Hbhl-Vks (J.V.) vs Union Of India (Uoi) And Ors. ... on 31 August, 2006

    Hbhl-Vks (J.V.) vs Union Of India (Uoi) And Ors.

   [Along With Arb.P. 213/2005] on 31/8/2006

JUDGMENT

   Swatanter Kumar, J.

   1. Making arbitration more responsive to contemporary requirements and to
ensure that economic reforms become fully effective, with these two objects in
mind, the Law Commission of India recommended radical changes in the then
existing arbitration law. This resulted in the enactment of the Arbitration and
Conciliation Act, 1996. The new law provides for definite and effective measures
for settlement of both domestic and international commercial disputes, through
the process of arbitration. The United Nations Commission on International Trade
Law adopted model law and rules which were intended to deal with international
commercial arbitration and conciliation. The law relating to domestic
arbitration, thus, was also required to be in comity to this concept. One of the
basic objects of 1996 Act was to make provision for an arbitral procedure which
is fair, efficient and capable of meeting the needs of specific arbitration.
While reducing the court intervention during the pendency of arbitral tribunal
proceedings, the object sought to be achieved by enactment of new law was
expeditious finalization of disputes through the forum of arbitration.

   2. Judicial interpretation of Statutes is a known process for development of
law. Legislature may amend the laws while the judicial pronouncements may fill
the lacunas left by the legislature, which may be necessary for achieving the
object of the Statute. Various provisions of 1996 Act have been subjected to
judicial interpretation which clarified certain aspects of the Act, but still
the questions relating to ambit and scope of provisions of Section 11(6) of the
Act needs to be settled by the court more authoritatively in view of the fact
that by interpretative process, various High Courts as well as different Benches
of this Court have pronounced divergently. The statutory procedure for
appointment of Arbitral Tribunal in terms of the Act has to be understood in its
clear terms and normally would not be controlled by the parties. The failure by
any of the parties to the agreement in relation to appointment or its procedure,
the Statute gives right to the party to make an application to the court for
that purpose. The arbitration agreement may provide for appointment of an
Arbitral Tribunal by consent, power of appointment may be exercisable by a third
party known as 'Appointing Authority' and in the event this does not bring
result, then by making an application for appointment of an Arbitral Tribunal to
the court of competent jurisdiction in accordance with the provisions of the
Act. The time may be specified in the agreement and it is of greater essence
when it is spelled out in the provisions of law itself. The arbitration
agreement often specifies a time within which an Arbitrator must be appointed
failing which a party may lose the right to appoint one. In absence of the
agreement the time limit is provided in the Statute. (Russell on Arbitration
20th Edition). The extent of loss of right and consequence of default could be
provided contractually or statutorily. Loss of a right contractually stated may
vary but loss of right in terms of Statute would be uniform.

   3. The provisions of Section 11 of the Act has been subject matter of some
legal controversy in the recent past. Its various Sub-sections operate in
different situations with somewhat different consequences. On failure of a party
to act for appointment of an Arbitrator as per the agreed procedure, certain
consequences would follow in law. The extent and scope of such ramifications
have to be examined in view of the underlining object of the relevant legal
provisions while keeping in mind the facts and circumstances of the case. Courts
have taken divergent views in this regard which persuaded one of us (Mr.
Swatanter Kumar, J.) to refer the matter to a larger Bench for setting at rest
the legal controversies arising in the present case. The order of reference
reads as under:

     1. This order will dispose of the above three cases as common question of
law falls for consideration in all these cases based on somewhat similar facts.
For the purposes of convenience, it will be sufficient to make the reference
only to the facts giving rise to the filing of Arb.P.217/2005 (HBHL-VKS (J.V.)
v. The General Manager and Anr.).

     2. The petitioner which is a registered partnership concern through its
registered partner Sh. B.K. Bassi has filed the present petition under Section
11(6) of the Arbitration and Conciliation Act, 1996 praying for a direction to
the respondents to file the original arbitration agreement in Court and for
appointment of an independent sole arbitrator for adjudication of the
disputes/claims detailed in para 7(xxiii) of the petition. The petitioner is
carrying on the business of Engineers and Contractors. The respondents invited
the tender for the work under the name and style 'Construction of single line
Br. No. 9 at Km 7.512 over sewer outlet near sector-47 consisting of super
structure of pre-stressed concrete box girder center to center bearing 4x31.5m
and sub structure with RCC abutment and piers on well foundations and other
allied works on Chandigarh Morinda Ph-I, Section of Chandigarh-Ludhiana new B.G.
Rail Link.' The petitioner submitted its tender which was opened on 13.3.2001.
The respondents vide their letter dated 7.6.2001 informed the petitioner that
the tender of the petitioner for the work in question had been accepted and the
parties entered into an agreement dated 24.4.2002. Clause 64 of the agreement
contemplates resolution of disputes by reference to arbitration. According to
the petitioner, the work was required to be completed within a period of 18
months from the date of issue of the award with an approximate cost of Rs.
2,50,49,729.07/-. The petitioner geared up the entire resources and mobilized
them to the site of the work. It is also stated by the petitioner that after GAD
was made available to it, it started excavation for placement of cutting edge on
A1 and also taken layout etc. for starting the work. It was noticed that the
drawings given by the respondents were not the same as in the case of Bridge No.
8 and other bridges and the work done by the petitioner was wasted. The
respondents vide their letter dated 22.1.2002 pointed out that the drawings for
casting of well curb, well steining etc. have already been provided to the
petitioner and as such they should start the work. This resulted in delay and
certain recoveries towards security were made by the respondents contrary to the
guidelines and policy framed by the Railway Board. The petitioner requested for
release of the excess amount of security recovered. The petitioner requested the
respondents to provide for the detailed drawings and to do the needful but
instead of acceding to the genuine request, a notice dated 25/26.7.2002 was
issued The notice was more intended to cover up own faults of the respondents.
Despite the fact that the hindrances were caused by the respondents, they did
not agree to the request of the petitioner fully but extended the time up to
30.7.2003 vide their letter dated 20.12.2002 without levy of penalty but without
PVC also. Certain other disputes also arose between the parties with regard to
rate of cement and steel and payments in that behalf. The petitioner vide its
letter dated 18.5.2004 refuted the allegations made by the respondents and
raised its claims to the extent of Rs. 90 lacs which have been detailed in
paragraph 7(xxiii) of the petition. The petitioner served a notice upon the
respondents dated 5.7.2005 by which it invoked the arbitration clause feeling
that its request to the respondents would be no consequence. In the
letter/notice dated 5.1.2005/5.7.2005, the petitioner had detailed all the
disputes, its claims and had specifically called upon the respondents that it is
invoking clause No. 64 of the general conditions of agreement, the arbitration
clause and in the event no steps are taken within 30 days, it would take action
in accordance with law. The notice dated 5.7.2005 was served upon the
respondents by speed post. Despite service and grant of opportunity, no reply
was filed in this case and Arb.P. 219/2005. However in the other connected case
i.e. Arb.P. 213/2005, reply was filed.

     3. learned Counsel appearing for the respondents, during the course of
hearing of the cases, had handed over a letter to the counsel appearing for the
petitioners requiring them to give their choice of arbitrator out of the panel
of arbitrators stated in that letter. There is hardly any controversy or dispute
to the facts stated in the petition. The parties have argued the case primarily
on the question of law. According to the petitioners, in view of judgment of the
Supreme Court in the case of Datar Switchgears Ltd. v. Tata Finance Ltd. and
Anr. , the respondents have lost

     the right to appoint an arbitrator in terms of Clause 64 of the contract as
despite service, they failed to act within a period of 30 days or even prior to
the filing of the petition.

     4. On the other hand, learned Counsel appearing for the respondents have
contended that firstly the Datar Switchgear's case does not apply to the facts
of the present case and secondly despite filing of the petition, the respondents
do not loose the right to make appointment of the arbitrator in accordance with
Clause 64 of the general terms and conditions of the agreement and in fact, the
Court would have also to direct appointment of the arbitrator only from the
panel proposed by the respondents.

     5. Before the Court proceeds to examine the merit or otherwise of the
contentions raised by the parties, it will be appropriate to refer to the
arbitration clause contained in the general terms and conditions of the
agreement executed between the parties:

     64 (1) (i) Demand for Arbitration.- In the event of any dispute or
difference between the parties hereto as to the construction or operation of
this contract, or the respective rights and liabilities of the parties on any
matter in question, dispute or difference on any account or as to the
withholding by the Railway of any certificate to which the contractor may claim
to be entitled to, or if the Railway falls to make a decision within 120 days,
then and in any such case, but except in any of the 'expected matters' referred
to in Clause -63 of these conditions, the contractor, after 120 days but with in
180 days of his presenting his final claim on disputed matters, shall demand in
writing that the dispute or difference by referred to arbitration.

     64 (i) (ii)-The demand for arbitration shall specify the matters which are
in question or subject of the dispute or difference as also the amount of claim
itemwise. Only such dispute(s) or difference (s) in respect of which the demand
has been made together with counter claims or set off shall be referred to
arbitration and other matters shall not be included in the reference.

