IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION. ARBITRATION APPEAL NO. 4 OF 2008 IN MISC. APPLICATION NO. 616 OF 1996. Union of India..... ....... ...Appellant. V/s M/s.Topiwala Construction Co. ...... ...Respondent Mr.G.N.Shrinivasan i/by Ms.Leena Patil, Adv. For the appellant. Mr.S.U.Kamdar with Mr.Vineet Naik, Adv. For the respondent. CORAM: A.P.DESHPANDE, J. 14/7/2008 Oral Judgment: The appellant and the respondent entered into a contract for execution of the construction work by the respondent. According to the terms of the contract the work was to be completed within 24 months. However time came to be extended and the work was completed during the extended period. After completion of the work the respondent gave notice by invoking condition No.70 of the General Conditions of the Contract for appointment of an Arbitrator to the Chief Engineer, Pune Zone, Pune. The officer of the appellant did not appoint the arbitrator and hence the respondent was constrained to move the Court at Pune seeking appointment of an Arbitrator. The application moved by the respondent was allowed 1 and one Shri P.T.Joglekar, (Superintendent Surveyor of Works) Ex MES Engineer was appointed as an Arbitrator. The respondent sometime in September, 1996 filed Misc. Application purported to be under section 5 read with section 12 of the Arbitration Act, 1940 for revoking the appointment of Shri Joglekar, as an Arbitrator and to appoint new Arbitrator in his place. The said application was allowed and the Court by an order dated 10.6.99 appointed one Shri V.B.Dixit as the Arbitrator. As the arbitration proceedings were not take up with due promptitude yet another application was moved in December, 2000 with a view to seek removal of Shri V.B. Dixit and appointment of another Arbitrator. The Court passed an order appointing one Shri S.G.Joshi, retired Chief Engineer as an Arbitrator after removing Shri Dixit. Shri Joshi was directed to submit the award within four months from the receipt of the order. However Shri Joshi though sought extension could not complete the proceedings and on the contrary tendered his resignation as an Arbitrator on 26.9.2001. The resignation of Shri Joshi as an arbitrator prompted the respondent herein to file Misc. Application seeking appointment of another Arbitrator. The Court vide its order dated 1.4.2002 appointed one Shri Shekhar M. Joshi, Advocate as an Arbitrator in place of Shri S.G.Joshi. Before the said Arbitrator the respondent filed statement of claim and the present appellant contested the said claim by filing written statement. After prolonged hearing of the matter which consumed about 50 sittings, the 2 Arbitrator passed an award and filed it in the Court of Civil Judge, Senior Division, Pune for making the award rule of the Court. The appellant filed objections to the award. The objections were replied to by the respondent. In the first instance the trial Court rejected the objections on the ground that the same were filed beyond the period of limitation. However in an appeal filed by the appellant said order was quashed and the matter was remanded back for consideration of objections on merit to the trial Court. 2. After the remand the Court has dealt with objections on merit whereby claim No.1(C) and claim No.4 of the award are set aside. While passing an award compound interest has been awarded to the respondent at the rate of 12% per annum. It is this order passed by the Civil Judge, Senior Division dated 24.8.2007 which has been challenged by filing this appeal. Learned counsel for the appellant has raised an objection to the jurisdiction of the Arbitrator by contending that clause 70 of the arbitral agreement provide for referring the dispute between the parties to an “Engineer Officer” to be appointed by the authority mentioned in the tender document. The submission is that the appointment of an advocate who lacked expertise in the subject could not be said to be legal and valid. It is submitted that the Court while appointing an Arbitrator ought to have respected clause 70 and ought not to have appointed an Advocate as an Arbitrator. A further contention is advanced that as the Court was bound by clause 70 which stipulated that the dispute should be 3 referred to sole arbitrator who ought to be an Engineer Officer, the appointment of Shri Shekhar Joshi, Advocate is without authority and jurisdiction. Carrying the point forward the next limb of submission advanced by learned counsel for the appellant is that as the Court did not have jurisdiction to appoint an Arbitrator of its choice in the teeth of the arbitration clause, the arbitrator so appointed would lack jurisdiction to enter upon the arbitration. Learned counsel for the appellant in support of his submission has placed reliance on a judgment of the Supreme Court in the case of Associated Engineering