference to such part is not required. In Dharma Prathishthanam Vs. Madhok Construction (P) Ltd. (2005) 9 Supreme Court Cases 686, the Hon’ble Supreme Court has reviewed the scope of Sections 8 & 9 falling in Chapter II and Section 20 falling in Chapter III of 1940 Act. The issue was whether the contractor could unilaterally appoint an Arbitrator without the consent of the employer. The Court quoted with approval judgment of Allahabad High Court in Om Prakash Vs. Union of India AIR 1963 All 242 and that of Madras High Court in Union of India Vs. Mangaldas N. Verma AIR 1958 Mad 296, that a reference to arbitrator out of court has to be by consent of both the parties. If the parties or either of them was not consented, they must approach to the court by making an application in writing. It was held to the following effect: “25. Failure to give consent or to appoint an arbitrator in response to a notice for appointment of an arbitrator given by the other party provides justification to the other party for taking action under sub-section(2) of Section 8 of the Act and then it is the Court which assumes jurisdiction to appoint an arbitrator as held by the High Court of Orissa in Niranjan Swain vs. State of Orissa AIR 1980 Ori 142.” 10 Arb. Case No. 37 of 2009 Therefore, under Section 8 of the 1940 Act, the appointment of the arbitrators is without intervention of the Court falling under Chapter II. The reference to arbitration and appointment of an arbitrator falling under Chapter III is through the intervention of Court. But Section 11 of the Act, is amalgamation of both Chapters in respect of appointment of arbitrators. In an application under Section 8 of the 1940 Act, the conditions precedents for exercising the powers under the Act are delineated whereas Section 11 of the Act empowers the Hon’ble Chief Justice or his designate to appoint an arbitrator having due regard to the agreement if the person or the institution named fails to exercise the jurisdiction to appoint an arbitrator. The intervention of the Court is not envisaged under the Act, if the parties adhere to the terms of the agreement. It is only in the event of failure to appoint an arbitrator in terms of the agreement, the aggrieved party seeks redressal under Section 11 of the Act. None of the principles as culled down by the Hon’ble Supreme Court in Harbans Singh Tuli’s case (supra) necessarily arise in an application under Section 11 of the Act. Therefore, it is not correct to state that the provisions of Section 8 are analogous to Section 11. The language, scope and intent of the provisions of two statutes are different. Thus, the judgments rendered while interpreting Section 8 of the Act would not be relevant for determining the scope of Section 11 of the Act. The provisions of the Act are required to be interpreted independent of the precedents arising out of the Arbitration Act, 1940. Question No. 2 In terms of Section 43 of the Act, the period of limitation contemplated under Article 137 of the schedule to the Limitation Act, 1963 is applicable to the proceedings under the Act. In Major (Retd.) Inder 11 Arb. Case No. 37 of 2009 Singh Rekhi Vs. DDA (1988) 2 SCC 338, the question was whether the application to seek appointment of an arbitrator was within period of limitation. The Court held that the limitation for all applications before the civil court is three years in terms of Article 137 of the schedule to the Limitation Act, 1963. It held:- 3. The question is, whether the High Court was right in upholding that the application under Section 20 of the Act was barred by limitation. In view of the decision of this Court in Kerala State Electricity Board v. T.P.K.K. Amsom and Besom, Kerala AIR 1977 SC 282, it is now well settled that Article 137 of the Limitation Act, 1963 would apply to any petition or application filed in a civil court. 4. …….A dispute arises where there is a claim and a denial and repudiation of the claim. The existence of dispute is essential for appointment of an arbitrator under Section 8 or a reference under Section 20 of the Act. See Law of Arbitration by R.S. Bachawat, first edition, page 354. There should be dispute and there can only be a dispute when a claim is asserted by one party and denied by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute entails a positive element and assertion of denying, not merely inaction to accede to a claim or a request. Whether in a particular case a dispute has arisen or not has to be found out from the facts and circumstances of the case. In Panchu Gopal Bose Vs. Board of Trustees for Port of Calcutta (1993) 4 SCC 338, it has been held that the provisions of Limitation Act would apply to the arbitrations and cause of arbitration for the purposes of limitation shall be deemed