     64(1)(ii) (a) - the Arbitration proceeding shall be assumed to have
commenced from the day, a written and valid demand for arbitration is received
by the Railway.

     (b) The claimant shall submit his claim stating the facts supporting the
claim Along with all relevant documents and the relief or remedy sought against
each claim within a period of 30 days from the date of appointment of the
Arbitral Tribunal.

     (c) The Railway shall submit its defense statement and counter claim (s),
if any, within a period of 60 days of receipt of copy of claim from Tribunal
thereafter unless otherwise extension has been granted by the Tribunal.

     64 (1) (iii)-No new claim shall be added during proceedings by either
party. However, a party may amend or supplement the original, claim or defense
thereof during the course of arbitration proceedings subject to acceptance by
Tribunal having due regard to the delay in making it.

     64(1)(iv) - If the contractor (s) does/do not prefer his/their specific and
final claim in writing, within a period of 90 days of receiving the intimation
from the Railways that the final bill is ready for payment, he/they will be
deemed to have waived his/their claim(s) and the Railway shall be discharged and
released of all liabilities under the contract in respect of these claims.

     64(2) Obligation during pendency of arbitration. - Work under the contract
shall, unless otherwise directed by the Engineer, continue during the
arbitration proceedings, and no payment due or payable by the Railway shall be
withheld on account of such proceedings, provided, however, it shall be open for
Arbitral Tribunal to consider and decide whether or not such work should
continue during arbitration proceedings.

     64(3)(a)(i) In cases where the total value of all claims in question added
together does not exceed Rs. 10,00,000/- (Rupees ten lakhs only), the Arbitral
Tribunal consist of a sole arbitrator who shall be either the General Manager or
a gazetted officer of Railway not below the grade of JA grade nominated by the
General Manager in that behalf. The sole arbitration shall be appointed within
60 days from the day when a written and valid demand for arbitration is received
by Railway.

     64(3)(a)(ii) In cases not covered by Clause 64(3)(a)(i), the Arbitral
Tribunal shall consist of a panel of three Gazetted Rly. Officers not below JA
grade, as the arbitrators. For this purpose, the Railway will send a panel of
more than 3 names of Gazetted Rly. Officers of one or more departments, of the
Rly. to the contractor who will be asked to suggest to General Manager up to 2
names out of panel for appointment as contractor's nominee. The General Manager
shall appoint at least one out of them as the contractor's nominee and will,
also simultaneously appoint the balance number of arbitrators either from the
panel or from outside the panel, duly indicating the presiding arbitrator from
amongst the 3 arbitrators so appointed. While nominating the arbitrators it will
be necessary to ensure that one of them is from the Accounts department. An
officer of Selection Grade of the Accounts department shall be considered of
equal status to the officers in SA grade of other departments of the Railways
for the purpose of appointment of arbitrators.

     64(3)(a)(iii)If one or more of the arbitrators appointed as above refuses
to act as arbitrator, withdraws from his office as arbitrator, or vacates
his/their office/offices or is/are unable or unwilling to perform his functions
as arbitrator for any reason whatsoever or dies or in the opinion of the General
Manager fails to act without undue delay, the General Manager shall appoint new
arbitrator/arbitrators to act in his/their place in the same manner in which the
earlier arbitrator/arbitrators had been appointed. Such re-constituted Tribunal
may, at its discretion, proceed with the reference from the stage at which it
was left by the previous arbitrator(s).

     64(3)(a)(iv) The arbitral Tribunal shall have power to call for such
evidence by way of affidavits or otherwise as the Arbitral Tribunal shall think
proper, and it shall be the duty of the parties hereto to do or cause to be done
all such things as may be necessary to enable the Arbitral Tribunal to make the
award without any delay.

     64(3)(a)(v) While appointing arbitrator(s) under Sub clause (i), (ii) and
(iii) above, due care shall be taken that he/they is/are not the one/those who
had an opportunity to deal with the matters to which the contract relates or who
in the course of his/their duties as Railway servants (s) expressed views on all
or any of the matters under dispute or differences. The proceedings of the
Arbitral Tribunal or the award made by such Tribunal will, however, not be
invalid merely for the reason that one or more arbitrator had, in the course of
his service, opportunity to deal with the matters to which the contract relates
or who in the course of his/their duties expressed views on all or any of the
matters under dispute.

     64(3)(b)(i)The arbitral award shall state itemwise, the sum and reasons
upon which it is based.

     63(3)(b((ii)A party may apply for corrections of any computational errors,
any typographical or clerical errors or any other error of similar nature
ocuring in the award and interpretation of a specific point of award to tribunal
within 30 days of receipt of the award.

     64(3)(b)(iii)A party may apply to tribunal within 30 days of receipt of
award to make an additional award as to claims presented in the arbitral
proceedings but omitted from the arbitral award.

     64.4 In case of Tribunal, comprising of there members, any ruling or award
shall be made by a majority of Members of Tribunal. In the absence of such a
majority, the views of the Presiding Arbitrator shall prevail.

     64.5 Where the arbitral award is for the payment of money, no interest
shall be payable on whole or any part of the money for any period till the date
on which the award is made.

     64.6 The cost of arbitration shall be borne by the respective parties. The
cost shall inter alia include fee of the arbitrator (s) as per the rates fixed
by the Rly. Administration from time to time.

     64.7 Subject to the provisions of the aforesaid Arbitration and
Conciliation Act 1996 and the rules there under any any statutory modification
thereof shall apply to the arbitration proceedings under this clause.

     6. The arbitration clause as afore referred contemplates reference to a
sole Arbitrator who shall be the General Manager or Gazetted Railway Officer
nominated by him, if the claim is below Rs. 5 lacs to two Arbitrators. The
different mods of appointment of Arbitrator and mode to be followed in their
appointment is prescribed under the arbitration clause executed between the
parties. Admittedly, the claims in the present case are in excess of Rs. 5 lacs
and as such Clause (ii) shall apply to the present case. The two Arbitrators are
to be appointed who shall be Gazetted Railway Officers and depending on the
nature of the controversy the General Manager has to nominate one Arbitrator
while the other person has to be one suggested by the Contractor out of the list
given by the department for appointment as contractor's nominee. The arbitration
clause is comprehensive and clearly provides for appointment of an Arbitrator
for determination of disputes which has arisen between the parties. There is no
dispute to the fact that disputes had arisen between the parties and the
petitioner had served upon the respondents letter cum notices dated 5.1.05 and
5.7.05 invoking Clause 64. The basic question , thus, comes up for consideration
of the Court is that to what extent the respondents have lost their rights for
appointing an Arbitrator in terms of the arbitration clause between the parties.

     7. We may also notice here that during the course of the hearing of this
case, a panel of Arbitrators was given by the respondents which was not
acceptable to the petitioners who contended that the respondents have lost their
rights to make any appointment and the petitioners are entitled to appointment
of a sole Arbitrator on the basis of the various judgments relied upon by them.
Though according to the respondents, Datar's case is not applicable to the facts
and circumstances of the present case as that was a case of a sole Arbitrator
and not three arbitrators as contemplated under Clause 64 of the Act. It is also
their contention that the 'loss of rights' as referred to in the Datar's case is
merely loss of making offer i.e is the panel but still the procedure for
appointment of an Arbitrator would continue to be the same and the terms of the
arbitration clause between the parties are no way effected. As is clear from the
contentions raised on behalf of the parties that both are relying upon Datar's
Switchgears case the petitioners rely upon the following paragraphs:

     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
an 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 contract.

     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
and 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 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 demand.

     We need not decide whether for purposes of Sub-sections (4) and (5) of
Section 11, which expressly prescribe 30 days, the period of 30 days is
mandatory or not.'

     8. On the other hand, the learned Counsel appearing for the respondents
have relied upon the following paragraphs of the same judgment:

     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 Rly. Corporation Ltd. v. Mehul Construction co; 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
made 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 maintainability.

     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 Law (UNCITRAL). Section 11 of the Act deals with the
procedure for appointment of an 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-sections
(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-section (5) or Sub-section (6) of
Section 11 of the Act.

     Sub-section (5) of 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-section (6) of
Section 11 can be filed when there is a failure of the procedure for appointment
of an 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 an 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 an arbitrator.
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 a
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.
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 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. We do not find any force in the contention.

     9. Besides the fact that both the parties are relying upon different
paragraphs of Datar Switchgear's case (supra), the contention of the respondents
is that there is an agreed procedure under the agreement between the parties for
appointment of an arbitrator in terms of Clause 64 which has to be adopted. The
loss of right is limited in its operation and the Court would direct the parties
to act in terms of the appointment procedure contained in the arbitration
clause. It is also contended that the scope of the word 'necessary measures'
appearing in Section 11(6) of the Act does not empower the Court to make an
independent appointment of an arbitrator. The Chief Justice has merely to take
necessary measures for enforcing the procedure laid down in the arbitration
clause under Sub-section (6) of Section 11 and the parties would still be bound
and would have to respect the terms and conditions of the contract entered into
between the parties. Distinguishing Datar Switchgear's case which according to
the respondents has no application to the facts of the present case, they have
also relied upon the judgments in the cases of National Thermal Power
Corporation Ltd. v. Raghul Constructions Pvt. Ltd. , J.L. Prasad v. The General
Manager, Southern

     Railway, Chennai 2002(1) Arb.L.R. 584 (Karnataka), Essel Shyam
Communication Ltd. v. Union of India and Ors. and

     Modi Korea Telecommunications Ltd. v. Deptt. Of Telecommunications 2001(1)
RAJ 289 (Del.).

