CASE NO.:
Appeal (civil) 1783 of 2007
PETITIONER:
Ace Pipeline Contracts Private Limited
RESPONDENT:
Bharat Petroleum Corporation Limited
DATE OF JUDGMENT: 04/04/2007
BENCH:
A.K. Mathur & Tarun Chatterjee
JUDGMENT:
J U D G M E N T
[ ARISING OUT OF S.L.P.(C) NO.6073 OF 2006]
A.K.MATHUR, J.
Leave granted.
This appeal is directed against the order dated 18.1.2006
passed by learned Single Judge of the High Court of Delhi in
Arbitration Petition No.181 of 2005 whereby learned Single Judge
dismissed the application for appointment of Arbitrator. Hence, the
present appeal against the aforesaid order.
Brief facts which are necessary for disposal of this appeal are
that an application styled under Section 11(5) of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as 'the Act') was moved
by the Ace Pipeline Contracts Private Limited, the appellant herein,
for appointing a retired Judge of the Supreme Court of India to
adjudicate the claims and disputes between the parties arising out of
the contract between the parties dated 10.06.2002. The said contract
pertained to the laying down of a pipeline and associated facilities for
Section-1 [Manmad in Maharashtra to M.P. Border near (Shirpur)] for
Mumbai-Manmad Pipeline Extension Project of the respondent-
Bharat Petroleum Corporation Limited (hereinafter referred to as
'BPCL'). The main issue was with regard to interpretation of Clause
91 of the contract which pertains to appointment of arbitrator. Clause
91 of the contract reads as under :
"91. ARBITRATION
All disputes or differences whatsoever which shall at
any time arise between the parties hereto touching or
concerning the works or the execution or
maintenance thereof under this Contract or the right
touching or concerning the works or the execution or
the maintenance effect thereof or to the rights or
liabilities of the parties or arising out of or in relation
thereto whether during or after completion of the
contract or whether before or after determination
foreclosure or breach of the Contract (other than
those in respect of which the decision of any person
is by the Contract expressed to be final and binding)
shall after written notice by either party to the
Contract to the other of them and to the Appointing
Authority be referred for adjudication, to a sole
Arbitrator to be appointed as hereinafter provided.
a. Any dispute or difference of any nature
whatsoever any claim, cross-claim, counter-claim or
set off of the Corporation against the Vendor or
regarding any right, liability, act, omission or account
of any of the parties hereto arising out of or in
relation to this agreement shall be referred to the
Sole Arbitration of the Director (Marketing) of the
Corporation or of some officer of the Corporation who
may be nominated by the Director (Marketing). The
Vendor will not be entitled to raise any objection to
any such Arbitrator on the ground that the Arbitrator
is an Officer of the Corporation or that he has dealt
with the matters to which the contract relates or that
in the course of his duties as an Officer of the
Corporation he had expressed views on all or any
other matters in dispute or difference. In the event of
the Arbitrator to whom the matter is originally referred
being transferred or vacating his office or being
unable to act for any reason, the Director (Marketing)
as aforesaid at the time of such transfer, vacation of
office or inability to act may in the discretion of the
Director (Marketing) designate another person to act
as Arbitrator in accordance with the terms of the
agreement to the end and intent that the original
Arbitrator shall be entitled to continue the arbitration
proceedings notwithstanding his transfer or vacation
of office as an Officer of the Corporation if the
Director (Marketing) does not designate another
person to act as arbitrator on such transfer, vacation
of office or inability of original arbitrator. Such
persons shall be entitled to proceed with the
reference from the point at which it was left by his
predecessor. It is also a term of this contract that no
person other than the Director (Marketing) or a
person nominated by such Director (Marketing) of the
Corporation as aforesaid shall act as an Arbitrator
hereunder. The award of the Arbitrator so appointed
shall be final conclusive and binding on all parties to
the agreement subject to the provisions of the
Conciliation & Arbitration Act, 1996 or any statutory
modification or re-enactment thereof and the rules
made thereunder for the time being in force shall
apply to the arbitration proceedings under this
clause."
