M/S.S.B.P. & Co vs M/S. Patel Engineering Ltd. & Anr

6. In October 1996, some disputes and differences arose between the Government of Maharashtra and respondent No.1 with regard to contract 5 dated 10.3.1992. The panel of three arbitrators appointed by the parties passed unanimous awards on 11.2.2000 requiring the State Government to pay Rs.24,09,25,965/- to respondent No.1. The State Government challenged those awards but, later on, withdrew its challenge and paid the amount to respondent No.1.

7. On 3.7.2001, the appellants through their power of attorney holder, Balasaheb B. Patil served a notice upon respondent No.1 requiring it to pay the amount allegedly due to them, but the latter did not comply with their demand. After three months, the appellants invoked the arbitration clauses enshrined in the sub-contract agreement and piece work agreement and issued letter dated 3.10.2001 appointing Shri T.G. Radhakrishna (retired Chief Engineer) (respondent No.2 herein) as an arbitrator on their behalf. In its response dated 1.11.2001, respondent No.1 denied the claim of the appellants and, at the same time, appointed Shri S.N. Huddar, Joint Secretary, Irrigation Department, Government of Maharashtra as an arbitrator on its behalf. However, vide letter dated 1.2.2002, Shri Huddar declined to arbitrate in the matter by stating that he had remained associated with Kyona Project as Superintending Engineer and Chief Engineer. Thereafter, respondent No.1 sent letter dated 26.2.2002 to Shri S.L. Jain of S & S Consultants, Bhopal with the request to act as an arbitrator on its behalf. Shri Jain communicated his consent 6 vide letter dated 27.2.2002. On the same day, respondent No.1 informed respondent No.2 that in terms of Section 15(2) of the Act, it was entitled to appoint a substitute in place of Shri S.N. Huddar and had, in fact, appointed Shri S.L. Jain as an arbitrator and the latter had consented to such an appointment. On 7.3.2002, the power of attorney holder of the appellants informed respondent No.1 that appointment of Shri S.L. Jain as replacement arbitrator is contrary to the terms of sub-contract agreement and piece work agreement.

8. In the meanwhile, power of attorney holder of the appellants sent letter dated 22.1.2002 to respondent No.2 and Shri S.N. Huddar requesting them to appoint the third arbitrator. On his part, respondent No.2 suo motu sent letter dated 21.2.2002 informing the parties that in view of Shri Huddar's refusal to act as an arbitrator on behalf of respondent No.1, he had become the Sole Arbitrator and asked them to appear at Mumbai for a preliminary meeting.

10. At that stage, respondent No.1 filed Arbitration Application Nos.114 of 2002 and 90 of 2002 under Section 11 of the Act for appointment of the third arbitrator by asserting that in view of refusal of Shri S.N. Huddar to act as an arbitrator, it had appointed Shri S.L. Jain as a substitute arbitrator in terms of Section 15(2) of the Act and in that view of the matter respondent No.2 was not entitled to act as the Sole Arbitrator. The designated Judge of the Bombay High Court allowed both the applications and appointed Shri Justice M.N. Chandurkar (Retired) as the third arbitrator. The learned designated Judge noticed the arguments made on behalf of the parties, the provisions of Section 15 of the Act and observed:-

(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. (3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator. (4) If the appointment procedure in sub-section (3) applies and--

(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.

(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and

(b) he withdraws from his office or the parties agree to the termination of his mandate.

(emphasis supplied)

(emphasis supplied)

27. In the result the appeals are allowed and the orders of the learned designated Judge of the High Court appointing Shri Justice M.N. Chandurkar as the third arbitrator are set aside. Respondent No.2 shall now proceed with the matter as the Sole Arbitrator and pass appropriate award in accordance with law within a period of three months from the date of receipt/production of copy of this order.