     10. On the other hand, the petitioners while heavily relying upon Datar
Switchgear's case (supra) contended that the forfeiture or loss of right is
absolute and the Court is obliged to appoint an independent arbitrator. The
scope of Section 11(6) is squarely answered by the Court in the Datar
Switchgear's case. As such, the Court should appoint an independent arbitrator
and not permitting the respondents to take advantage of their own default and
continue to take recourse to the arbitration clause as it exists. They have
relied upon the judgments in the cases of National Thermal Power Corporation v.
Gauri Shankar Agarwal and Co. (DB), Shin Satellite Public Co. Ltd. V. M/s. Jain
Studios Limited JT 2006 (2) SC 89, L.K. Verma v. H.M.T. Ltd. and Anr. JT 2006(2)
SC 99, Skanasha Cementation India Ltd. v. Union of India and Ors. Arb.P.
179/2004 decided by this Court on 12th October, 2004, Indian Oil Corporation
Ltd. v. Kiran Construction Co. and Anr. CW Nos. 1710, 1719/2002 decided by this
Court on 27.9.2002 and Nandyal Coop. Spinning Mills Ltd. v. K.V. Mohan Rao . The

     reference to the referred cases would show that not only different High
Courts but even the same High Court particularly different Benches of this Court
have taken different view in regard to effect and scope of Section 11(6) of the
Act in face of the judgment of the Supreme Court in Datar Switchgear's case. In
the judgment of the Constitutional Bench of the Supreme Court in the case of
S.B.P. and Co. v. Patel Engineering Ltd. and Anr. 2005(3) Arb.L.R. 285(SC), the
Supreme Court developed the principle and settled the law mainly in regard to
whether the power exercisable by the Chief Justice and his nominee under the Act
was merely an administrative and was not a judicial power. The Supreme Court
also clarified the scope of questions which the Court will and can go into
before making a reference. This judgment of the Supreme Court, in no way,
touched upon the ambit of the provisions of Section 11(6) particularly in regard
to the concept of forfeiture/loss of right to make appointment in terms of
arbitration clause. Much can be argued on both sides and as already noticed
there are judicial precedents taking divergent views. In face of the judgment of
the Supreme Court in Datar Switchgear's case, the High Court could hardly have
an option and the only exception would be what is the scope of Section 11(6). Is
the Court only to administratively act and called upon the defaulting party to
act in accordance with the arbitration clause and thus take necessary steps for
that purpose or the Court can appoint an independent arbitrator irrespective of
the language of the arbitration clause. The argument raised on behalf of the
respondents that what they have defaulted in doing by not appointing an
arbitrator within 30 days or even before filing of the petition under Section
11(6), the jurisdiction of the Court would only be to take necessary steps or to
appoint arbitrator in terms of the clause, appears to be a submission quite
contrary to law. It is too far-fetched for the respondents to argue that if they
default in making an appointment of an arbitrator in terms of the arbitration
clause within the time afore-indicated, the Court will step in only to perform
what they have failed. In other words, the Court would only be able to act and
require the parties to adhere to the arbitration agreement. In that event, the
entire concept of default would be ineffective and inconsequential. The view
taken by the High Courts of Kerala and Karnataka as well as some of the Benches
of this Court at least ex facie appears to be not in comity to the judgment of
the Supreme Court in Datar Switchgear's case. This is a question which arises
more than often and in number of cases. Keeping in view the divergent views of
this Court as well as the other High Courts, in my humble opinion, the cases
deserve to be referred to a larger and preferably a full bench as there are DB
judgments of this Court as well as the other High Courts and of course a number
of Single Bench Judgments taking divergent views.

     11. One of the essential facets of this case would be the application of
the principle of stare decisis as the Supreme Court in Datar Switchgear's case
has clearly spelled out the principle of law i.e. forfeiture or loss of right in
the event of default. Once the default is committed and the other party
approaches the Court then this accrued benefit can hardly be taken away on the
basis that the Court would only act to require the parties to follow the
arbitration agreement and the procedure provided therein and still same persons
would be appointed as arbitrators. In fact and interestingly, the learned
Counsel appearing for the respondents also argued that the loss of right is only
depriving the respondents to offer the panel of arbitrators through the
contractor requiring him to choose his nominee arbitrator. Even if it is assumed
that it is not a complete loss of right but is a partial loss as contended, even
then the whole arbitration clause i.e. Clause 64 can hardly be effectively
completed. It will not be possible to accomplish the final appointment of the
arbitral tribunal. The judicial proprietory would require that the views of the
Supreme Court in Datar Switchgear's case being a law of the land as contemplated
under Article 141 of the Constitution of India should be applied without carving
out exceptions and the consequences of default by forfeiture or loss of right
may be led to enforce uniformally. The following two specific questions of law
need to be considered by the larger Bench:

     1. Whether the decision of the Supreme Court in Datar Switchgear's case
does not lay down unambiguously that in the event of default of a party making
appointment of an arbitrator in terms of the arbitration clause within 30 days
or prior to the institution of the petition by the other side, the loss or
forfeiture of right would be absolute'

     2. Whether on the interpretation of provisions of Section 11(6) of the Act,
the Chief Justice or his nominee while discharging judicial functions as spelled
out in the case of SBP Co.(Supra) by the Constitution Bench of the Supreme
Court, has jurisdiction only to take 'necessary measures' for enforcing the
procedure laid down in the arbitration clause'

     12. The above two questions are important questions of law which come up
for consideration of the Court on number of occasions and are even questions of
public importance. There are divergent views of this Court which would make it
necessary that they are considered by a larger Bench to clarify and settle the
position of law in such cases.

     13. For the above reasons, it is directed that the papers be placed before
Hon'ble the Acting Chief Justice for constitution of a larger Bench and
preferably a Full Bench for consideration.

     14. List the matters subject to and after obtaining orders of Hon'ble the
Acting Chief Justice on 12th May, 2006.

   4. There is discern distinction in the power and procedure provided for
appointment of an arbitrator through the intervention of Court as contemplated
under Chapter III of The Arbitration Act, 1940 on the one hand and the Act of
1996 on the other. The provisions of Section 20 of the Former Act vest the Court
with wide powers in relation to filing of an agreement in Court, making
reference of disputes between the parties to the arbitrator mutually agreed, and
where the parties cannot agree, to an arbitrator to be appointed by the Court.
However, under the New Act, the power and jurisdiction of the arbitral tribunal
is much wider and it can determine issues including an issue of its own
jurisdiction. Even if the contract is held to be null and void, it shall not
entail ipso jure the invalidity of the arbitration clause. The parties could
agree and are free to determine the number of arbitrators provided that such
number shall not be an even number. The parties are also free to agree on
procedure for appointment of the arbitrators in terms of Sections 11(2) and
11(3) of the New Act. Where the parties fail to act in accordance with the
prescribed procedure despite notice, any party is free to request the Chief
Justice or any person or institution designated by him for appointment of an
arbitrator in terms of Sections 11(4) and 11(5) of the Act. Unlike the scheme of
provisions of Section 20 of the Old Act, Section 11 contemplates certain
consequences of failure of a party to act in terms of the arbitration agreement
including the procedure for appointment of arbitrator. The provisions of Section
20 did not provide for any period of limitation or otherwise within which a
party is expected to act in response to a request made by the other as per the
terms of arbitration clause. But the provisions of Section 11(6) clearly spell
out the consequences that shall flow as a result of default by any party to the
arbitration clause. Once the party other than the defaulting party invoke the
process of Court for appointment of an Arbitrator, then the right of the
defaulting party stand forfeited. The forfeiture or loss of right was not
contemplated under the provisions of the Old Act. There is considerable
variation in the mechanism provided under the provisions of the New Act in
relation to appointment of Arbitrator and interference with the proceedings of
the Arbitral Tribunal. The parties to the arbitration agreement are expected to
act within limitation specified under different clauses of Section 11. It stands
clarified by various judicial pronouncements that whenever the party fails to
act and appoint an Arbitrator in terms of Arbitration Agreement, within thirty
days and in any case prior to the institution of the petition, there is loss of
that right to the party which was available to the defaulting party in terms of
the arbitration clause before that period. The objects behind enactment of 1996
Act by the Legislature appears, to minimise the judicial intervention and
control of the Courts over Arbitral Tribunal and its proceedings. The parties
should abide by the terms of the arbitration agreement, there should be
expeditious resolution of the disputes between the parties and the award of the
Arbitral Tribunal should attain finality. Thus the provisions of the New Act
have to be interpreted and construed independently and not with reference to the
provisions of 1940 Act. In certain situation, such an approach may even lead to
misconstruction. 'In construing a codifying Statute, the proper course, in the
first instance, is to examine its language and to ask what is its natural
meaning; it is an inversion of the proper order of consideration to start with
inquiring how the law previously stood, and then, assuming that it was probably
intended to leave it unaltered, to see if the words of the enactment will bear
interpretation in conformity with this view...'(refer to Halsbury's Laws of
England Vol. 44, 4th Ed.). Even in the case of R.M.D. Chamar Baugwalla v. Union
of India , the Supreme Court clearly stated the principle that the Court has to
ascertain 'the intent of them that make it' to interpret the statutory
provisions. The literal construction then has, in the general and prima facie
preference. It was also stated that what was the defect in the previous law that
was sought to be remedied by the law framers and the reason for providing such
remedy, are again relevant consideration for interpreting a Statute. In the case
of M/s. Sundaram Finance Ltd. v. NEPC India Ltd. , their

   Lordships of the Supreme Court reiterated the principle that provisions of
1996 Act are very different from 1940 Act and they should be construed and
interpreted independently and without being influenced by the principles
underlying 1940 Act.