Clause 91 provides that any dispute arising between the parties shall
be settled through arbitration and the appointing authority i.e. the
Director (Marketing) himself or he may nominate any other person of
the Corporation to act as an Arbitrator to resolve the disputes and
the vendor will not be entitled to raise any objection to such arbitrator
on the ground that the Arbitrator is an officer of the Corporation or
that he has dealt with the matters to which the contract relates or that
in the course of his duties as an Officer of the Corporation he had
expressed views on all or any other matters in dispute or difference.
Since some differences arose between the parties with regard to the
claim of the appellant, a letter dated 21.7.2005 was written to the
Director (Marketing) invoking clause 91 of the agreement and
requesting him to refer the matter to arbitration for resolving the
differences. It was also requested that the Director (Marketing) may
accede to the request of the appellant for adjudication of the dispute
by a former Judge of the Supreme Court of India so as to remove any
justifiable doubts to the independence or impartiality of the said
Arbitrator. It was further submitted that on receiving the
communication, the appellant would suggest the name of the retired
Judge of the Supreme Court of India for the purpose of appointment
as Arbitrator. It was alleged that no one was appointed as Arbitrator,
therefore, on 22.8.2005 the appellant filed the present application
before the High Court for appointment of Arbitrator under Section
11(5) & (6) of the Act. It was also pointed out that after presentation
of the application on 22.8.2005, the appellant received a letter of the
Director (Marketing) nominating Shri P.S. Bhargava, Executive
Director (Quality Control Cell) of the respondent- BPCL to act as sole
arbitrator. It was contended that the letter appointing Shri
P.S.Bhargava as sole Arbitrator was received by the appellant
subsequent to the filing of the petition before the High Court on
26.8.2005. It was also pointed out that Shri P.S.Bhargava was
appointed as Arbitrator on 22.8.2005 and the same was
communicated and received by the appellant through courier on
26.8.2005. Therefore, it was submitted before the High Court that
since the appointment of Arbitrator has been made after the filing of
the petition by the appellant before the High Court, the Director
(Marketing) ceased to have any right to appoint any Arbitrator after
expiry of thirty days. Therefore, a request was made that any retired
Judge of the Supreme Court may be appointed as Arbitrator. This
was contested by the respondent by filing a reply. It was pointed out
that the notice dated 21.7.2005 was received by the Director
(Marketing) on 26.7.2005 and a request was made to the appellant to
supply copy of the arbitration agreement and other corresponding
documents as he was not aware of the procedure for appointment of
the Arbitrator. The Director (Marketing) received reply to the
communication dated 12.8.2005 on 16.8.2005 which was received
in the Office on 17.8.2005. After receiving the communication and all
the materials on 17.8.2005, the appointing authority appointed Shri
P.S.Bhargava as Arbitrator on 22.8.2005 and a communication was
sent to the appellant through courier which was received by him on
26.8.2005. It was also pointed out after receipt of the reply to the
communication dated 12.8.2005 on 16.8.2005, 19th, 20th & 21st
August, 2005 Office remained closed on account of Rakshya
Bandhan and weekly holidays. The Director (Marketing) sent reply
on 22.8.2005 appointing Shri P.S.Bhargava as Arbitrator. It was also
pointed out that the whole action was done with urgency and there
was no delay on the part of the Administration.
Learned Single Judge after examining the matter came to the
conclusion that it cannot be said that the appointing authority did not
act with due dispatch. Learned Single Judge also held that as per the
terms of the agreement in question with regard to independence and
objectivity of the arbitrator can be examined in view of the agreement
and it was observed that this question can be raised before the
arbitrator and even if they fail, it can be agitated under Section 34 of
the Act. However, learned Single Judge concluded that the situation
had not arisen to invoke the provisions of Section 11(6) of the Act at
present and consequently, dismissed the petition. Aggrieved against
the impugned order dated 18.1.2006, the present appeal was filed.
