Case: National Highways Auth. Of India  Vs. Bumihiway Ddb Ltd. (Jv)

3. The appellant - National Highways Authority of India (in short "the NHAI") issued letter of acceptance to respondent No.1, Bumihiway DDB Limited (JV), New Delhi for award of the contract for widening to 4/6 lanes and strengthening of existing 2-Lane carriage of National Highway-5 from Km 233.000 to Km 284.000 between Ichapuram to Ganjam in the State of Orissa, which was a part of the Chennai-Kolkata Corridor of the Golden Quadrilateral connecting Delhi, Mumbai, Chennai and Kolkata4. On 11.06.2001, the appellants entered into an agreement with respondent No.1 for the aforesaid contract. The contract agreement contained a mechanism for resolution of disputes between the parties as contained in Sub-Clause 67.3 Sub-Clause 67.3 reads as follows:"Any dispute in respect of which the Recommendation(s), if any, of the Board has not become final and binding pursuant to Sub-Clause 67.1 shall be finally settled by arbitration as set forth below. The arbitral tribunal shall have full power to open-up, review and revise any decision, opinion, instruction, determination, certificate or valuation of the Engineer and any Recommendation(s) of the Board related to the dispute(i) A dispute with an Indian Contractor shall be finally settled by arbitration in accordance with the Arbitration & Conciliation Act, 1996, or any statutory amendment thereof. The arbitral tribunal shall consist of 3 arbitrators, one each to be appointed by the Employer and the Contractor. The third Arbitrator shall be chosen by the two Arbitrators so appointed by the Parties and shall act as Presiding arbitrator. In case of failure of the two arbitrators, appointed by the parties to reach upon a consensus within a period of 30 days from the appointment of the arbitrator appointed subsequently, the Presiding arbitrator shall be appointed by the President, Indian Roads Congress. For the purposes of this Sub-Clause, the term "Indian Contractor" means a contractor who is registered in India and is a juridic person created under Indian law as well as a joint venture between such a contractor and a Foreign Contractor(v) If one of the parties fail to appoint its arbitrator in pursuance of sub-clause (i) and (ii) above, within 30 days after receipt of the notice of the appointment of its arbitrator by the other party, then the President of Indian Road Congress both in cases of foreign contractors as well as Indian Contractors, shall appoint the arbitrator. A certified copy of the order of the President of Indian Road Congress making such an appointment shall be furnished to each of the parties(vi) Arbitration proceedings shall be held at Delhi in India, and the language of the arbitration proceedings and that of all documents and communications between the parties shall be English(vii) The decision of the majority of arbitrators shall be final and binding upon both parties. The cost and expenses of Arbitration proceedings will be paid as determined by the arbitral tribunal. However, the expenses incurred by each party in connection with the preparation, presentation, etc. of its proceedings as also the fees and expenses paid to the arbitrator appointed by such party or on its behalf shall be borne by each party itself."5. During the pendency of the contract period, the appellant noticed some defaults on the part of respondent No.1 who had neglected the execution of the contract due to which the project of national interest had been delayed by more than 5 years. Thus action in terms of clause 63.1(d) of the conditions of contract was taken by the appellants and respondent No.1 was evicted from the site on 14.01.2004. The contractor, respondent No.1, initiated proceedings under Section 9 of the Arbitration and Conciliation Act, 1996 and filed Arbitration Application No. 2 of 2004 in the Court of District Judge, Ganjam who, vide order dated 02.04.2004, restrained the appellants from expelling respondent No.1 from the work site till dispute between the parties are adjudicated as per the contract agreement. The Court further refused to pass any orders restraining the appellants from encashing the Bank Guarantees6. The said order was challenged by both the parties before the High Court of Orissa. The High Court, vide common order dated 02.11.2004, disposed off both the appeals directing appellant No.1 to constitute Dispute Review Board within a period of 6 weeks. The order of restraint passed by the District Judge was set aside and liberty was granted to appellant No.1 to go for re-tendering process with liberty to respondent No.1 to participate. The aforesaid order was again challenged by both the parties by filing separate special leave petitions, namely:a) SLP (C) No. 24813-24814 of 2004b) SLP (C) No. 25890-25891 of 20047. This Court, vide order dated 13.01.2005, directed both the parties to maintain status quo in the meanwhile8. The Dispute Review Board gave its recommendations on 26.02.2005 against which respondent No.1 vide letter dated 03.03.2005 referred the disputes arising thereof to arbitration under Clause 67 of the Conditions of Particular Application of the