   5. Now, we may refer to the provisions of Section 11 of the Act which have
necessitated this reference to the larger Bench.

     11. Appointment of arbitrators.

     (1) A person of any nationality may be an arbitrator, unless otherwise
agreed by the parties.

     (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 appointed the third arbitrator who shall act as the
presiding arbitrator.

     (4) If the appointment procedure in Sub-section (3) applies and '

     (a)a party fails to appoint an arbitrator within thirty days from the
receipt of a request to do so from the other party; or

     (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.

     (6) Where, under an appointment procedure agreed upon by the parties,-

     (a)a party fails to act as required under that procedure; or

     (b) the parties, or the two appointed arbitrators, fail to reach an
agreement expected of them under that procedure; or

     (c) a person, including an institution, fails to perform any function
entrusted to him or it 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.

     (7) A decision on a matter entrusted by Sub-section (4) or Sub-section (5)
or Sub-section (6) to the Chief Justice or the person or institution designated
by him is final.

     (8) The Chief Justice or the person or institution designated by him, in
appointing an arbitrator, shall have due regard to

     (a) any qualifications required of the arbitrator by the agreement of the
parties; and

     (b)other considerations as are likely to secure the appointment of an
independent and impartial arbitrator.

     (9) In the case of appointment of sole or third arbitrator in an
international commercial arbitration, the Chief Justice of India or the person
or institution designated by him may appoint an arbitrator of a nationality
other than the nationalities of the parties where the parties belong to
different nationalities.

     (10) The Chief Justice may make such scheme as he may deem appropriate for
dealing with matters entrusted by Sub-section (4) or Sub-section (5) or Sub-
section (6) to him.

     (11) Where more than one request has been made under Sub-section (4) or
Sub-section (5) or Sub-section (6) to the Chief Justices of different High
Courts or their designates, the Chief Justice or his designate to whom the
request has been first made under the relevant Sub-section shall alone be
competent to decide on the request.

     (12)(a) Where the matters referred to in Sub-sections (4), (5), (6), (7),
(8) and (10) arise in an international commercial arbitration, the reference to
'Chief Justice' in those Sub-sections shall be construed as a reference to the
'Chief Justice of India'.

     (b) Where the matters referred to in Sub-sections (4), (5), (6), (7), (8)
and

     (10) arise in any other arbitration, the reference to 'Chief Justice' in
those Sub-sections shall be construed as a reference to the Chief Justice of the
High Court within whose local limits the principle Civil Court referred to in
Clause (e) of Sub-section (1) of Section 2 is situate and, where the High Court
itself is the Court referred to in that clause, to the Chief Justice of that
High Court.

   6. The bare reading of the above provision shows that the radical changes
made in law relating to arbitration are intended to bring it in comity to the
international arbitration and trade practices and to ensure expeditious
settlement of disputes without much Court's intervention. The object obviously
is not to permit the parties to take advantage of their own wrong and frustrate
the very object of the Statute. An interpretation which would result in
permitting the parties to take advantage of their own wrong or default should be
avoided and an interpretation or meaning which would further the objects
underlying the provisions should be preferred. The procedure of appointing
arbitrator particularly more arbitrators than one itself is a cumbersome and
time consuming process. After a party has defaulted despite service of a notice
to act in conformity with the procedure agreed between the parties for
appointment of Arbitral Tribunal then it may not be just and fair to interpret
these provisions so as to place the defaulting party in an advantageous position
by requiring that party to take recourse to the methodology for appointment of
Arbitral Tribunal which may be cumbersome and time consuming. Like the present
case the process can be appointment of a departmental arbitrator, giving notice
containing panel of arbitrators out of which the other party is expected to
exercise a choice and give two names out of which the department would appoint
one arbitrator as arbitrator of the contractor and then to name and appoint
third arbitrator/Umpire. All these appointments including the number of
Arbitrators again are relatable to the quantum of claim raised by the parties.
Before we really get into the process of answering the questions referred to the
larger Bench, it will be more appropriate for the Court to refer to the
different decisions cited before us by the respective parties. These are
judgments of the different High Courts which have taken divergent views. Both
the parties have even relied upon the judgment of the Supreme Court in the case
of Datar Switchgears Ltd. v. Tata Finance Ltd. and Anr. 2000 (3) Arb.L.R. 447
(SC).

   7. There are two different schools of thought. One which supports the
proposition that a party is entitled to make a request to the Chief Justice or a
person designated by him under Section 11(6) of the Act to take 'necessary
measures' as a result of default of other party and in accordance with the
procedure provided under the arbitration clause and various Sub-sections of
Section 11 of the Act. According to this view, the Chief Justice or the person
designated by him cannot appoint an arbitrator but can merely take necessary
measures to require the parties to appoint arbitrators in accordance with the
arbitration agreement and the procedure provided therein. In simple language,
the power of the Court is restricted to direct the parties to take 'necessary
measures' to appoint an arbitrator in terms of the prescribed procedure. This
view was taken in the cases of B.T. Patil and Sons Belgaum (Construction) Pvt.
Ltd. v. Konkan Railway Corporation Ltd. and Anr. 1998 (Suppl.) Arb.L.R. 189,
J.L. Prasad v. the General Manager, Southern Railway, Chennai 2002 (1) Arb.LR
584 (Karnataka), National Thermal Power Corporation Ltd. v. Raghul Constructions
Pvt. Ltd. , Vindhya Telelinks Ltd. v. Department of

   telecommunications and Ors. 2001 VI AD (Delhi) 885, M/s. Bel House Associates
Pvt. Ltd. v. The General Manager, Southern Railway, Madras and Anr. AIR 2001
Kerala 163, Subhash Projects and Marketing Ltd. v. South Eastern Coalfield
Limited 1998 (Suppl.) Arb.L.R. 357, Ashok Coal Depot v. South-Eastern Coal
Fields Ltd. 2000 (2) Arb.L.R. 286 (MP), M/s. Kamala Solvent v. Manipal Finance
Corporation Ltd., Manipal and Ors. and Essel Shyam Communication Ltd. v. Union
of India and Ors. .

   8. The other school of thought has taken a divergent view to the effect that
provisions of Section 11(6) have to be interpreted so as to couch the Court with
wide powers and the expression 'necessary measures' is referable and includes
seeking appointment of an arbitrator through the Court. This power of court
cannot be given a restrictive meaning, as such an interpretation would frustrate
the very object of the provision and work to the disadvantage of the party
approaching the Court. The other High Courts including some Benches of this
Court have taken the view that the Court can appoint an arbitrator on a petition
under Section 11(6) and the party in default cannot take advantage as it had
abdicated its right to appoint the arbitrator under the terms of the contract.
After filing of the petition, the Arbitrator can only be appointed by the Court
as it is obligatory upon the Court to appoint an independent Arbitrator in terms
of Sub-sections 6 and 8 of Section 11. The Courts have even taken the view that
the appointment made during the pendency of a petition is no appointment in the
eyes of law and in fact is non est and the aggrieved party has every right to
approach the Court for seeking appointment of an independent and impartial
arbitrator. Reference in this regard can be made to the judgments in the cases
of Deepak Galvanising and Engineering Industries Pvt. Ltd. v. Govt. of India and
Anr. 1997 (Suppl.) Arb.LR 635, Naginbhai C. Patel v. Union of India 1999 (2)
Arb.L.R. 343, Continental Construction Ltd. v. National Hydroelectric Power
Corporation Ltd. 1998 (1) Arb.L.R 534, B.W.L. Ltd. v. M.T.N.L. and Ors. 2000 (2)
Arb.L.R. 190 (Delhi) and Marine Container Services (South) Pvt. Ltd. v. Atma
Steels Ltd. 89(2001) DLT 355.