We have heard Shri Soli J. Sorabjee, learned Senior counsel
for the appellant, and Shri Sudhir Chandra, learned senior counsel for
the respondent, and perused the records. Though the application
moved by the appellant under Section 11 of the Act was of course
very confusing as it also mentioned Section 11(5) as well as Section
11(6) of the Act, in fact the application under Section 11(5) of the Act
was not maintainable. Be that as it may, learned Single Judge
proceeded on the basis of treating this application under Section
11(6) of the Act. This may be bona fide error. Mr. Sorabjee, learned
Senior Counsel for the appellant, strenuously urged that after expiry
of period of thirty days, the respondent has lost the right to appoint
Arbitrator under Clause 91 of the agreement and in support thereof,
invited our attention to the following decisions of this Court.
i) (2000) 8 SCC 151
[Datar Switchgears Ltd. v. Tata Finance Ltd & Anr.]
ii) (2006) 2 SCC 638
[Punj Lloyd Ltd. v. Petronet MHB Ltd.]
iii) (2006) 8 SCC 279
[BSNL & Ors. v. Subash Chandra Kanchan & Anr.]
iv) (2006) 2 SCC 628
[Shin Satellite Public Co.Ltd. v. Jain Studios Ltd.]
v) 2006 (12) SCALE 144
[Union of India & Anr. v. M/s.V.S.Engineering (P) Ltd.]
Our attention was also invited to a Full Bench decision of the Delhi
High Court in J.V. v. Union of India & Ors. decided on 31.8.2006 and
a decision of the Calcutta High Court in Great Eastern Shipping Co.
Ltd. v. Board of Trustees for the Port of Calcutta [2005 (1) Arb. LR
389].
Before we deal with each case cited above, it may be relevant
to deal with scope of Section 11 of the Act. A person of any
nationality may be appointed as Arbitrator, unless otherwise agreed
between the parties. Sub-section (2) of Section 11 says that subject
to sub-section (6), the parties are free to agree on a procedure for
appointing the arbitrator or arbitrators. Sub-section (3) provides that
failing any agreement referred to in sub-section (2), one arbitrator can
be appointed by each party and the two arbitrators so appointed shall
appoint the third arbitrator who shall act as the presiding arbitrator.
Sub-section (4) says that in case a party fails to make appointment
within thirty days from the date of receipt of the request to do so from
the other party, or that the two appointed arbitrators fail to nominate
the third arbitrator within thirty days from the date of their
appointment, the appointment shall be made by the Chief Justice or
by any person or institution designated by him. Sub-section (5) says
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.
Therefore, the concept of thirty days is there in Sub-sections (4) &
(5). This is in the event of the parties did not come to appoint
arbitrator or the two nominated arbitrators fail to agree within thirty
days for appointment of third arbitrator, application can be moved
under Section 11(5) of the Act to the Chief Justice for appointment of
arbitrator. But in sub-section (6), where, the procedure has already
been agreed upon by the parties, as in the present case, and in that
event, if a party fails to act as required under that procedure or the
parties, or the two appointed arbitrators, fail to reach an agreement
expected of them under that procedure or a person, including an
institution, fails to perform any function entrusted to him or it under
that procedure, a party may in that event, request the Chief Justice
or a person or an institution designated by him to make necessary
measures, unless the agreement on the appointment procedure
provides other means for appointment of arbitrator. Therefore, so far
as the period of thirty days is concerned, it is not mentioned in Sub-
section (6). The period of limitation is only provided under sub-
sections (4) & (5) of Section 11. As such, as per the statute, the
period of limitation of thirty days cannot be invoked under sub-section
(6) of Section 11 of the Act. In this context, their Lordships in Datar
Switchgears Ltd. (supra) did not permit to count 30 days as such in
sub-section (6). We cannot do any better than to reproduce
paragraphs 19, 20 & 21 of the judgment in that case.
"19. 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.
20. 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.
21. We need not decide whether for purposes of sub-
sections (4) and (5) of Section, which expressly
prescribe 30 days, the period of 30 days is
mandatory or not."
