Datar Switchgears Ltd. V/s. Tata Finance Ltd. & Anr.

 Appeal5986 of 2000 Special Leave Petition13812 of 2000 DATAR SWITCHGEARS LTD Vs TATA FINANCE LTD. & ANR DATE OF JUDGMENT: 18 10 2000 M.J.Rao K.G.Balakrishna Balakrishnan J The appellant challenges an order passed by the Chief Justice of Bombay High Court under Section 11 of the Arbitration and Conciliation Act 1996of the Lease Agreement. The appellant did not pay the amount as demanded by the 1st respondent. The 1st respondent did not appoint an Arbitrator even after the lapse of thirty days but filed Arbitration Petition No. 405 99 on 26.10.99 under Section 9 of the Act for interim protection. On 25.11.99 the 1st respondent appointed the 2nd respondent as the sole Arbitrator by invoking clause 20.9 of the Lease Agreement and the Arbitrator in turn issued a notice to the appellant asking them to make their appearance before him on 13th March 2000. Thereafter the appellant filed Arbitration Application No. 2 2000 before Hon’ble the Chief Justice of Bombay and prayed for appointment of another Arbitrator and the 1st respondent opposed this application. This petition was rejected by the Chief Justice holding that as the Arbitrator had already been appointed by the first respondent the Lessor the petition was not maintainable This order is challenged before us We heard the appellant’s Counsel Mr. V.A. Mohta and respondent’s Counsel Mr. R.F. Nariman. The appellant’s Counsel questioned the authority of the 1st respondent in appointing an Arbitrator after the long lapse of the notice period of 30 days. According to the appellant the power of appointment should have been exercised within a reasonable time. The appellant’s Counsel also urged that unilateral appointment of Arbitrator was not envisaged under the Lease Agreement and the 1st respondent should have obtained the consent of the appellant and the name of the Arbitrator should have been proposed to the appellant before appointment. On the other hand the Counsel for the 1st respondent supported the impugned order Learned counsel for the appellant Shri V.A. Mohta argued that the order passed by the Chief Justice is amenable to Article 136 of the Constitution of India. Even if it is an administrative order as decided by a three Judge Bench in Konkan Railway Corporation Ltd. Vs. M s Mehul Construction Co. 2000(6) SCALE 71 it is amenable to Article 136. Learned Senior Counsel for the 1st respondent Shri R.F. Nariman however stated that in this case we need not go into this controversy and we may decide the matter on merits on the assumption that Article 136 is attracted. In view of the above stand taken for the respondents we are not deciding the question of The Arbitration and Conciliation Act 1996 made certain drastic changes in the Law of Arbitration. This Act is codified in tune with the Model Law on International Commercial Arbitration as adopted by the United Nations Commission on International Trade Lawsays that the parties are free to agree to any procedure for appointing the Arbitrator. If only there is any failure of that procedure the aggrieved party can invoke sub clause(5) orof Section 11 as the case may be. In the instant case the Arbitration clause in the Lease Agreement contemplates appointment of a sole Arbitrator. If the parties fail to reach any agreement as referred to in Sub Sectionor if they fail to agree on the Arbitrator within thirty days from receipt of the request by one party the Chief Justice can be moved for appointing an Arbitrator either under sub clause or sub clauseof Section 11 of the Act Sub clauseof Section 11 can be invoked by a party who has requested the other party to appoint an Arbitrator and the latter fails to make any appointment within thirty days from the receipt of the notice. Admittedly in the instant case the appellant has not issued any notice to the 1st respondent seeking appointment of an Arbitrator. An application under sub clauseof Section 11 can be filed when there is a failure of the procedure for appointment of Arbitrator. This failure of procedure can arise under different circumstances. It can be a case where a party who is bound to appoint an Arbitrator refuses to appoint the Arbitrator or where two appointed Arbitrators fail to appoint the third Arbitrator. If the appointment of Arbitrator or any function connected with such appointment is entrusted to any person or institution and such person or institution fails to discharge such function the aggrieved party can approach the Chief Justice for appointment of The appellant in his application does not mention under which sub section of Section 11 the application was filed. Evidently it must be under Sub section(a) of Section 11 as the appellant has no case that a notice was issued but an Arbitrator was not appointed or that there was a failure to agree on certain Arbitrator. The contention of the appellant might be that the first respondent failed to act as required under the procedure Therefore the question to be considered is whether there was any real failure of the mechanism provided under the Lease Agreement. In order to consider this it is relevant to note the Arbitration clause in the Agreement Clause 20.9 of the Agreement is the Arbitration clause which is to the following effect: 20.9 " It is agreed by and between the parties that in case of any dispute under this Lease the same shall be referred to an Arbitrator to be nominated by the Lessor and the award of the Arbitrator shall be final and binding on all the parties concerned. The venue of such arbitration shall be in Bombay. Save as aforesaid the Courts at Bombay alone and no other Courts whatsoever will have jurisdiction to try suit in respect of any