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Delhi State Industrial Development Corporation Vs. Consortia of Engineers and Enterpreneurs and anr. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberOriginal Miscellaneous Petition No. 8 of 1984
Judge
Reported in1987(1)ARBLR354(Delhi); ILR1985Delhi392; 1985RLR157
ActsArbitration Act, 1940 - Sections 9
AppellantDelhi State Industrial Development Corporation
RespondentConsortia of Engineers and Enterpreneurs and anr.
Advocates: G.N. Aggarwal and; B.K. Divan, Advs
Cases ReferredIn Balsukh Refractories and Ceramics Ltd. v. Hindusthan Steel Ltd. and
Excerpt:
.....aside of such appointment--court has wide discretion under the proviso to set aside appointment of sole arbitrator.;disputes having arisen between d and c, the matter was referred by c to arbitrator b and d was called upon to appoint his arbitrator. d failed to appoint his arbitrator within the stipulated time and, thereforee, b was appointed as sole arbitrator. in the meanwhile, parties were also negotiating a compromise. since the matter could not be compromised d also appointed its own arbitrator but he was not allowed to act as b was acting sole arbitrator. a petition was made for removal of the sole arbitrator. allowing the petition.;no doubt section 9(b) provides for the penalty to a party defaulting in the appointment of its arbitrator within the statutory period of 15 days after..........letter dated 24th january, 1984 respondent no. 1 appointed respondent no. 2 shri d. dutt as the sole arbitrator who entered upon the reference as sole arbitrator on 27th march, 1984 and called upon respondent no. 1 to file statement of facts and inpursuance to the same respondent no. 1 filed his claim before the arbitrator on 25th april, 1984. (3) the petitioner appointed shri p. s. chadha as its arbitrator vide letter dated 8th may, 1984 and copy thereof was also endorsed to respondent no. 2. (4) shri d. dutt called upon the petitioner on 14th may, 1984 to file his counter-statement of facts. (5) m/s. g. s. bohra & co., advocates of respondent no. 1 in their reply dated 25th may, 1984, stated that the appointment of shri p. s. chadha as arbitrator of the petitioner was illegal. (6).....
Judgment:

Jagdish Chandra, J.

(1) The petitioner and respondent No. 1entered into an agreement dated 14th January, 1977 for execution of certain works namely Ardiya (Handlan) Housing Project, Kuwait, Sh : 'Construction of 200 dwelling Units and Infrastructure Works at Kuwait'. the agreement contained clause No. 28 which is the arbitration clause which could be invoked by either party in case of differences arising between them under the contract and both the parties were to appointed one arbitrator each and. the arbitration was to be in accordance with the provisions of the Arbitration Act, 1940 (hereinafter to be referred to as 'the Act').

(2) On or about 12th October, 1983 respondent No. 1 invoking the aforesaid arbitration clause appointed respondent No. 2 Shri D. Dutt as its arbitrator and called upon the petitioner to appoint its own arbitrator within the statutory period of 15 days. Vide letter dated 24th January, 1984 respondent No. 1 appointed respondent No. 2 Shri D. Dutt as the sole arbitrator who entered upon the reference as sole arbitrator on 27th March, 1984 and called upon respondent No. 1 to file statement of facts and inpursuance to the same respondent No. 1 filed his claim before the arbitrator on 25th April, 1984.

(3) The petitioner appointed Shri P. S. Chadha as its arbitrator vide letter dated 8th May, 1984 and copy thereof was also endorsed to respondent No. 2.

(4) Shri D. Dutt called upon the petitioner on 14th May, 1984 to file his counter-statement of facts.

(5) M/S. G. S. Bohra & Co., Advocates of respondent No. 1 in their reply dated 25th May, 1984, stated that the appointment of Shri P. S. Chadha as arbitrator of the petitioner was illegal.

(6) PETITIONER'S arbitrator Shri P. S. Chadha wrote a letter dated 28th May, 1984 to Shri D. Dutt requesting him to know the time, date and venue where both of them could hold a joint meeting to decide about the umpire.

(7) Shri D. Dutt vide his letter dated 4th June, 1984, in his capacity as the sole arbitrator, directed the petitioner to submit the counter claim of facts by 16th June, 1984.

