Case: M/s Continental India Private Limited Vs. General Manager Northern Railway

2. That the appellant and respondent herein entered into a contract/agreement which contains the arbitration clause. As per clause 32 of the agreement, in the event of any question, dispute or difference arising under or in connection with agreement, the same shall be referred to the sole arbitration of a person appointed to be the arbitrator, by the General Manager of the Railway. A request/prayer was made by the appellant herein – original applicant to appoint an arbitrator in terms of clause 32 of the agreement. However, the General Manager/Railway failed to appoint an arbitrator as provided under clause 32 of the agreement. Therefore, the appellant herein – original applicant filed the application before the High Court under Section 11(6) of the Act and requested to appoint a sole arbitrator. Though, the High Court has observed that the respondent has failed to appoint an arbitrator despite raising the demand of appointing an arbitrator, the application was hence liable to succeed. However, thereafter instead of appointing the sole arbitrator in exercise of powers under Section 11(6) of the Act, the High Court has directed to appoint an arbitrator in terms of clause 64(3)(b) of the GCC. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court in not appointing the sole arbitrator and instead directing the parties to appoint the arbitrator as per the GCC, the original applicant before the High Court has preferred the present appeal.

Court's reasoning:
The appellant and the respondent being signatories to the agreement are bound by the aforesaid arbitration clause/arbitration agreement. As the dispute arose between the parties, the appellant invoked the arbitration clause in terms of the agreement. However, the respondent – General Manager/Railway failed to appoint the arbitrator in terms of clause 32, reproduced hereinabove. That thereafter, the appellant herein approached the High Court for appointment of the sole arbitrator in exercise of powers under Section 11(6) of the Act. Once the dispute has arisen between the parties and despite invocation of the arbitration clause in terms of the agreement no arbitrator is appointed, it can be said that the authority has forfeited its right to appoint the arbitrator in terms of the arbitration agreement and thereafter the arbitrator has to be appointed under Section 11(6) of the Act.6.1 At this stage, the decision of this court in the case of Deep Trading Company (supra) is required to be referred to. In the said decision it is observed and held that once an arbitrator is not appointed as per the agreed procedure within stipulated time, right of the party concerned to appoint an arbitrator is forfeited and therefore, Chief Justice ought to have appointed an arbitrator under Section 11(6) of the Act. In the said decision the Corporation therein appointed the arbitrator as per the agreed procedure during pendency of the proceedings under Section 11(6) of the Act and to that it is observed and held that appointment of arbitrator by the Corporation during pendency of the proceedings under Section 11(6) of the Act was of no consequence, as failing to appoint an arbitrator within the prescribed time, the Corporation had lost its right to appoint an arbitrator.6.2 In the present case also, the respondent failed to appoint an arbitrator as per the agreed procedure and in terms of the agreement. Therefore, the respondent forfeited its right to appoint an arbitrator in terms of the agreement and therefore the appellant was justified in filing the application before the High Court for appointment of a sole arbitrator in exercise of powers under Section 11(6) of the Act. The Chief Justice or his nominee thus was required to appoint the arbitrator under Section 11(6) of the Act.7. By the impugned judgment and order and while allowing the application under Section 11(6) of the Act instead of appointing the arbitrator in exercise of powers under Section 11(6) of the Act, the High Court has directed to constitute an Arbitral Tribunal in terms of clause 64(3)(b) of the GCC. It is not in dispute that neither the GCC was signed by the parties nor the GCC was made part of the agreement between the parties. There is no reference to the GCC in the main agreement entered into between the parties. Even as per communication dated 16.07.2020, the GCC, July 2020 shall be applicable to works contract of Indian Railways with prospective effect. Therefore, the parties are not governed by the GCC at all. Therefore, the High Court has committed a serious error in directing to constitute an Arbitral Tribunal in terms of the provisions of the GCC, which are not binding to the parties.