claim or dispute arising out of or under this Lease or in any way relating to the same The above clause gives an unfettered discretion to the 1st respondent lessor to appoint an Arbitrator. The 1st respondent gave notice to the appellant and later appointed the 2nd respondent as the Arbitrator. It is pertinent to note that no notice period is prescribed in the above arbitration clause and it does not speak about any concurrence or consent of the appellant being taken in the matter of the choice of Arbitrator The question then arises whether for purposes of Section 11(6) the party to whom a demand for appointment is made forfeits his right to do so if he does not appoint an arbitrator within 30 days. Learned Senior counsel for the appellant contends that even though Section 11(6) does not prescribe a period of 30 days it must be implied that 30 days is a reasonable time for purposes of Section 11(6) and thereafter the right to appoint is forfeited. Three judgments of the High Courts from Bombay Delhi and Andhra Pradesh are relied upon in this connection Learned Senior counsel for the respondents submits that the Bombay Delhi and Andhra pradesh cases relied upon are distinguishable. It is also contended that under Section 11(6) no period of time is prescribed and hence the opposite party can make an appointment even after 30 days provided it is made before the application is filed under The appellant contended that the 1st respondent did not appoint the Arbitrator within a reasonable period and that amounts to failure of the procedure contemplated under the Agreement. Our attention was drawn to a decision of the Bombay High Court reported in 1999(2) Bombay CR. 189 Naginbhai C. Patel Vs. Union of India). There the petitioner a Govt. Contractor as per the form of the Arbitration clause requested the Secretary P.W.D to appoint the arbitrator. The Secretary P.W.D. did not take any action and the petitioner filed an application under Section 11(6) of the Act. After the filing of this application the respondent appointed an Arbitrator and urged before the Chief Justice that application under Section 11(6) filed by the petitioner became infructuous. It was held that the petitioner had waited for 30 days for appointment of the arbitrator and as the respondent had failed to appoint the arbitrator the objection was not sustainable and the appointment of arbitrator made by the respondent was not valid in the eye of law The above decision has no application to the facts of this case as in the present case the Arbitrator was already appointed before the appellant invoked Section 11 of the Act. The Counsel for the appellant contended that the Arbitrator was appointed after a long lapse of time and that too without any previous consultation with the appellant and therefore it was argued that the Chief Justice should have appointed a fresh arbitrator. We do not find much force in this contention especially in view of the specific words used in the Arbitration clause in the Agreement which is extracted above. This is not a case where the appellant requested and gave a notice period for appointment of arbitrator and the latter failed to comply with that request. The 1st respondent asked the appellant to make payment within a stipulated period and indicated that in the event of non payment of the amount within fourteen days the said notice itself was to be treated as the notice under the Arbitration clause in the Agreement. The amount allegedly due from the appellant was substantial and the 1st respondent cannot be said to be at fault for having given a larger period for payment of the amount and settling the dispute. It is pertinent to note that the appellant did not file an application even after the 1st respondent invoked Section 9 of the Act and filed a petition seeking interim relief. Under such circumstances it cannot be said that there was a failure of the procedure prescribed under the The decision of the Delhi High Court in B.W.L. Ltd Vs. MTNL & Ors. Arb. LR 190decided on 23.2.2000 is also distinguishable inasmuch as the respondent in spite of being given opportunity on 11.10.99 by the Court after filing of the application under Section 11 to appoint an arbitrator failed to do so and the Court felt that it was a fit case for appointment of an arbitrator under Section 11. This case is also distinguishable as the appointment was not made before the filing of the application under Section 11 In Sharma & Sons vs. Engineer in Chief Army Headquarters New Delhi & Ors. Arb.LR 31 the respondents were requested on 26.6.95 6.8.95 and other dates in 1997 to appoint an arbitrator. Application under Section 11 was filed after nearly 4 years on 21.4.99. Only thereafter the respondent appointed an arbitrator on 13.5.99 but only in respect of some of the disputes. The respondent felt that the other disputes were outside the ambit of the arbitration clause. The High Court of Andhra pradesh held that in view of Section 11(6) read with Section 11(8) the respondent had forfeited his right to appoint an arbitrator after the expiry of 30 days from the date of demand for arbitrator. Even in the above case the appointment was not made before the application under Section 11 was filed. Hence the case is not applicable to the facts of this case In all the above cases therefore the appointment of the arbitrator was not made by the opposite party before the application was filed under Section 11. Hence all the above cases are not directly in point In the present case the respondent made the appointment before the appellant filed the application under Section 11 but the said appointment was made beyond 30 days Question is whether in a case falling under Section 