(8) Vide his letter dated 24th June, 1984 respondent No. 2 Shri D. Dutt fixed the hearing for 11th July, 1984 and the petitioner filed this petition two days earlier on 9th July, 1984.

(9) It was asserted in this petition as also contended by the learned counsel for the petitioner that throughout respondent No. 1 had been approaching the petitioner for amicable settlement of their disputes and had also made a request in writing for that purpose in its letter dated 26th December, 1983 addressed to the petitioner and further the respondent No. 1 had also been requesting the petitioner not to nominate its arbitrator assuring that the matter would be settled amicably and further that. on the approach from respondent No. 1 to the petitioner for amicable settlement a joint meeting was held on 14th June, 1984 minutes of which were reduced to writing and signed by both the parties where an amicable settlement of disputes on quits basis was arrived at subject to the conditions mentioned therein. The perusal of the letter dated 26th December, 1983 from respondent No. 1 to the petitioner mentions an informal meeting having been held between the officers of the parties but nothing having been heard from the petitioner about the progress in revolving the disputes through negotiations with E.P.I. Then the minutes of the joint meeting of the parties held on 14th June, 1984 shows that it had been held for settlement of disputes between the parties in respect of the work in question in the presence of the Financial Controller and Joint Manager (W) of the petitioner, and the Managing Director and Consultant of respondent No. 1. Relevant extract of the minutes is reproduced below :

'DISCUSSIONS were held in the past between the M/s. Ceb and officers of Deside for amicable settlement of disputes on quits basis but the final decision could not be taken. With a view to arrive at a negotiated settlement whereby neither party claims anything discussions were held today the 14th June, 1984 and it has been agreed in principle to arrive at an amicable settlement, subject to Dsidc furnishing the following documents, within 15 days for which they have already been requested.............'

(10) In these minutes reference to the discussions having been held in the past between the parties for amicable settlement of disputes on quits basis, is quite meaningful in the sense that negotiations were held not only on 14th June, 1984 but even earlier for quite some time. The letter dated 26th December, 1983 talking of the negotiations as also about the progress in resolving the disputes through negotiations is also very relevant and significant in the sense that it contains an admission on the part of respondent No. 1 in respect of the talks of a settlement between the parties. This letter of 26th. December, 1983 came immediately after respondent No. 1 had. appointed respondent No. 2 Shri D. Dutt as its arbitrator on 12th October, 1983 and had called upon the petitioner to appoint the co-arbitrator within the statutory period of 15 days, whereas the minutes of the joint meeting of the parties recorded on 14th June, 1984 furnishes the other terminus quo on which date negotiations were held between the parties and also reference was made to negotiations for amicable settlement even prior thereto. Under these circumstances if the petitioner did not comply with the request of respondent No. 1 to appoint a co-arbitrator, the bonafides of the petitioner cannot be doubted.

(11) The relevant provision of law is contained in Section 9 of the Act and it reads thus :

'9. Where an arbitration agreement provides that a reference shall be to two arbitrators, one to be appointed by each party, then, unless a different intention is expressed in the agreement,

(A)if either of the appointed arbitrators neglects or refuses to act, or incapable of acting, or dies, the party who appointed him may appoint a new arbitrator in his place;

(B)if one party fails to appoint an arbitrator, either originally or by way of substitution as aforesaid, for fifteen clear days after the service by the other party of a notice in writing to make the appointment, such other party having appointed his arbitrator before giving the notice, the parly who has appointed an arbitrated may appoint that arbitrator to act as sole arbitrator in the reference, and his award shall be binding on both parties as if be had been appointed by consent : Provided that the Court may set aside any appointment as sole arbitrator made under clause (b) and either, on sufficient cause being shown, allow further time to the defaulting party to appoint an arbitrator or pass such other order as it thinks fit.

Explanation: The fact that an arbitrator or umpire after a request by either party to enter on and proceed with the reference, does not within one month comply with the request may constitute a neglect or refusal to act within the meaning of section 8 and this section.'