   9. It will be useful to discuss at this stage itself, the judgments relied
upon by both the petitioner and the respondent before the court. B.T. Patil and
Sons Belgaum (Construction) Pvt. Ltd. v. Konkan Railway Corporation Ltd. and
Anr. 1998 (Suppl.) Arb.L.R. 189, Subhash Projects and Marketing Ltd. v. South
Eastern Coalfield Limited 1998 (Suppl.) Arb.L.R. 357, Ashok Coal Depot v. South-
Eastern Coal Fields Ltd. 2000 (2) Arb.L.R. 286 (MP), Essel Shyam Communication
Ltd. v. Union of India and Ors. 86(2000) DLT 117, Deepak Galvanising and
Engineering Industries Pvt. Ltd. v. Govt. of India and Anr. 1997 (Suppl.) Arb.LR
635, Naginbhai C. Patel v. Union of India 1999 (2) Arb.L.R. 343, Continental
Construction Ltd. v. National Hydroelectric Power Corporation Ltd. 1998 (1)
Arb.L.R 534 and B.W.L. Ltd. v. M.T.N.L. and Ors. 2000 (2) Arb.L.R. 190 (Delhi,
are the judgments relied upon by both parties which were prior to the
pronouncement of the judgment of the Supreme Court in the case of Datar
Switchgear' case (supra). The judgments in the cases of Vindhya Telelinks Ltd.
v. Department of telecommunications and Ors. 2001 VI AD (Delhi) 885, M/s. Bel
House Associates Pvt. Ltd. v. The General Manager, Southern Railway, Madras and
Anr. AIR 2001 Kerala 163, M/s. Kamala Solvent v. Manipal Finance Corporation
Ltd., Manipal and Ors. and Marine

   Container Services (South) Pvt. Ltd. v. Atma Steels Ltd. 89(2001) DLT 355,
are the ones which were pronounced post Datar Switchgear's case (supra) but the
respective High Courts have not considered the said judgment while deciding the
issue. The High Courts of Karnataka and Kerala in the cases of J.L. Prasad v.
the General Manager, Southern Railway,Chennai 2002 (1) Arb.LR 584 (Karnataka)
and National Thermal Power Corporation Ltd. v. Raghul Constructions Pvt. Ltd.
respectively had referred to the judgment of the

   Supreme Court in Datar Switchgear's case (supra) and had taken the view that
the Court is not vested with the power to appoint an independent arbitrator in
terms of Section 11(6) of the Act.

   10. In our view, the judgment of the Supreme Court in Datar Switchgear's case
(supra) has a material bearing on the matter in issue before us. In fact both
the parties have heavily relied upon the said judgment. The respondents have
relied upon para Nos. 13,14, 17, 18, 19 and 23 while the petitioners have
heavily relied upon para Nos. 19, 20, 21 and 27 of the Datar Switchgear's
judgment. It also needs to be noticed at this juncture that the view taken by
the Supreme Court in the case of Konkan Railway Corporation Ltd. and anr. v.
Rani Construction Pvt. Ltd. was overruled by a larger

   Bench of the Supreme Court in the case of M/s. S.B.P. and Co. v. M/s. Patel
Engineering Ltd. and Anr. JT 2005 (9) SC 219. The majority view of the Supreme
Court which overruled the Konkan Railway's case recorded its conclusion inter
alia as under:

     i) The power exercised by the Chief Justice of the High Court or the Chief
Justice of India under Section 11(6) of the Act is not an administrative power.
It is a judicial power.

     (iv)The Chief Justice or the designated judge will have the right to decide
the preliminary aspects as indicated in the earlier part of this judgment. These
will be, his own jurisdiction, to entertain the request, the existence of a
valid arbitration agreement, the existence or otherwise of a live claim, the
existence of the condition for the exercise of his power and on the
qualifications of the arbitrator or arbitrators. The Chief Justice or the judge
designated would be entitled to seek the opinion of an institution in the matter
of nominating an arbitrator qualified in terms of Section 11(8) of the Act if
the need arises but the order appointing the arbitrator could only be that of
the Chief Justice or the judge designate.

     (ix)In a case where an arbitral tribunal has been constituted by the
parties without having recourse to Section 11(6) of the Act, the arbitral
tribunal will have the jurisdiction to decide all matters as contemplated by
Section 16 of the Act.

     (x)Since all were guided by the decision of this Court in Konkan Railway
Corporation Ltd. and anr. v. Rani Construction Pvt. Ltd. (JT 2000 (Suppl.2) SC
150) and orders under Section 11(6) of the Act have been made based on the
position adopted in that decision, we clarify that appointments of arbitrators
or arbitral tribunals thus so far made, are to be treated as valid, all
objections being left to be decided under Section 16 of the Act. As and from
this date, the position as adopted in this judgment will govern even pending
applications under Section 11(6) of the Act.

     (xii)The decision in Konkan Railway Corporation Ltd. and Anr. v. Rani
Construction Pvt. Ltd. (supra) is overruled.

   11. The relevance to mention this aspect is primarily for the reason that the
various High Courts while defining the power of the Court under Section 11(6)
had heavily relied upon the observations of the Supreme Court in the case of
Konkan Railway Corporation Ltd. (supra). In the case of M/s. SBP and Co.
(supra), the Supreme Court has clearly altered the law as it stood after the
judgment of the Supreme Court in Konkan Railway's case (supra) in its
administrative and legal application. The law enunciated in Konkan Railway's
case (supra) being no longer a good law, the provisions of Section 11(6) would
have to be construed in the light of and by correct application of the
principles stated by the Supreme Court in cases of M/s. SBP and Co. and Datar
Switchgear (supra).

   12. As the judgments of the Supreme Court in cases of M/s. SBP and Co. and
Datar Switchgear (supra) have a material bearing on the matter in controversy
before us and in our opinion they are substantially applicable to the facts and
circumstances of the present case, reference can be usefully made to the
principles governing the field of precedent.

   13. It is a settled canon of interpretation of Statutes that there exists a
presumption as regards the constitutionality of a Statute as well as that every
provision of the Statute is meaningful and intends to achieve the object of the
Act. Once the provisions are free from vagueness or ambiguity, they must be
given their plain meaning while certainly not loosing the intent of the framers
of law. Doctrine of stare decisis requires the Court to pin-point its attention
to the ratio of the cases and once the principle is settled by the highest Court
of the land, then other Courts have to apply the same in its correct ratio to
the cases involving the same question. The Supreme Court in the case of Suganthi
Suresh Kumar v. Jagdeeshan stated that a judgment of the Supreme Court laying

   down a legal proposition is binding on the High Court and it is impermissible
for the High Court to overrule the decision of the Apex Court on the ground that
the Supreme Court laid down the legal proposition without considering any other
point. Placing emphasis on the application of judicial precedent, the Supreme
Court reiterated the need not to place reliance upon the decisions without
discussing the factual situation which would attract application of principles
stated in the judgment relied upon by the party. It was said 'Courts should not
place reliance on decisions without discussing as to how the factual situation
fits in with the fact situation of the decision on which reliance is placed.
Observations of Courts are not to be read as Euclid's theorems nor as provisions
of the Statute. These observations must be read in the context in which they
appear. Judgments of Courts are not to be construed as Statutes. To interpret
words, phrases and provisions of a Statute, it may become necessary for Judges
to embark into lengthy discussions but the discussion is meant to explain and
not to define. Judges interpret Statutes, they do not interpret judgments. They
interpret words of Statutes, their words are not to be interpreted as Statutes.
(Refer 'Haryana Financial Corporation and Anr. M/s. Jagdamba Oil Mills and Anr.
). Even in the case of

   Ballabhdas Mathuradas Lakhani and Ors. v. Municipal Committee, Malkapur ,
with great emphasis, the Supreme Court said that the High Court could not ignore
the judgment of the Supreme Court merely by recording that the relevant
provisions were not brought to the notice of the High Court particularly when
the decision had direct bearing on the case. The judgment has to be read and
understood as it is written. Interpretation of a judgment is not a well-accepted
concept of judicial discipline. A decision is authority for what it actually
decides. It must be read as applicable to the facts without assumptions.
Enunciation of the reasons and the principles on which a question before the
Court has been decided, is binding. Once a clear finding or a conclusion is
recorded by the Court for the reasons recorded therein, then, it would cover
such issue before the Court on the strength of principle of ratio decidendi and
Article 141 of the Constitution of India. It is even said that the precedent by
long recognition may mature into rule of stare decisis. (refer 'Union of India
and Ors. v. Dhanwanti Devi and Ors. ).

   14. The above principles are, in no way, derivative but have been inculcated
from established principles which relate to judicial propriety in its hierarchy.
These principles are not Apices Jurisdiction Non Sunt Jura but are substantive
principles of interpretative process and judicial discipline. Thus, the foremost
consideration may be to state what is the dictum of the Supreme Court in the
cases of M/s. SBP and Co. and Datar Switchgear (supra). The material issues of
the present cases have to be examined and decided in the light of these
decisions as they have materially altered the legal principles relating to
jurisdiction of Courts and arbitral tribunal under the Arbitration and
Conciliation Act, 1996.