11(6) the opposite party cannot appoint an arbitrator after the expiry of 30 days from the date of demand So far as cases falling under Section 11(6) are concerned such as the one before us no time limit has been prescribed under the Act whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view therefore so far as Section 11(6) is concerned if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand but before the first party has moved the Court under Section 11 that would be sufficient. In other words in cases arising under Section 11(6) if the opposite party has not made an appointment within 30 days of demand the right to make appointment is not forfeited but continues but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. We do not therefore agree with the observation in the above judgments that if the appointment is not made within 30 days of demand the right to appoint an arbitrator under Section 11(6) is forfeited In the present case the respondent made the appointment before the appellant filed the application under Section 11(6) though it was beyond 30 days from the date of demand. In our view the appointment of the arbitrator by the respondent is valid and it cannot be said that the right was forfeited after expiry of 30 days from the date of We need not decide whether for purposes of sub clauses 4) and of Section 11 which expressly prescribe 30 days the period of 30 days is mandatory or not While interpreting the power of the Court to appoint arbitrator under Section 8 of the Arbitration Act 1940 this Court in Bhupinder Singh Bindra Vs. Union of India and Another5 SCC 329 in para 3 held as under: "It is settled law that court cannot interpose and interdict the appointment of an arbitrator whom the parties have chosen under the terms of the contract unless legal misconduct of the arbitrator fraud disqualification etc is pleaded and proved. It is not in the power of the party at his own will or pleasure to revoke the authority of the arbitrator appointed with his consent. There must be just and sufficient cause for revocation When parties have entered into a contract and settled on a procedure due importance has to be given to such procedure. Even though rigor of the doctrine of "freedom of contract" has been whittled down by various labour and social welfare legislation still the court has to respect the terms of the contract entered into by parties and endeavor to give importance and effect to it. When the party has not disputed the arbitration clause normally he is bound by it and obliged to comply with the procedure laid down under the said clause Therefore we do not think that the first respondent in appointing the second respondent as the Arbitrator failed to follow the procedure contemplated under the Agreement or acted in contravention of the Arbitration Lastly the appellant alleged that "nomination mentioned in the arbitration clause gives the 1st respondent a right to suggest the name of the Arbitrator to the appellant and the appointment could be done only with the concurrence of the appellant. We do not find any force in In P. Ramanatha Aiyar’s Law Lexiconat page 1310 the meaning of the word ’Nomination" is given as follows: "The action process or instance of nominating 2. The act process or an instrument of nominating an act or right of designating for an office or duty "Nominations" is equivalent to the word appointments" when used by a mayor in an instrument executed for the purpose of appointing certain persons to Nomination virtually amounts to appointment for a specific purpose and the 1st respondent has acted in accordance with Section 20.9 of the Agreement. So long as the concurrence or ratification by the appellant is not stated in the arbitration clause the nomination amounts to selection of the Arbitrator Hence the appellant while filing the application under Section 11 of the Act had no cause of action to sustain the same as there was no failure of the agreement or that the 1st respondent failed to act in terms of the agreement. The application was rightly rejected. The appeal deserves to be and is accordingly dismissed however without any order as to costs

Summary: If  one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days.  The  appellant had entered into a  lease  agreement with  the 1st respondent in respect of certain  machineries. Dispute  arose  between the parties and the  1st  respondent sent a notice to the appellant on 5.8.1999 demanding payment of  Rs.  2,84,58,701 within fourteen days and in the  notice it  was  specifically stated that in case of failure to  pay the amount, the notice be treated as one issued under Clause 20.9  (Arbitration  clause)  of the  Lease  Agreement. The appellant did not  pay the amount as demanded by  the  1st respondent.   The 1st respondent did  not  appoint   an Arbitrator  even  after the lapse of thirty days, but  filed Arbitration Petition No.  405/99 on 26.10.99 under Section 9 of  the  Act for interim protection.  On 25.11.99,  the  1st respondent   appointed  the  2nd   respondent  as  the  sole Arbitrator  by  invoking clause 20.9 of the Lease  Agreement and  the Arbitrator in turn issued a notice to the appellant asking  them  to  make their appearance before him  on  13th March,  2000. PROCEDURAL HISTORY: Thereafter, the appellant filed Arbitration Application  No.  2/2000 before Hon’ble the Chief Justice of Bombay and prayed for appointment of another Arbitrator and the  1st respondent opposed this application.  