Union Of India (Uoi) And Ors. vs Dhanurdhar Champatiray on 17 March, 2004

    Union Of India (Uoi) And Ors. vs Dhanurdhar Champatiray on 17/3/2004

JUDGMENT

   A.K. Patnaik, J.

   1. The Opp. Party executed a construction work for the petitioners. Some
disputes arose between the petitioners and the Opp. Party arising out of the
said work. Clause 25 of the agreement between the parties provided for reference
of the disputes to the sole arbitrator or the person appointed by the Chief
Engineer-in-charge of the work at the time of dispute or if there be no Chief
Engineer, the administrative head of the said work at the time of such
appointment. On 26.3.2003, the Chief Engineer-in-charge received a written
request dated 21.3.2003 from the Opp. Party for appointment of the arbitrator.
When no arbitrator was appointed by the Chief Engineer-in-charge, the Opp. Party
filed an application under Section 11 of the Arbitration and Conciliation Act,
1996 in ARBP No. 21 of 2003 before the Chief Justice of the High Court, praying
for appointment of an arbitrator. The said prayer was opposed by the petitioners
before the Chief Justice stating that in the meanwhile an arbitrator had been
appointed on 2.7.2003. By order dated 21.1.2004 the Chief Justice relying on the
decision of the Supreme Court in Datar Switchgears Ltd. v. Tata Finance Ltd. and
Anr., 2000 (8) SCC 151, held that since appointment of the arbitrator was made
by the Chief Engineer-in-charge after the application under Section 11 of the
Arbitration and Conciliation Act, 1996 was filed, such appointment was without
jurisdiction. Having so held, the Chief Justice passed orders appointing Shri
Gobind Das, a Senior Advocate, as an Arbitrator, by the said order dated
21.1.2004. Aggrieved by the said order dated 21.1.2004, the petitioner has filed
this writ petition under Article 226 of the Constitution praying for appropriate
relief.

   2. Mrs. Agarwal, learned Standing Counsel for the petitioners submitted that
since the procedure for appointment of the Arbitrator had been agreed to by the
parties in Clause 25 of the agreement, the Arbitrator could only be appointed as
per the said procedure and merely because there was delay in making the
appointment as per the said procedure, the Chief Justice could not have, in the
impugned order held that the appointment of the Arbitrator by the Chief
Engineer-in-charge in accordance with Clause 25 of the agreement was without
jurisdiction. She further submitted that in the decision of the Supreme Court in
Datar Switchgears Ltd. v. Tata Finance Ltd. and Anr. (supra) on which reliance
was placed by the Chief Justice in the impugned order, the Supreme Court has
held in paragraph - 23 that when the parties have entered into a contract and
settled on a procedure, due importance has to be given to such procedure and the
Court has to respect the terms of the contract entered into by parties and
endeavour to give importance and effect to it. She further pointed out that in
the said paragraph - 23 of the decision, the Supreme Court held that 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.

   3. Mr. Sanganeria, learned counsel for the Opp. Party, on the other hand,
submitted that in the said decision of the Supreme Court in Datar Switchgears
Ltd. v. Tata Finance Ltd. and Anr. (supra), the Supreme Court has specifically
held that where the parties have agreed to an appointment procedure for
appointing arbitrator and one party demands on the other party to appoint an
arbitrator and the said party does not make the appointment even after expiry of
30 days and an application under Section 11 for appointment of an Arbitrator is
filed, the right of the party to appoint the Arbitrator ceases. He submitted
that in the present case since the Chief Engineer-in-charge did not appoint the
arbitrator in accordance with the agreed procedure in Clause 25 of the agreement
even after expiry of 30 days and the Opp. Party filed an application under
Section 11, the right of the petitioners to appoint the arbitrator ceased on
filing of such application.

   4. We find force in the aforesaid submission of Mr. Sanganeria. Sub-section
(2) of Section 11 of the Arbitration and Conciliation Act, 1996 provides that
subject to Sub-section (6), the parties are free to agree on a procedure for
appointing the arbitrator or arbitrators. Sub-section (6) of Section 11 of the
said Act further provides that where under an appointment procedure is agreed
upon by the parties and a party fails to act as required under that procedure, a
party may request the Chief Justice or any person or institution designated by
him to take the necessary measure, unless the agreement on the appointment
procedure provides other means for securing the appointment. In Datar
Switchgears Ltd. v. Tata Finance Ltd. and Anr. (supra) the Supreme Court after
analysing the provisions of Section 11 of the said Act, held :

     "So far as cases failing 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 Opp. 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."

   It would be clear from the language used by the Supreme Court in the judgment
quoted above that where parties have agreed to a procedure to appoint the
arbitrator and the party who is to make such appointment fails to act as
required under the procedure, within 30 days, the right of the party to appoint
the arbitrator as per the agreed procedure for appointment does not ceases on
expiry of 30 days but even in such a case, the appointment of an arbitrator as
per the agreed procedure has to be made before the other party files an
application under Section 11 seeking appointment of an arbitrator.

   5. In this case, on expiry of 30 days period from the date of receipt of the
request of the Opp. Party for appointment of an arbitrator, the Chief Engineer-
in-charge could still appoint the arbitrator as per the agreed procedure but
after expiry of the 30 days period, once the Opp. Party filed an application for
appointment of an arbitrator under Section 11 of the Act, the Chief Engineer-in-
charge could not appoint the arbitrator. Admittedly the period of 30 days from
the date of receipt of the request of the Opp. Party on 26.3,2003, expired on
26.4.2003. The application for appointment of an arbitrator under Section 11 of
the Act was filed, before the Chief Justice on 30.4.2003. On 30.4.2003 the Chief
Engineer-in-charge had not appointed an arbitrator under Clause 25 of the
agreement. Instead he appointed the arbitrator on 2.7.2003. The Chief Justice,
therefore, was right in coming to the conclusion in the impugned order dated
21.1.2004 that the appointment of the arbitrator was without jurisdiction.

   6. For the aforesaid reasons, we are not inclined to interfere with the
impugned order dated 21.1.2004 of the Chief Justice in ARBP No. 21 of 2003 and
we accordingly dismiss the writ petition.

   M.M. DAS, J.

   7. I agree.