   15. The facts in the case of Datar Switchgears Ltd. v. Tata Finance Ltd. and
Anr. (supra) were that appellant before the Supreme Court had entered into a
lease agreement with the first respondent in respect of certain machineries.
Disputes arose between the parties and the first respondent had sent a notice to
the appellant on 5.8.99 demanding payment of Rs. 2,84,58,701/- within 14 days
and in the notice, it was also stated that in case of failure of payment of the
said 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 while
respondent No. 1 did not appoint the Arbitrator in terms of that clause within
30 days. The respondent, in fact, filed an Arbitration Petition under Section 9
on 26.10.1999 claiming interim protection. On 25.11.99 respondent no.1 appointed
respondent no.2 as 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 13.3.2000. In the meanwhile, the
appellant also filed an arbitration application before the Chief Justice of
Bombay High Court and prayed for appointment of another Arbitrator which was
opposed by the first respondent. The prayer of the appellant was rejected by the
Chief Justice holding that the Arbitrator had already been appointed, there was
no default on the part of the respondent and thus the petition was not
maintainable. Considering the rival contentions raised by the learned Counsel
appearing for the parties, the Supreme Court also considered the effect of the
provisions of Sub-sections 4, 5 and 6 of Section 11. The arbitration clause
contemplated appointment of a sole Arbitrator whose award will be final and
binding between the parties. According to the appellant, there was a default on
the part of the respondents as they did not appoint Arbitrator within 30 days,
as such they made a prayer before the Court for appointment of an independent
Arbitrator. Their Lordships of the Supreme Court observed that when the parties
have entered into a contract and settled a procedure, due importance has to be
given to such procedure and parties are bound by the arbitration agreement. It
may be noticed that various Sub-sections of Section 11 were the matter of
consideration before the Supreme Court. In Paragraph 18 of the judgment, the
Court formulated a question in relation to application and scope of provisions
of Section 11(6) which reads as under:

     18. 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

   16. While answering the above question and discussing various Sub-sections of
Section 11, the Supreme Court held that the respondents in that case were not in
default and had complied with the procedure and appellant was not entitled to
the relief prayed for, still enunciated the principles of law as under:

     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.

   17. The above decision of the Supreme Court is neither obiter nor per
incuriam as contended by the respondents. In this judgment, the Court has
considered the arguments raised, the law on the subject and thereafter has
recorded its conclusions as to when the right of the defaulting party to appoint
arbitrator in accordance with the terms of the arbitration clause, shall cease.
The Court has considered the extent, time and consequences of such defaults.
This decision, thus, clearly settles a principle of law which is to be followed
by the Courts.

   18. In the case of M/s. SBP and Co. v. M/s. Patel Engineering Ltd.(supra),
the Supreme Court has categorically held that the powers exercised by the Chief
Justice or a person designated by him under Section 11(6) are not administrative
powers but are judicial powers. Of course, it was also stated that once the
matter reaches the Arbitral Tribunal or the sole Arbitrator, the High Court
could not interfere with the orders of the Arbitral Tribunal and leave the
parties to approach the Court under Sections 37 and 34 of the Act. The Arbitral
Tribunal which has been constituted in terms of Section 11(6) would have
complete jurisdiction and powers to decide all matters as contemplated under
Section 16 of the Act. The view taken by the Supreme Court in the case of Konkan
Railway Corporation. Ltd. and Anr. v. Rani Construction Pvt. Ltd. (supra) was
specifically overruled. The majority view of the Supreme Court in the case of
M/s SBP and Co.(supra) has far-reaching ramifications inasmuch as the entire law
relating to scope of power and jurisdiction of the Chief Justice or a designated
Judge in terms of Section 11(6) stands radically changed. Exercise of judicial
powers can hardly be equated to administrative powers. They operate in diverse
fields and have entirely different limitations and distinct consequences. The
exercise of judicial power unlike an administrative power, judiciously
determines the right and liabilities of the parties to a lis and it has to be in
consonance with the procedural law. Power of the Court available to it under the
provisions of law or enunciated principles by judgments of Superior Court can
hardly be circumscribed by interpretative process.

   19. The arbitration agreement and proceedings of arbitral tribunal are based
on mutuality and confidence. The parties enter into an agreement and expect that
independent and neutral person would act as arbitrator in which both of them
would have confidence. That is the precise reason as to why the law gives
liberty to the parties not only to appoint arbitrator but even specify the
procedure which they wish mutually to follow while appointing an arbitrator.
There are different procedures for appointing an arbitrator. The arbitrator
could be appointed by agreement of parties, which is one of the most
satisfactory ways of composition of arbitral tribunal. Where arbitration clause
provides for appointment of arbitrator as well as the procedure for such
appointment and the parties do not agree or fail to act, then in some cases the
control may pass to an appointing authority and if there is default by that
authority or even otherwise, the control in relation to appointment of
arbitrator may pass to the Court. Statutory appointment procedure is a well-
known and accepted principle in the modern arbitration jurisprudence. In such
cases, the Statute may control the procedure and appointment of arbitral
tribunal. Failure of a party to comply with the conditions referred to in the
provisions of law, itself may compel the parties to take recourse to statutory
provisions for appointment of arbitrator, by approaching the court of law. The
break-down of any appointment procedure can easily be resolved by an application
to the Court in accordance with law. Time for appointment of arbitrator can also
be the essence by way of contract and more particularly when it is specified in
a Statute. (Russell on Arbitration, 22nd Edition).

   20. There can be cases where the arbitration agreement itself specifies the
time within which an arbitrator must be appointed. It could also state that in
default, a party may loose its right to select him. In other cases, in addition
or otherwise, different time limits may be provided by the provisions of law
themselves.

   21. The bare reading of provisions of Section 11 of the Act shows that
failing any agreement as contemplated under Sub-section (2), each party to the
arbitration may appoint one arbitrator and the two arbitrators may appoint the
third arbitrator who shall act as the presiding arbitrator. If the parties
acting under Sub-section(3) do not appoint an arbitrator within 30 days from the
date of the request received or the two arbitrators so appointed fail to agree
on the third arbitrator within 30 days, then the appointment shall be made, upon
request of a party, by the Chief Justice or any person or institution designated
by him.

   22. Sub-Sections (1) and (2) of Section 11 indicate the freedom available to
the parties in regard to number and procedure for appointing the arbitrators and
no fetter has been put on the parties to an arbitration agreement. The parties
are expected to adopt a procedure which is practical and does not offend any
substantive law. Parties may name a sole arbitrator, they may agree that a third
person or an institution would appoint arbitrator or may detail any other valid
mechanism for appointment and adjudication of the disputes which have arisen
between the parties. This freedom is subject to the limitation imposed under the
provisions of the Act and particularly under Sub-Sections (3) to (12) of Section
11 itself. The Statute itself provides the consequences, if a party refuses to
act or does not act as per the agreed procedure and within the time specified
under these provisions. A defaulting party could hardly be permitted to insist
that the arbitrator should be appointed as per the procedure indicated in the
arbitration clause as it may amount to giving premium on default. The agreed
procedure or mechanism gets exhausted with the default of a party which refuses
to act or does not act or appoint the arbitrator despite a notice and
particularly prior to the presentation of a petition before the Court. Of
course, default and/or failure of a party would be a pre-requisite for invoking
the relevant provisions of Section 11 and to a prayer for appointment of an
arbitrator by Court.

   23. An arbitration clause primarily is the result of a mutual agreement
between the parties and should have ingredients of a valid contract. Once the
parties fail to adhere to the procedure provided for appointment of an
arbitrator, their default is likely to bring the subject from realm of contract
to the provisions of a Statute. Cessation of a right to appoint an arbitrator is
the result of a default. This is a binding principle of law. To argue that the
Court would have no jurisdicton to appoint an arbitrator while entertaining an
application under Section 11(6) of the Act and where default of a party is
established, would amount to curtailing a power which even otherwise would be
vested in the Court in accordance with the provisions of the Statute and
practice of the Court. The dictum of the Supreme Court settles the law beyond
ambiguity that there is loss of right to appoint an arbitrator for the
defaulting party. An interpretation which would curtail the jurisdiction of the
Court should not be adopted and particularly when the provisions of the Statute
do not specifically provide for such curtailment of power. The words of a
Statute are first understood in their natural, ordinary or popular sense. They
should be construed according to their grammatical meaning unless such meaning
would lead to absurd results. Justice G.P. Singh in his book 'Principles of
Statutory Interpretation' Ninth Edition') has noticed the following established
principles of interpretation of Statutes.

     The true way'`, according to LORD BROUGHAM is, `` to take the words as the
Legislature have given them, and to take the meaning which the words given
naturally imply, unless where the construction of those words is, either by the
preamble or by the context of the words in question, controlled or altered'`;
and in the words of VISCOUNT HALDANE, L.C., if the language used ``has a natural
meaning we cannot depart from that meaning unless, reading the Statute as a
whole, the context directs us to do so.'` In an oft-quoted passage, LORD
WENSLEYDALE stated the rule thus:

     In costruing wills and indeed Statutes and all written instruments, the
grammatical and ordinary sense of the word is adhered to, unless that would lead
to some absurdity, or some repugnance or inconsistency with the rest of the
instrument in which case the grammatical and ordinary sinse of the words may be
modified, so as to avoid that absurdity, and inconsistency, but no further.

   24. Remedial or welfare legislations should normally be construed liberally
as they must give benefit to the persons or class of persons for whom they are
enacted and the mischief is remedied and not perpetuated. Strict construction
may lead to curtailment of application of law. Where the legal thrust of an
enactment yields a beneficial result, the interepretative factors may, on
balance, indicate that the Court should widen its application, thus leading to
the application of principles of liberal construction. Unlike a penal Statute,
procedural and remedial provisions upon liberal construction should be given a
meaning or interpretation which would help in advancing the cause of the
Statute, rather than creating impediments in expeditious resolution of
disputes.(Francis Bennion on Statutory Interpretation, Third Edition).