contract. Respondent No.1 nominated its arbitrator as respondent No.3 herein. In reply to a letter dated 03.03.2005, the appellants also invoked arbitration clause vide letter dated 10.03.2005. Thereafter, the appellant on 31.03.2005 nominated Mr. D.P.Gupta respondent No.5 herein as their arbitrator. Vide letter dated 09.04.2005, respondent No.3 requested Mr.D.P.Gupta to concur with the name of the Presiding Arbitrator as proposed by him. This Court, vide order dated 15.04.2005, passed the following order in the aforesaid special leave petitions:"Leave granted. Heard Parties. The Portion of the impugned order whereby Applicant in Civil Appeals arising out of S.L.P. (Civil) Nos. 24813-24814 is permitted to participate in the re-tender process is stayed. We clarify that the observations made by the High Court will not be taken into account in other proceedings including the Arbitration which may be invoked by the parties."9. Mr.D.P.Gupta, vide letter dated 15.04.2005, disagreed with the names proposed by respondent No.3. Thereafter, in view of the disagreement between the two nominated arbitrators, respondent No.1 sought clarification from respondent No.2 herein vide its letter dated 29.04.2005. Respondent No.1 requested respondent No.2 if any judicial arbitrator is available with them for the purpose of nomination as Presiding Arbitrator. It was pointed out that respondent No.1 never sought any intervention of respondent No.2 for appointment of the Presiding Arbitrator rather it only sought clarification in this regard. Vide letter dated 03.05.2005, respondent No.2 - Indian Road Congress (IRC) informed respondent No.1 that there does not exist any judicial arbitrator in its panel. Thereafter, respondent No.1 filed Arbitration Petition No. 23 of 2005 before the High Court under Section 11(6) of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as "the Act") requesting for the appointment of the Presiding Arbitrator. The said petition, according to the appellants, was in gross violation of the statutory provisions of Section 11(6) as also against the contractual terms agreed to between the parties without making any reference to respondent No.2 for the appointment of the Presiding Arbitrator10. On 11.05.2005, the appellants requested respondent No.2 to appoint the Presiding Arbitrator in view of the disagreement between two nominated arbitrators as stipulated in the contractual terms. In the meanwhile, respondent No.2, by a letter dated 31.05.2005, requested the appellants for submission of 50% of the processing fee to enable them to make the appointment as requested. Respondent No.1, vide letter dated 02.06.2005, informed respondent No.2 regarding the filing of the petition before the High Court for appointment of the Presiding Arbitrator and asked them to wait for the outcome of the judgment since the matters were subjudiced before the Court. On 01.07.2005, Arbitration Petition No. 23 of 2005 was listed for hearing before the High Court and the High Court ordered to appoint Mr. Justice Y. Bhaskar Rao as the Presiding Arbitrator. Respondent No.1, vide letter dated 06.07.2005, further clarified that the said appointment was made since IRC had failed to appoint the Presiding Arbitrator within the stipulated time of 30 days of the request made by the parties11. On 11.07.2005, Mr. D.P.Gupta submitted his resignation which was accepted by the appellants and one Mr. L.R. Gupta was appointed as their arbitrator who, in turn, refused to accept the appointment as made by the appellants. On 26.07.2005, Mr. Justice Y. Bhaskar Rao informed the co-arbitrators that he has decided not to proceed with the arbitration. Thereafter, the appellants appointed one Mr. Surjeet Singh as their arbitrator. After resumption of the proceeding in arbitration on the resignation of the Presiding Arbitrator, appellant No.1 filed its counter affidavit in the arbitration petition. On 30.08.2005, since the two arbitrators had failed to agree on the name of the Presiding Arbitrator, appellant No.1 requested respondent No.2 for the appointment of the Presiding Arbitrator. In reply to the aforesaid letter, respondent No.2 vide letter dated 06.09.2005, informed that the meeting of the Executive Committee will be held on 09.09.2005 for the appointment of the Presiding Arbitrator. Respondent No.3, vide letter dated 31.08.2005 to both the parties, stated that in view of the failure of both the arbitrators to appoint the Presiding Arbitrator, appropriate steps should be taken in this regard. Respondent No.1 filed its rejoinder affidavit before the High Court. The High Court, vide interim order dated 09.09.2005 directed to list the matter on 23.09.2005 and directed respondent No.2 not to appoint any arbitrator in the meantime till the next date of hearing. The High Court, vide final judgment dated 06.01.2006, appointed Mr. P. Chenna Keshava Reddy, former Chief Justice of Andhra Pradesh and Gauhati High Court as the Presiding Arbitrator, which according to the appellants, is in clear and express violation of the contract agreement entered into between the parties. Being aggrieved by the impugned order, the above civil appeal was filed.

