Case: N.B.C.C. Ltd Vs. J.G. Engineering Pvt. Ltd

2. These appeals are directed against the final Judgments and orders dated 23rd of March, 2006, and 21st of September, 2007 passed by the High Court at Calcutta in G.A. No.235 of 2006 arising out of A.P. No. 361 of 2005, whereby the High Court had allowed the petition of the respondent and thereby terminated the mandate of the arbitrator and thus appointed a new Arbitrator for deciding the dispute between the parties3. In order to appreciate the controversy existing between the parties, it may be important to narrate the facts as emerging from the case made by the appellant, which are as follows :-In the month of December 1992, the appellant had issued notice inviting tender for construction of terminal buildings and various ancillary jobs at the Bhubaneshwar Airport at Bhubaneshwar, Orissa. The respondent submitted its offer, which was accepted by the appellantOn 30th of March, 1993, the appellant entered into a contract with the respondent for construction of the aforesaid work at the Bhubaneshwar Airport for a total consideration of Rs.5,71,13,541.33/-. The date of commencement of the work was fixed on 1st of March, 1993 and the stipulated date of completion was 31st of October, 1994. However, on 20th of March, 1996, the appellant terminated the contract of the respondent alleging that the respondent had failed to fulfill its part of the obligations required under the contract. On 20th of May, 1996, the respondent invoked the arbitration clause and sought for an appointment of an arbitrator for adjudication of the disputes between the parties. On 9th of August, 1996, the Chairman-cum-Managing Director of the appellant appointed a sole arbitrator to adjudicate upon the claims and counter claims of the parties. The appellant filed its counter claim on 30th of April, 1997 before the sole arbitrator. The respondent submitted its rejoinder and objections to the counter claims on 12th of May, 2001, after about 4 years from the date of reply by the appellant. During this period, the appellant had virtually closed its regional office in Calcutta as most of the work done in its office was completed. This, according to the appellant, caused in several transfers of the arbitrators appointed by the appointing authority. Meanwhile, the appointing authority had appointed three arbitrators due to the above-mentioned reason and the arbitration process had come to a stand still due to the inaction of the respondent and its failure to participateThereafter, on 20th of May, 2004, the respondent filed an application before the Calcutta High Court seeking removal of the then incumbent arbitrator and the arbitral proceedings were stayed by the Court. On 20th of September, 2004, the High Court directed the Chairman-cum-Managing Director of the appellant company to appoint a new arbitrator in terms of the arbitration clause within a period of four weeks from the date of communication of its order. The High Court further directed the arbitrator so appointed to conclude the arbitration proceedings within a period of six months from the date of his appointment. Pursuant to the order of the High Court, the Chairman-cum-Managing Director of the appellant company appointed Shri A.K. Gupta, Deputy General Manager of the appellant as the sole arbitrator. The said arbitrator finally concluded the proceedings after hearing on 18th of June, 2005. It is an admitted position that the time to conclude the arbitration proceeding in terms of the order of the High Court before Shri A. K. Gupta, who was appointed as the sole arbitrator by the Chairman-cum-Managing Director of the company had by then already expiredHowever, both the parties extended the time to conclude the arbitration proceeding and to pass an award accordingly, the time was enlarged for conclusion of the arbitration to 30th of September, 2005It is also an admitted position that the time limit so fixed i.e. arbitration must be concluded and award must be passed within 30th of September, 2005, could not be adhered to by the arbitrator and he failed to publish the award within this period. About three months after the expiry of the period of concluding the proceeding and passing of the award, it was the respondent who moved an application before the High Court for a declaration that the mandate of the arbitrator had already stood terminated. We may keep it on record that the appellant had not filed any application for enlargement of time for the conclusion of the arbitration proceeding or to pass the award after the expiry of the periodOn 22nd of December, 2005, the High Court, vide an interim order, restrained the arbitrator from making an award and at the same time, had refused to accept the award produced by the arbitrator before it which were well beyond the period fixed by the High Court. On 23rd of March, 2006, the High Court, by its impugned order, terminated the mandate of the arbitrator on the ground of delay in making the award. The appellant then challenged the above mentioned order of the Calcutta High Court before this Court vide SLP No.19471 of 2007 on 12th of September, 2007. At the same time, the High Court by the impugned order dated 21st of September, 2007 passed in AP No. 361/2005 appointed Mr. Justice Chittatosh Mookherji (As His Lordship then was) as the sole arbitrator to adjudicate the disputes between the parties. The appellant, feeling aggrieved by this order as well has filed a special leave petition which came to be registered as SLP No. 22243 of 2008, which after hearing the learned counsel for the parties and on grant of leave, was heard in presence of the learned counsel for the parties

Reasoning:
14. We have carefully examined the aforesaid observations of the impugned judgment of the High Court. We are of the view that in view of a three-Judge Bench decision of this Court in the case of Northern Railway Administration, Ministry of Railway vs. Patel Engineering Company Ltd. [2008 (10) SCC 240 ] in which a decision of this Court in Ace Pipeline Contracts Private Limited vs. Bharat Petroleum Corporation Limited [(2007) 5 SCC 304]  was also referred to, the application for appointment of an Arbitrator under Section 11 of the Act should be referred back to the High Court for fresh decision. Arijit Pasayat, (as His Lordship then was), heading a three-Judge Bench of this Court after considering the scope and object of the Act particularly Section 11 of the Act concluded the following :-In all these cases at hand the High Court does not appear to have focused on the requirement to have due regard to the qualifications required by the agreement or other considerations necessary to secure the appointment of an independent and impartial arbitrator. It needs no reiteration that appointment of the arbitrator or arbitrators named in the arbitration agreement is not a must, but while making the appointment the twin requirements of Sub-section (8) of Section 11 have to be kept in view, considered and taken into account. If it is not done, the appointment becomes vulnerable. In the circumstances, we set aside the appointment made in each case, remit the matters to the High Court to make fresh appointments keeping in view the parameters indicated above."In the aforesaid decision in the case of Northern Railway Administration (Supra), Arijit Pasayat, J. (as His Lordship then was), held that the High Court in the said case did not appear to have focused on the requirement to have due regard to the qualifications required by the agreement or other conditions necessary to secure the appointment of an independent and impartial arbitrator. In the aforesaid decision, this Court also concluded that since the requirement of sub-section (8) of Section 11 was not at all dealt with by the High Court in its order, the appointment of an arbitrator without dealing with Sub-Section 8 of Section 11 of the Act became vulnerable and accordingly, such appointment must be set aside. Similar is the position in this case. In this case also, before appointing an arbitrator under Section 11(6) of the Act, the High Court had failed to take into consideration the effect of Section 11(8) of the Act as was done in Northern Railway Administration (supra)15. In view of the discussions made hereinabove and particularly, in view of the principles laid down by this Court in Northern Railway Administration (supra),