   25. In a liberal construction of a Statute, its meaning can be extended to
matters which come within the spirit or reason of law or even the evils which
the law seeks to suppress or correct. It is equally true that a Statute cannot
be given a meaning inconsistent with or contrary to the language used by the
legislature. It is also the duty of the Court to avoid any clash between two
Sections of the Act and to construe the provisions which appear to be in
conflict with each other in such a manner so as to harmonise them while keeping
in view the purpose of the Act.

   26. The language of Section 11(6) clearly postulates, 'failure on the part of
the parties including an institution to adhere to the procedure or any function
entrusted to it for appointment of an arbitral tribunal'. Such default is sine
qua non for passing of any orders by the Chief Justice or a person designated by
him upon presentation of a request in accordance with law. The expression
'necessary measures' cannot be given a restrictive meaning. This expression has
to be read in conjunction with the heading of the Section which is 'appointment
of arbitrators'. The wider interpretation of this expression can also be
justified with reference to Section 11(8) of the Act where the Court may require
the parties or make queries with regard to the qualification acquired by an
arbitrator or other considerations which are likely to secure an appointment of
an independent and impartial arbitrator. Section 11 is a complete procedure in
itself which gives right to a party to move the Court, provides for consequences
of default as well as the authority or forum before which such a petition would
lie. The expression 'necessary measures' cannot be read so as to exclude from
its ambit and scope, the power to pass an order appointing an arbitrator. There
is nothing in the language of Section 11(6) which by specific language or by
necessary implication requires exclusion of an order appointing an arbitrator.
This expression needs to be construed liberally and in fact would take within
its ambit an order appointing an arbitrator. The judicial power of the Court as
contemplated under Section 11(6) cannot be circumscribed by such limitations
which are not ousted by use of specific language of the provision. As per
settled principles, neither Actus legitimi non recipiunt modum nor Jus Ex
injuria non oriundus. To read limitations into jurisdiction of the Court and to
give advantage to a defaulting party, would be an approach not in consonance
with the spirit of the law. Under the terms of arbitration agreement, a right
vests in a party to appoint an arbitrator solely or in accordance with the
prescribed procedure under the contract. Once the party commits a default, then
its right suffers from a defect which gives a legal right to the other party to
approach and make a request to the Chief Justice or the person designated by him
for taking necessary measures which obviously would include appointment of an
arbitrator. Unless the Court in its discretion directs an institution to secure
the appointment of an arbitrator in accordance with the agreement provided, only
if such institution is not a defaulter within the meaning of Section 11(6) of
the Act. The provisions of Section 11(6) deal only with the freedom of the
parties to enter into an arbitration agreement, procedure for appointment of an
arbitrator and ultimately appointment of arbitrator by the Court in the event of
default. To read provisions of Section 11(6) in conflict with the heading of the
Section or to unnecessarily restrict the scope of the power of the Court, would
not be permissible. To say that the Court has to request a party in default to
adopt the procedure prescribed under the contract for appointment of an
arbitrator, would certainly tantamount to putting a premium on default. It would
further inordinately delay the commencement and conclusion of proceedings before
the arbitral tribunal. Neither of these appear to be the intent of the
Legislature. The 'other means of securing the appointment' if provided under the
agreement obviously cannot refer to condensation of default of a party to the
arbitration agreement. It has to be a party or institution other than the
defaulting one. For example, in some cases, the parties have to appoint
arbitrators and in default of their agreement, an institution may be called upon
to appoint an arbitrator(s) as postulated under the agreement. If parties commit
such default and do not even approach the institution, then in such case, the
Court may in its discretion not appoint an arbitrator itself and direct the said
institution to make appointment of an arbitrator. But on no prudent principles
of interpretation, it can be construed that though there is cessation or
complete loss of right of the defaulting party but the Court will still have no
jurisdiction to pass an order directing appointment of an arbitrator.

   27. We have already noticed that the judgments which have been pronounced
without taking notice of the above two judgments of the Supreme Court, need not
be commented upon by us in this judgment. The judgments of various Courts
declaring contrary view and which are prior to the pronouncement of the judgment
of the Supreme Court in Datar Switchgear's case also cannot be said to be good
law. The judgments which have followed the judgments of the Supreme Court in the
said cases and have taken the view which we have taken, obviously call for no
further analysis. However, in regard to the judgments of different Courts which
have discussed the judgment of the Supreme Court in Datar Switchgear's case but
have given two different conclusions, we consider it our pious duty to refer to
these judgments and deal with them in some detail.

   28. In the case of Datar Switchgear (supra), the Supreme Court was concerned
with the provisions of Section 11(6) and after taking due notice of those
provisions, the Court had ennunciated the law in regard to the situation in
which right of the opposite party ceases. It may be noticed that their
Lordship's of the Supreme Court clearly denied the relief to the petitioner for
the reason that there was no default on the part of the party as contemplated
under Section 11(6) of the Act. Appointment had been made prior to filing of the
petition and the Court also held that merely because 30 days period had lapsed
would not forfeit the right of a party to appoint an Arbitrator. The stringent
condition of 30 days as contemplated under Sub section 4 and 5 of Section 11 of
the Act was not applied stricto senso to the provisions of Sub section 6 but was
extended till prior to the presentation of the petition but once that condition
was satisfied, loss of right was complete and definite.

   29. In the case of M/s Bel House Associates Pvt. Ltd. (supra), the Ld. Single
Judge of the Kerala High Court had taken the view that Court cannot appoint an
arbitrator and has to implement the laid down procedure. While arriving at this
conclusion, the Court had differed from the view taken by Andhra Pradesh High
Court, Bombay High Court and Delhi High Court and had preferred to rely upon the
view taken by the Madhya Pradesh High Court and gave narrower interpretation to
the expression `necessary measures'. It may be noticed that the entire reasoning
of the learned Judge was based upon the judgment of the Supreme Court in Konkan
Railway Corporation Ltd's case. (supra) wherein it had been held that the Chief
Justice discharges an administrative function while entertaining a request under
Section 11 of the Act. The said view being no longer a good law, the view taken
by the Kerala High Court in that case can hardly be followed.

   30. A Division Bench of Kerala High Court in the case of National Thermal
Power Corporation Ltd. v. Raghul Constructions Pvt. Ltd. , had also taken the
similar view. The Division Bench on the one hand took a view that decision in
the case of Datar Switchgear Ltd's case. (supra) was inapplicable to the facts
of that case and said that the Court has to give due importance to the procedure
agreed to between the parties and on the other hand while again relying upon the
judgment of the Supreme Court in the case of Konkan Railway Corporation Ltd. v.
Rani Construction Pvt. Ltd. , concluded that the Single Judge of that Court
should have taken necessary measures for securing appointment on the basis of
prescribed appointment procedure. With respect, we are unable to contribute to
the view taken by the Division Bench. We are of the considered view that the
judgment of the Supreme Court in Datar Switchgear's case (supra) applies to such
cases by virtue of ratio decidendi and there is no necessity for us to interpret
or clarify the judgment of the Supreme Court, which is unambiguous and explicit
in its language. The Single Bench of the Karnataka High Court in the case of
J.L. Prasad v. The General Manager, Southern Railway, Chennai (supra), has also
taken the same view for the reason that the term 'necessary measures' will refer
to the enforcement of the appointment procedure and not ignoring the appointment
procedure. While stating that the Court will have to adopt the stated procedure
for appointment of arbitrator in a petition under Section 11(6), it also held
that the decision of the Supreme Court in Datar Switchgear's case was of no
assistance to determine the scope of the words 'necessary measures' appearing in
Section 11(6) of the Act. In our humble opinion, both the stated reasons are
contrary to the spirit as well as the specific language of the judgment of the
Supreme Court in Datar Switchgear's case. In fact, the judgment of the Karnataka
High Court has completely ignored the concept of loss of right and its
consequences. Thus, we can also not contribute to the view taken in this
judgment. The Bombay High Court, High Court of Andhra Pradesh and various
Benches of this Court have given wider interpretation to the provisions of
Section 11(6) and held that the Court has the power to appoint an Arbitrator.
Different Benches of this Court even without or while referring to the judgment
of the Supreme Court in Datar Switchgear's case have taken the view that a
party, who has defaulted to appoint an arbitrator despite service of notice and
even prior to filing of the petition, cannot seek any advantage before the Court
and the Court should appoint an Arbitrator while taking note of various
conditions indicated by the framers under these provisions.