Co. v. Government of Andhra Pradesh & Anr., (1991) 4 SCC 93 which categorically held that: “An arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of contract. His authority is derived from the contract and is governed by Arbitration Act which embodies principles derived from a specialised branch of the law of agency. If he has remained inside the parameters of the contract and has construed the provisions of the contract, his award cannot be interfered with ...................” It is submitted that if the arbitrator has to act within the bounds of the contract his appointment as well need to be within the parameters of the terms agreed upon. Per contra, learned counsel appearing for the respondent countered the said submission by raising following grounds: 4 It is emphatically submitted by the learned counsel for the respondent that the order of appointment of the arbitrator passed by the Civil Court was not challenged by the present appellant. Not only that the appellant did not challenge the order of appointment of the Arbitrator, it has submitted to the jurisdiction of the Arbitrator and contested the respondent' s claim before the Arbitrator which proceedings culminated in passing of an award. It is contended that the order of appointment of Shri Shekhar Joshi as an Arbitrator has assumed finality and after passing of an award by the Arbitrator the appellant cannot be permitted to raise objection to the appointment and jurisdiction of the Arbitrator. 3. It is not in dispute that the order passed by the Civil Judge, Senior Division appointing Shri Shekhar Joshi as the Arbitrator was not challenged and the appellant did participate in the proceedings before the said Arbitrator. In this fact situation learned counsel for the respondent has placed reliance on a judgment of the Supreme Court reported in the case of Prasun Roy v. Calcutta Metropolitan Development Authority & Anr., (1987) 4 SCC 217 and to be precise on paragraphs 6 and 10 of the said judgment. In the facts of the said case the objection was raised to the jurisdiction of Arbitrator before passing of the award and it was tried to be contended that if the objection is raised before passing of the award by the Arbitrator the said objection need to be entertained. Repelling the said submission the Supreme Court held thus: 5 “6. Mr.Kacker submitted that this principle could be invoked only in a situation where the challenge is made only after the making of an award, and not before. We are unable to accept this differentiation. The principle is that a party shall not be allowed to blow hot and cold simultaneously. Long participation and acquiescence in the proceeding preclude such a party from contending that the proceedings were without jurisdiction.” The Apex Court has held that long participation and acquiescence in the proceedings preclude a party from contending that the proceedings were without jurisdiction. The concluding observations made by the Supreme Court in para 10 goes to hold that the principle of waiver and estoppel is not only applicable where an award has been made but also where a party challenges the proceedings in which he participated. Thus the submission made by the learned counsel for the respondent is well merited and needs to be accepted. 4. Learned counsel for the respondent touching the merit of the order appointing Arbitrator has submitted that the Court while reappointing an arbitrator under section 12 is not obliged to make an appointment in terms of the arbitration clause and it shall be open for the Court to appoint an arbitrator uninfluenced by the terms of the contract. My attention is invited to a judgment of the Supreme Court reported in the case of G.Ramachandra Reddy & Co. v. Chief Engineer, Madras Zone, Military Engineering Service, (1994) 5 SCC 6 142. The Supreme Court has made distinction between cases wherein an arbitrator is named and the cases wherein an arbitrator is not named. In the first category of cases the Apex Court has held that the Court would not be justified to appoint another arbitrator until and unless the named arbitrator refuses or neglects to enter upon reference. In regard to the second category of cases wherein the arbitrator is not named the Supreme Court has observed thus: “In the absence of any named arbitrator it would be open to the contracting parties to agree for an appointment of an arbitrator by agreement even after proceedings were laid in the Court under section 20 of the Act. In the absence of any such agreement the Court gets jurisdiction and power to appoint an arbitrator.” In the present case there is no named arbitrator and officer of the appellant is authorised to appoint “Engineering Officer” as an arbitrator. The appointment of Shri Shekhar Joshi, as Arbitrator was made by the Court pursuant to the powers vested under section 12 of the act which empowers the