This petition was  rejected  by  the  Chief Justice holding  that  as  the Arbitrator   had  already  been   appointed  by  the  first respondent,  the Lessor, the petition was not  maintainable. This order is challenged before supreme court.The  appellant challenges an order passed by the Chief Justice  of  Bombay  High  Court, under Section 11  of  the Arbitration  and  Conciliation  Act, 1996. ISSUE BEFORE THE COURT: Whether in a case falling under Section 11(6) of the Arbitration and Conciliation Act, 1996 the arbitrator has to be appointed within 30 days from the date mentioned in the notice for appointment of arbitrator?Whether there was any real failure of the mechanism provided under the lease Agreement. RATIO OF THE COURT:The court observed that the  Arbitration  and  Conciliation   Act,  1996  made certain drastic changes in the Law of Arbitration. Section 11  of  the Act deals with the procedure for appointment  of Arbitrator.  Section 11(2) says that the parties are free to agree  to  any procedure for appointing the Arbitrator.   If only  there is any failure of that procedure, the  aggrieved party  can invoke sub-clause (4), (5) or (6) of Section  11, as  the  case may be.  In the instant case, the  Arbitration clause  in the Lease Agreement contemplates appointment of a sole Arbitrator.  If the parties fail to reach any agreement as  referred to in Sub-Section (2), or if they fail to agree on  the  Arbitrator within thirty days from receipt  of  the request  by  one party, the Chief Justice can be  moved  for appointing  an  Arbitrator  either under sub-clause  (5)  or sub-clause (6) of Section 11 of the Act.The appellant  in  his application does  not  mention under  which sub- section of Section 11 the application  was filed.   Evidently  it must be under Sub-section (6) (a)  of Section  11, as the appellant has no case that a notice  was issued but an Arbitrator was not appointed or that there was a failure to agree on certain Arbitrator.  The contention of the appellant might be that the first respondent failed to act as required under the procedure.The  appellant  contended that the 1st respondent  did not  appoint  the Arbitrator within a reasonable period  and that  amounts to failure of the procedure contemplated under the Agreement.  The court’s attention was drawn to a decision of the Bombay  High  Court  reported  in 1999(2)  Bombay  CR.   189 (Naginbhai  C.   Patel  Vs.  Union of  India).The court held that the above decision has no application to the facts of this case as in the present case, the Arbitrator was already appointed  before  the appellant invoked Section 11  of  the Act.   The  Counsel  for the appellant  contended  that  the Arbitrator was appointed after a long lapse of time and that too without any previous consultation with the appellant and therefore  it was argued that the Chief Justice should  have appointed  a fresh arbitrator.  We do not find much force in this  contention,  especially in view of the specific  words used  in  the Arbitration clause in the Agreement, which  is extracted  above.  The court observed that this is not a case where  the  appellant requested  and  gave  a  notice period  for  appointment  of arbitrator  and  the  latter  failed  to  comply  with  that request. The amount  allegedly due  from  the  appellant  was   substantial  and  the   1st respondent  cannot be said to be at fault for having given a larger  period  for payment of the amount and  settling  the dispute.  It is pertinent to note that the appellant did not file an application even after the 1st respondent invoked Section  9  of the Act and filed a petition seeking  interim relief.   Under such circumstances, it cannot be said that there was  a failure of the procedure prescribed under  the contract.In court’s view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the Court under Section 11, that would be sufficient.In   the   present case   the  respondent  made   the appointment before the appellant filed the application under Section  11(6) though it was beyond 30 days from the date of demand.   In our view, the appointment of the arbitrator by the respondent is valid and it cannot be said that the right was  forfeited  after  expiry of 30 days from  the  date  of demand.The court settled that When parties have entered into a contract and settled on a procedure, due importance has to be given to such procedure. Even though rigor of the doctrine of “freedom of contract” has been whittled down by various labour and social welfare legislation, still the court has to respect http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6 the terms of the contract entered into by parties and endeavor to give importance and effect to it. When the party has not disputed the arbitration clause, normally he is bound by it and obliged to comply with the procedure laid down under the said clause. DECISION HELD BY COURT: In this case the judgment was given by JUSTICE K.G BALKRISHNA that the court do not think that the first respondent, in  appointing  the  second respondent  as  the  Arbitrator, failed  to  follow  the  procedure  contemplated  under  the Agreement  or  acted  in contravention  of  the  Arbitration clause.Lastly,   the  appellant   alleged  that  “nomination” mentioned in the arbitration clause gives the 1st respondent a  right  to  suggest  the name of  the  Arbitrator  to  the appellant  and  the appointment could be done only with  the concurrence  of the appellant.  The bench did not find any force in the contention.The  appellant, while filing  the  application under  Section  11  of  the Act had no cause  of  action  to sustain the same as there was no failure of the agreement or that  the  1st  respondent  failed to act in  terms  of  the agreement.   The application was rightly rejected.   The appeal deserves to be and is accordingly dismissed, however, without      any order as to costs.