The observations made by their Lordships are very clear and
Their Lordships negatived the contention that 30 days should not be
read in sub-section (6) of Section 11 of the Act if the opposite party
has not made an appointment within 30 days of demand, the right to
make appointment is not forfeited but continues. Their Lordships in
paragraph 20 have also very categorically held that in the present
case the respondent made the appointment before the appellant filed
the app1lication under section 11(6), though it was beyond 30 days
from the date of demand, the appointment of the arbitrator by the
respondent was valid and it cannot be said that the right was forfeited
after expiry of 30 days from the date of demand. Their Lordships
were also very clear in their mind in paragraph 21 and observed, "we
need not decide whether for purpose of sub-sections (4) and (5) of
Section 11, which expressly prescribe 30 days, the period of 30 days
is mandatory or not. " We are only concerned with reading of 30 days
within sub-section (6) of Section 11. So far as the period of 30 days
with regard to Section 11(6) is concerned, there is no manner of
doubt that their Lordships had not invoked 30 days as mandatory
period under Section 11(6) and beyond that it cannot be invoked by
the appointing authority. Therefore, it is totally misnomer to read 30
days in Section 11(6) of the Act, though Shri Sorabjee, learned senior
counsel appearing for the appellant tried to emphasize that the
decision in Datar has been affirmed by a three Judge Bench and
therefore, 30 days should be read in Section 11(6) of the Act is also
not correct.
In the case of Punj Lloyd Ltd. (Supra), Their Lordships only
quoted paragraph 19 in part and not in full. Full paragraph 19 of the
judgment in Datar (supra) has been reproduced above. In fact
subsequent observation of their Lordships, "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", this portion of
order was not reproduced. Therefore, it is not a case that the
decision given by two Judge Bench in Datar (supra) has been
reaffirmed and this is binding on us. We regret to say this is not
correct. In the case of Punj Llyod Ltd. Their Lordships only set aside
the order and remitted the matter back to the High Court for
appointment of arbitrator by the Chief Justice. But the ratio laid down
in Datar (supra) holds good and it is not negatived, the period of 30
days cannot be read in Section 11(6) of the Act. The relevant portion
of Punj Lloyd's case (supra) reads as under:-
"Having heard the learned counsel for the parties, we
are satisfied that the appeal deserves to be allowed.
The learned counsel for the appellant has placed
reliance on the law laid down by this Court in the
case of Datar Switchgears Ltd. v. Tata Finance Ltd.
(SCC p.158, para 19) wherein this Court has held as
under :
"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."
The /aforesaid quotation would clearly reveal that the crucial
words in paragraph 5 were not quoted in the aforesaid case which
has been reproduced above.
Our attention was also invited to a decision of this Court in the
case of Union of India v. Popular Construction Co. [(2001) 8 SCC
470]. This was in relation to Section 34(3) of the Act. This is with
regard to the period of limitation for moving the Court under Section
34 of the Act for setting aside the award i.e. the period of limitation
was prescribed in Section 34 itself. Therefore, Section 5 of the
Limitation Act was not made applicable. This is not the case before
us in the present controversy.
Our attention was also invited to a decision of this Court in the
case of The State of Uttar Pradesh & Ors. v. Babu Ram Upadhya
[(1961) 2 SCR 679]. In that case, their Lordships have dealt with the
interpretation of the statute and they have referred to "Statute Law"
by Craies and "The Interpretation of Statutes" by Maxwell. Their
Lordships have quoted a passage from Maxwell which reads as
under:
"On the other hand, where the prescriptions of a
statute relate to the performance of a public duty and
where the invalidation of acts done in neglect of them
would work serious general inconvenience or
injustice to persons who have no control over those
entrusted with the duty without promoting the
essential aims of the legislature, such prescriptions
seem to be generally understood as mere
instructions for the guidance and government of
those on whom the duty is imposed, or, in other
words, as directory only. The neglect of them may be
penal, indeed, but it does not affect the validity of the
act done in disregard of them."
This observation, so far as this case is concerned, has no relevance
as we have already mentioned above that the period of 30 days
cannot be read in Sub-section (6) of Section 11 of the Act as the
statute does not permit it. Therefore, this case does not help the case
of the appellant in any manner.
Our attention was invited to a Full Bench decision of the High
Court of Delhi [J.V. v. Union of India & Ors. decided on 31.8.2006]
and a decision of the Calcutta High Court in Great Eastern Shipping
Co.Ltd. (supra). Both these decisions are in total ignorance of the
law laid down by this Court in Datar (supra). Therefore, they cannot
hold good. We again reemphasize that in paragraphs 19, 20 & 21
Their Lordships have clearly negatived the submission that period of
30 days cannot be read in sub-section (6) of Section 11 of the Act.