Court to appoint a person to act as sole arbitrator in place of another. Plain reading of sub-section 2 of section 12 leaves no room of doubt that the power of the Court in the matter of appointment of an arbitrator is unfettered and the same cannot be restricted by terms of the contract. In support of the said proposition, support can be derived from a judgment of the learned Single Judge in the case of Executive Engineer, Prachi Dvn., 7 Bhubaneswar v. Gangaram Chhapolia & Anr., AIR 1980n Orissa 51 wherein it is held that when the parties do not concur in appointment of the arbitrator or the party who was to appoint an arbitrator does not make such appointment, the Court may appoint an arbitrator who shall have the like power to act in the reference and make an award as if he or they had been appointed by consent of all parties. Incidentally it may be stated that in the said judgment learned Single Judge has held that lack of expertise or technical knowledge is no disqualification as envisaged by the Arbitration Act. 5. In the present case what is objected to by the appellant is the appointment of the arbitrator made by the Court. The submission is that the Court could not have appointed the arbitrator in question. Thus the challenge is not truly to the jurisdiction of the arbitrator but the challenge is in fact to the authority of the Court in appointing Shri Shekhar Joshi, Advocate as the Arbitrator. The observations made in Associated Engineering Co. (supra) would thus not apply to the facts of the present case. The arbitrator has acted within the parameters of the contract but his jurisdiction is being challenged on the ground that he could not have been so appointed by the Court. 6. I am of the clear view that the objection raised by the appellant to the purported lack of jurisdiction by the Arbitrator is wholly ill founded; firstly for the reason that the appellant cannot be permitted to question the jurisdiction of the Arbitrator as the appellant had acquiesced in the arbitration proceedings and participated in the 8 proceedings which proceedings culminated in passing of the award. Thus principle of waiver and estoppel would operate against the appellant. In the second place, the objection lacks merit in view of the fact that the Court's power and authority in appointing an arbitrator under section 12(2) of the Arbitration Act is unfettered, more so, as there is no named arbitrator in the contract. 7. Learned counsel for the appellant then urged that the award of escalation on account of wages of labour is illegal as the arbitral agreement does not stipulate the said contingency for awarding escalation of wages. The award touching the said item has been passed on interpretation of clause 19 of the special conditions and clause 63 of the general conditions and it is held that the respondent shall be entitled to the escalation of labour wages. Perused the relevant clauses. The view taken does not call for interference as it is a possible view. 8. Lastly, it is contended by the learned counsel for the appellant that the arbitrator and the Court below is not justified in granting the claim together with compound interest at the rate of 12% per annum on the amount awarded. In the submission of the learned counsel award of compound interest in the facts of the present case cannot be said to be just and reasonable. It is pointed out that the parties had not agreed for payment of interest and thus the award of compound interest cannot be termed reasonable. It cannot be disputed that the arbitrator has power and jurisdiction to award interest even if parties 9 had not agreed upon the same. However such an award of interest has to be reasonable. In this situation, even provisions of section 34 of Code of Civil Procedure cannot be made applicable as arbitrator is not a Court. Nonetheless, the principle underlined in section 34 could be taken assistance of. It is demonstrated that on account of grant of compound interest the amount of interest itself constitutes major chunk and goes to result in unjust enrichment to the respondent. The appellant alone cannot be held to be responsible for the prolonged arbitral proceedings over a period of last 19 years. Delay is attributable to various factors, including failure on the part of 3 earlier arbitrators to pass the award. Awarding compound interest, in my view, would be penal and would not be just, fair and reasonable. No adequate reasons are spelt out justifying awarding compound interest. Hence in the facts of the present case the appeal partly succeeds. The award passed by the arbitrator so also the decree passed by the Civil Judge, Senior Division stand modified to the extent it relates to the grant of compound interest. Instead the claim stands granted with simple interest at the rate of 12% per annum. Appeal is thus partly allowed and disposed of. 10