(12) In Section 9 we shall be concerned with clause (b) and the proviso for setting aside the appointment of respondent No. 2 Shri D. Dutt as sole arbitrator and to allow further time to the defaulting party i.e. the petitioner to appoint co-arbitrator. The authority reported as M/s. Kamani Engineering Corporation Ltd. v. Madhya Pradesh Electricity Board, Jabalpur and another 0065/1964 : AIR1964MP268 , is very apposite on the question now set for determination in the case in hand and this authority at page 271 while dealing with Section 9(b), proviso observed as follows :

'ANOTHER point to note is' that the proviso is worded as if it involved no idea of limitation as such. On the other hand, something like that principle is indirectly involved, because an order under the proviso really enables the defaulting party to remedy his failure to make the appointment within 15 days which the Legislature has allowed him for appointing his arbitrator after the receipt of the notice. Looking from this end, thereforee, the proviso really enables the Court to condone .delay. That way there is a broad analogy between the proviso and Section 5 under which a Court is' competent to condone limitation properly so called. But the proviso does not speak of sufficiest clause here. All the same we can lay down on the ground of reasonableness and analogy to Section 5 of the Limitation Act and similar provisions that while setting aside the appointment of sole arbitrator, a Court should see whether there is justification on equitable grounds and the setting aside of the appointment is really calculated to promote equity and good conscience.

'THE essence of arbitration is confidence of each of the parties. In fact, an arbitrator derives his authority from this confidence and any step calculating to reduce it is against the spirit of arbitration. Section 9(b) is an exceptional provision and is in effect a penalty on the defaulting arbitrate- (sic. party ?) for his failure to make the appointment on getting notice and caution from the other side. If by obstruction, evasion or gross negligence he deserves it, he must be visited with the penalty. But all the same, it is a serious matter. This is obviously why very wide discretion is given to the Court to get aside the appointment. The moment the defaulting party satisfies the Court that he has not been obstructive or evasive and has acted with due diligence, the appointment of sole arbitrator should be set aside. The other party may be entitled to costs to compensate him for any inconvenience resulting from the defaulter's failure to appoint in time. But he cannot try to take an advantage which would be unconscionable except in the three special circumstances already mentioned. Nor need the Court test it by the closeness with which it would test an application for condensation of delay, and ask for an Explanationn for the delay of each single day.'

(13) This authority was also relied upon in Satya Narayan Agarwal v. Baidyanath Mandal and others, : AIR1972Pat29 . The bonafides of the petitioner have already been seen inasmuch as compromise talks and negotiations continued between the parties almost from the beginning to the end and the petitioner laboured under an honest belief, as induced by respondent No. 1, that the matter would be settled between them amicably without the necessity of resorting to arbitration. No doubt section 9(b) provides for the penalty to a party defaulting in the appointment of its arbitrator within the statutory period of 15 days after service of the notice from the other party to make the appointment and the subsequent appointment of the arbitrator already appointed by the other party to act as sole arbitrator in the reference, there is wide power vested with the Court under the proviso to annual that appointment as sole arbitrator and that magnitude of the power of the Court appears to be there in the proviso for the reason that there is much risk of grave injustice to the defaulting party at the hands of the sole arbitrator who is normally the man of the party appointing him, even though such an arbitrator being the man of the party appointing him is per se no ground for setting aside his appointment as sole arbitrator. In Balsukh Refractories and Ceramics Ltd. v. Hindusthan Steel Ltd. and others, : AIR1977Cal20 where the arbitrator nominated by one party is appointed as sole arbitrator under Section 9(b) of the Act it could not be held to be invalid on the mere plea that he was an employee of that party in the absence of any material to show that he was biased in favor of that party. The liberality of the wide power of the court to set aside the appointment as sole arbitrator given in the proviso appears to be proportionate to the grave risk involved in the decision of the sole arbitrator against the defaulting party. The bonafides of the petitioner not being in doubt and their being hardly anything to show conduct on his part indicative of obstruction, evasion or gross negligence, the power contemplated by the proviso to Section 9(b) of the Act should be exercised in favor of the petitioner who also appears to be entitled to the extension of time in appointing his arbitrator because his efforts and faith in compromise and negotiations afford a sufficient cause for this indulgence of extension of time.

(14) In the result this petition is accepted and the appointment of respondent No. 2 Shri D. Dutt as sole arbitrator is set aside and the time for appointing Shri P. S. Chadha as co-arbitrator by the petitioner is extended whereby the delay in his. appointment is co-arbitrator stands condoned and both the arbitrators shall embark upon the reference without any further loss of time. In the circumstances of the case there shall be no order as to costs.


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