Our attention was also invited to a decision of this Court in Shin
Satellite Public Co.Ltd. v. Jain Studios Ltd. [(2006) 2 SCC 628]. This
decision was given by Hon'ble C.K. Thakker, J. in chambers. There
also, no such view has been taken by learned Judge that the period
of 30 days should be read in sub-section (6) of Section 11 of the Act.
Our attention was also invited to a decision of this Court in BSNL &
Ors. v. Subash Chandra Kanchan & Anr. [(2006) 8 SCC 279]. There
also, the question was whether the appellant was consenting party to
appointment of arbitrator or not. Appointment of arbitrator was made
by the High Court with the consent of parties which was subsequently
sought to be revoked on the ground that no instruction in that behalf
was given. But that contention was negatived by the Court and there
also, the question of appointment of arbitrator within the period of 30
days was not decided. In this connection a reference may also be
made to a decision of this Court in the case of Union of India & Anr. v.
M.P.Gupta [(2004) 10 SCC 504]. In that case, arbitrator was
appointed by the High Court directly a Judge of the High Court
because no arbitrator was appointed by the Railway Authorities as
per Clause 64 of their agreement. Their Lordships after considering
the matter observed that the appointment of arbitrator by the High
Court under Section 20 of the Arbitration Act, 1940 cannot be upheld
in view of Clause 64 of the agreement because as per Clause 64 of
the agreement, two arbitrators have to be appointed who should be
gazetted railway officers. Therefore, as per the terms of the
agreement their Lordships held that the appointment of arbitrator by
the High Court was not correct and set aside the order and directed
the Railways to appoint arbitrators within 30 days. Similar issue
came up before this Court in Union of India & Anr. v. M/s. V.S.
Engineering Pvt. Ltd. [2006 (12) SCALE 144]. This Court after
considering the decision in Union of India & Anr. v. M.P.Gupta
[(2004) 10 SCC 504] and Datar Switchgears Ltd. (supra) directed that
as per Clauses 63 & 64 of the General Clauses of the Contract, only
two gazetted officers of the railways have to be appointed as
arbitrators. However, it was observed that failure on the part of the
Department to take a decision for appointment of arbitrators would
not defeat the right of the party to approach the High Court for
appointment of arbitrator. Direction was given to the Department for
appointment of arbitrators within 30 days.
It may also not be out of place to mention that we are aware of
the Departmental lethargy in making appointment of arbitrators in
terms of the arbitration clause. Therefore, mandamus can be issued
by the Courts in exercise of powers under Section 11(6) of the Act but
the demand should be in the even t of failure by the authorities to
appoint arbitrators within the reasonable time. Courts are not
powerless to issue mandamus to the authorities to appoint arbitrators
as far as possible as per the arbitration clause. But in large number
of cases if it is found that it would not be conducive in the interest of
parties or for any other reasons to be recorded in writing, choice can
go beyond the designated persons or institutions in appropriate
cases. But it should normally be adhered to the terms of arbitration
clause & appoint the arbitrator/arbitrators named therein except in
exceptional cases for reasons to be recorded or where both parties
agree for common name.
In the present case, in fact the appellant's demand was to get
some retired Judge of the Supreme Court to be appointed as
arbitrator on the ground that if any person nominated in the arbitration
clause is appointed, then it may suffer from bias or the arbitrator may
not be impartial or independent in taking decision. Once a party has
entered into an agreement with eyes wide open it cannot wriggle out
of the situation that if any person of the respondent-BPCL is
appointed as arbitrator he will not be impartial or objective.
However, if the appellant feels that the arbitrator has not acted
independently or impartially, or he has suffered from any bias, it will
always be open to the party to make an application under Section 34
of the Act to set aside the award on the ground that arbitrator acted
with bias or malice in law or fact.
In view of our above discussion, we find no reason to interfere
with the order passed by the learned Single Judge of the High Court
of Delhi in Arbitration Petition No.181 of 2005. The arbitrator has
already been appointed. He should proceed in the matter and decide
the dispute expeditiously. Consequently, the appeal is dismissed
with no order as to costs.
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