Reasoning: 20. Before the appellants could file an appropriate petition against the order dated 1.7.2005, one of the arbitrators resigned on 11.7.2005 and thereafter, the Presiding Arbitrator also resigned on 26.7.2005. Hence, the contention raised by the respondents that the order dated 1.7.2005 had not been challenged and that the impugned order only modifies a part of the said order and is only filling up the vacancy created on resignation is wholly erroneous and unsustainable. It was denied that the appellants have abandoned their right to challenge the impugned order, as alleged by the respondents. In the facts of the present case as enumerated above, the process of appointment restarted in accordance with the original contractual rules after the resignation of the Presiding Arbitrator. The judicial order which replaces the administrative order is under challenge before this Court and, therefore, there is no need to challenge the order dated 1.7.2005. It may further be pointed out that the petition was disposed of on 1.7.2005 after the appointment and hence, on resignation of the Presiding Arbitrator, Mr. Justice Y. Bhaskar Rao, the respondent again approached the High Court for appointing the Presiding Arbitrator leading to the impugned order. It is pertinent to state that under Section 11(6) of the Act, the Court has jurisdiction to make the appointment only when the person including an institution, fails to perform any function entrusted to it under that procedure. In the present case, the relief claimed by the respondents by invoking Section 11(6) is wholly erroneous as prior to the order dated 1.7.2005, the respondents only sought a clarification from IRC and without making a reference to them, immediately filed the petition under Section 11(6) on the purported ground that the Indian Road Congress had failed to make the appointment within the stipulated time. Therefore, the reliance placed by the respondent on the judgment of this Court in the case of Punj Lloyd Ltd. vs. Petronet MHB Ltd., (2006) 2 SCC 638  is wholly erroneous and is not applicable to the facts of the present caseHence, the assumption of jurisdiction and adjudication by the High Court, in our opinion, is vitiated. It is reiterated by the learned Solicitor General appearing for the appellants that there did not exist any concession on behalf of counsel for the appellants as alleged. Vide the impugned order dated 6.1.2006, the High Court after detailed discussions came to the conclusion that the Court was justified in making the appointment of Presiding Arbitrator24. Only after the said judicial determination, a query was put to the appellants about the selection of the name, which was categorically refused by their counsel. On an application filed by the appellants before the High Court, the Court clarified that "what learned counsel for opposite party Nos. 1 & 2 submitted is that he left the question of appointing the Presiding Arbitrator to the discretion of this Court. May be what learned counsel for Opposite Party Nos. 1 & 2 submits is correct." Therefore, the High Court accepted the contention of the appellants that no consent was made in the appointment by the appellant in the impugned orderThis reasoning, in our opinion, is de hors the sanction in the Contract. The appointment made by the High Court as per the impugned order is against the express provisions of contract as held by this Court in the case of You One Engineering & Construction Co. Ltd. vs. National Highway Authority of India, (2006) 4 SCC 372 reaffirming that once the arbitration agreement clearly envisages the appointment of the Presiding Arbitrator by IRC, there is no qualification that the arbitrator has to be a different person depending on the nature of the dispute. If the parties have entered into such an agreement with open eyes, it is not open to ignore it and invoke exercise of powers in Section 11(6)In the present case, by making reference to the High Court under Section 11(6) and alleging that one of the arbitrators is a retired judicial person, the respondent has only admitted to rewrite the contract between the parties, which is against the law of the land28. As rightly pointed out by the appellants, the High Court failed to appreciate that in accordance with Section 15(2) of the Act on the termination of the mandate of the Presiding Arbitrator, the two nominated arbitrators were first required to reach a consensus and on their failure to arrive at a consensus only respondent No.2 was authorized to make the appointment. Unless respondent No.2 failed to exercise its jurisdiction, the High Court could not assume jurisdiction under Section 11(6) of the Act. Respondent No.1 has wrongly invoked the jurisdiction of this Court without first following the procedure agreed to between the parties. Thus no cause of action had arisen in the facts of the case to seek the appointment from the High Court under Section 11(6) of the Act and thus the said petition was premature. The High Court also is not correct in relying on the contention of the respondent No.1 that in case one of the arbitrators is retired Chief Justice, the Presiding Arbitrator should be at least a retired Chief Justice or a retired Judge of a High Court with considerable experience29. Even otherwise, there does not exist any such provision in law which requires that if one of the arbitrators is a retired Judge the Presiding Arbitrator also has to be a retired Judge. The parties have entered into a contract after fully understanding the import of the terms so agreed to from which there cannot be any deviation. The Courts have held that the parties are required to comply with the procedure of appointment as agreed to and the defaulting party cannot be allowed to take advantage of its own wrong. If the reasoning of the High Court is accepted, then the law laid down by this Court in the case of You One Engineering as well as Right Approach Group will be rendered nugatory. Further, it will set a precedent which will vitally affect the appellant which is a Central Government undertaking in all the future contractual agreements. Before concluding, we clarify that the pleadings before the Arbitral Tribunal are not complete and written statement is yet to be filed by the appellant as the appellants have raised their objections with respect to the appointment before the arbitration proceedings which has been duly recorded by the Arbitral Tribunal in the orders passed by them.