   31. We may also refer to the judgment of the Supreme Court in the case of
Shin Satellite Public Co. Ltd. v. Jain Studios Limited JT 2006 (2) SC 89 where
the Court while applying the principle of `substantial severability' and not
`textual divisibility' observed that even if some terms of the agreement, though
executed as valid agreement, to the knowledge of parties were invalid, to the
extent the agreement is valid and lawful, while leaving the offending part, can
be enforced before the Court of law. The Court while declining to give benefit
to the defaulting party of its mistake in appointing arbitrator, held as under
;-

     34. Finally, it was submitted by the respondent that if this Court is not
upholding the objection of the respondent and is inclined to grant the prayer of
the petitioner, some time may be granted to the respondent to make an
appointment to an arbitrator. It was not done earlier because according to
respondent, Clause 23 was not enforceable. The learned Counsel for the
petitioner objects to such a prayer. According to him, a letter/notice was
issued and in spite of request by the petitioner, the respondent had failed to
exercise his right to appoint an arbitrator. At this belated stage, now, the
respondent cannot be permitted to take advantage of its own default. In my
opinion, since there is failure on the part of the respondent in making an
appointment of an arbitrator in accordance with the agreement, the prayer cannot
be granted.

   32. These legal principles clearly demonstrate that a party cannot be
permitted to take advantage of its own wrong and in any case, the Court cannot
come to the aid of such defaulting party much less it would perform on behalf of
the defaulting party in terms of the arbitration agreement. There is complete
loss of right of the defaulting party and it cannot be permitted to plead that
despite default, the procedure of arbitration clause would still subsist, unless
in the opinion of the Court it was possible to appoint an arbitrator by recourse
to other measures not attributable to the defaulting party.

   33. It is argued on behalf of the respondent with some vehemence that:

     (a) the judgment of the Supreme Court in Datar Switchgear's case (supra)
does not annunciate any principle of law. The same in any case is an obiter
and/or per incuriam and thus cannot apply to the facts of the present case.

     (b) the judgment of the Supreme Court, even if applicable, it is only the
right of the respondent that ceases but the procedure to appoint remains intact
and thus is enforceable leaving the Court with no option to appoint an
independent arbitrator.

     (c) the contract relates to technical work and as such, it would be just
and expedient to follow the procedure provided for appointment of technical
arbitrator and the Court would not appoint an arbitrator.

   34. We would deal with last contention first. The contention is without merit
and in fact completely ignores the provisions of Section 11(8) of the Act. The
Court while appointing an Arbitrator or taking necessary measures for
appointment of an arbitrator in terms of Section 11(8) shall have due regard to
any qualifications required for the arbitrator by agreement between the parties
as well as other considerations, to secure appointment of independent and
impartial arbitrator. The essence for exercise of this power is to secure
appointment of an independent and impartial arbitrator, who may be best suited
keeping in view the nature of dispute between the parties. Reference can also be
made to the provisions of Section 26 of the Act where even an arbitrator or an
arbitral tribunal has the power and authority to appoint an expert to help the
tribunal on a specific issue unless it is otherwise specifically agreed by the
parties. The discretion of the arbitral tribunal to seek assistance on technical
subjects, thus, is well accepted under the provision itself. In face of these
statutory provisions, learned Counsel appearing for the respondent have not been
able to demonstrate as to how the contract between the parties would impinge
upon the power of the Court as contemplated under Section 11(6) of the Act. We,
thus, find no merit in this contention.

   35. The other two contentions raised on behalf of the respondent can be dealt
with together. We have already held that there is complete and definite
loss/cessation of right in the event a party defaults in appointing an
arbitrator within 30 days or at best prior to filing of a petition before the
Court under Section 11(6) of the Act. Now we need to dilate only on the
contention that where there is cessation of right, whether the Court in the
facts and circumstances of the case, would have a right to appoint an
independent and impartial arbitrator itself or not.

   36. Clause 64 of the General Terms and Conditions, which was accepted by the
parties, deals with appointment of an arbitrator and procedure to be adopted for
that purpose. The fine distinction sought to be created between the power to
appoint and procedure to appoint can hardly hold the ground. In cases of default
or forfeiture or loss of right to appoint an arbitrator would normally take away
the power to appoint an arbitrator. Consequently in those cases, it would also
render the prescribed procedure uncertain and ineffective. The dissection of
power and procedure would hardly be permissible for the reason that they are
inter-dependent and so intermingled that their severability would hardly be
possible. The contention of partial forfeiture or loss of right can hardly be
justified in view of the scheme of the Act and the purpose sought to be achieved
by the legislature.

   37. The power to appoint cannot be read dehors the procedure prescribed for
exercise of such powers. They have to be read and construed together so as to
give complete effect to the provisions relating to appointment of Arbitrators.
As already noticed, Clause 64 deals with demand for arbitration and appointment
thereof. It also spells out the procedure. The object of Clause 64 shows that
parties are intending to expeditious commencement and conclusion of arbitration
proceedings as it even provides time for filing of claims, counter claim and
time limitation for appointment of an arbitrator. Under Clause 64 (3)(a)(i),
Arbitral Tribunal consists of a sole arbitrator, who shall be either the General
Manager or a gazetted officer of Railway not below the grade of JA grade
nominated by the General Manager in this behalf. The Arbitral Tribunal has to be
appointed within 60 days from the date when written request is received from the
contractor provided the claim do not exceed Rs. 10 lakhs. Under Clause
64(3)(a)(ii), where the claims exceed the said amount of Rs. 10 lakhs, a panel
of three arbitrators is to be appointed. For that purpose after receiving the
request from the contractor, the Railway has to send a panel of three names or
more to the contractor who suggests up to 2 names out of the panel and the
General Manager has to appoint at least one out of them as contractor's nominee
and remaining arbitrators would be appointed by the General Manager and he has
also to indicate as to who will be the presiding arbitrator. The right thus
available to the respondents including the General Manager of Railway is one
composite right and is incapable of being severed. The contention of the
respondents that there is a distinction between power and procedure as
contemplated under the arbitration clause is without merit. It is apparent that
loss of power is bound to affect the procedure.

   38. learned Counsel appearing for the respondents argued that they had only
lost the right to appoint and the procedure will still be enforceable. Once the
right to offer a panel is lost, which has an inbuilt element of discretion and
choice with the respondent, then rest of the prescribed procedure cannot be
implemented. It is a composite procedure and loss of right would make the
procedure a non-starter.

   39. Admittedly, notices were served upon the respondents stating the disputes
and request was made for appointment of arbitrator. There is no dispute that in
Arb. P. No. 217 and 219 of 2005 no steps were taken by the respondents. However,
in Arb. P. No. 213/2005 after the petition was filed and the respondents had
appeared, they had offered a panel of arbitrators, which was not accepted by the
petitioner in view of the stand taken before the Court. The default on the part
of the respondents, thus, in fact was not even in dispute. Despite such default,
if jurisdiction of the Court is said to be only to take measures to request the
defaulting party to follow the procedure provided for appointment of arbitrator
under the terms of the agreement, then it would not only be travesity of justice
but would defeat the very purpose and object of the Act as well as the
arbitration clause i.e. Clause 64. This arbitration clause provides various time
limits for performance of different steps to ensure expeditious completion of
arbitral proceedings. The loss of right, in the facts of the present cases,
thus, arises both from default of contractual terms and non-compliance to the
statutory provisions. There is no justification before us explaining the default
of the respondents though in view of the settled principles of law, it would
hardly be material. The order of the court directing the party to take recourse
to the prescribed procedure would be unfair as it will be an exercise which will
spread over months and would unduly delay completion of the proceedings. The
arbitration process and objectivity of the amended law for expeditious
resolution of dispute would be rendered ineffective. In face of loss of right,
the compliance to the remaining procedure of the clause would become
impracticable. If all that the Court has to do is to call upon the respondents
to follow all over again the procedure for appointment of arbitrator in their
own discretion, then it would not only cause delay and bring stalemate in
implementation of the clause but would also provide advantage to the respondents
for their own default and thus would frustrate the very object and essence of
the Arbitration and Conciliation Act, 1996. Under the procedure, choice of
arbitrators, choice of panel and appointment of arbitrators even after option
exercised by the contractor, entirely vests in the respondent authority.
Restoring this choice to the respondents on the pretext that they have only lost
the right to make appointment but the procedure for appointment would still have
to be adopted and followed strictly, would raise a question as to what right in
fact the respondents have lost' Cause of action for making a petition under
Section 11(6) arises only when a party or an institution fails to comply with
its obligation under the terms of the arbitration clause. The respondents
certainly cannot be placed in a better position then what they were despite
their default. Therefore, acceptance of respondents' contention would lead to
adverse and absurd consequences.

   40. Thus, we record our answer to the two questions referred to the larger
Bench as follows:

     (i) Once the party, which has been served with the demand notice in terms
of arbitration clause, fails or refuses to act in making appointment in terms of
arbitration clause within 30 days or in any case prior to institution of a
petition by the other side under Section 11(6) of the Act, then its right to
make such appointment ceases or is forfeited. Such cessation is absolute in
terms of the judgment of the Supreme Court in Datar Switchgears' case (supra)
and cannot be revived.

     (ii) The court has jurisdiction to take necessary measures in terms of
Clause 11(6) of the Act and this expression would take within its ambit and
scope, the power to make appointment of independent and impartial arbitrator
with reference to the accepted arbitration clause, unless the court in its
discretion directs an institution specified in the arbitration clause not in
default, to make such an appointment.

   41. Having answered the posed questions, now we direct that these cases be
placed before the learned Single Judge for disposal in accordance with law.