1. This appeal arises out of an order passed by Nainar Sundaram, J. in O. S. 323 of 1978, which is one for filing of an arbitration agreement dated 5-6-1975, and for the appointment of an Arbitrator, as per the terms of the said arbitration agreement.
2. The respondent herein called for a tender, for loading, unloading and transporting of food grains in their godowns at Avadi. The appellant herein is one of the tenderers, and his tender was accepted by the Senior Regional Manager, Food Corporation of India, Madras, and after such acceptance, the appellant was asked to furnish security deposit of Rupees 50,000 on receipt of their communication, without any loss of time. The appellant did not furnish the said security deposit within the said time limit. Because of the appellant's failure to furnish the security deposit of Rs. 50,000/as called upon by the respondent, the contract was terminated by an order dated 7-7-1975 and the earnest paid along with the tender was also forfeited. Subsequently, on 5-6-1978, the respondent called upon the appellant to pay a sum of Rs. 1,76,083/- said to be damages for breach of the above contract. In their communication, the appellant was also asked to concur for the appointment of an arbitrator, as contemplated in the tender conditions. Since the appellant did not reply to the said communication dated 5-6-1978, the respondent has straightway filed an application, on the Original Side of this Court, to file the arbitration agreement and to appoint an arbitrator on the basis of the said agreement. The said application was numbered as a suit, viz., C. S. 323 of 1918.
3. The appellant resisted the said application filed under Section 20 of the Arbitration Act, by contending that the arbitration agreement does not contemplate, an arbitrator being appointed by the Court and that the arbitration agreement contemplates an arbitrator being appointed by the Managing Director, Food Corporation of India, and that the said agreement also proceeds on the basis that if, the machinery set out in, the arbitration agreement for the appointment of an arbitrator fails for any reason, then there cannot be any arbitration at all relating to the disputes between the parties, arising out of the contract.
4. Nainar Sundaram, J. overruled the contention urged on behalf of the appellant, and straightway appointed an advocate-arbitrator for deciding the disputes between the appellant and respondent, who are the parties to the contract.
5. Aggrieved against the said order of the learned Judge, appointing an arbitrator, the present appeal has been filed by the appellant. According to the learned counsel for the appellant, the application filed by the respondent under Section 20 of the Arbitration. Act, is not at all maintainable in view of the fact that the contract itself provides for a complete machinery for arbitration, and that, any arbitration through the court contrary to the arbitration contemplated by the parties under the arbitration agreement, will be illegal. According to the learned counsel, the machinery- provided under arbitration agreement, is for either of the parties to the contract, to go before the Managing Director, seeking the appointment of an arbitrator and to have the disputes between them decided by the arbitrator; and if for any reason such an arbitration is not possible, then the parties should have taken, to have specifically agreed that the disputes are not to be referred to any arbitration at all. To appreciate the contention advanced by the learned counsel for the appellant, it is necessary to refer the clause contained in the tender conditions relating to 'arbitration', which have become a contract by virtue of the appellant agreeing to the terms contained therein, at the time of submitting this tender.
6. The arbitration clause is contained in clause 19 of the tender conditions and that clause, reads as follows:-
"XIX Arbitration - All disputes and differences arising out of or in any way touching or concerning this agreement whatsoever (except as to any matter the decision of which is expressly provided for in the contract) shall be referred to the sole arbitration of any person appointed by the Managing Director of the Food Corporation of India. It will be no objection to any such appointment that the person appointed is or was an employee of the Corporation that he had to deal with the matters to which the contract relates and that in the course of his duties as such employee of the Corporation he had expressed views an all or any of the matter in dispute of difference. The award of such arbitrator shall be final and binding on the parties to this contract. It is a term of this contract that in the event of such arbitrator to whom the matter is originally referred being transferred or vacating his office, dying or being unable to act for any reason, the Managing Director of the Food Corporation of India at the time of such transfer, vacation of office, death or inability to act shall appoint another person to act as arbitrator; such person shall be -entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other, than a person appointed as aforesaid should act as arbitrator and if for any reason that is not possible the matter is not to be referred to arbitration at all.
Provided further that any demand for arbitration in respect of any claim(s) of the contractors, under the contract shall be in writing and made within one year of the date of termination or completion (expiry of the period) of the contract and where such a demand is not made within that period, the claim(s) of the contractors shall be deemed to have been waived and absolutely barred and the Corporation shall be discharged and released of all liabilities under the contract in respect of these claims. It is neither provided that the arbitrator may, from time to time with the consent of the parties, enlarge the time for making and publishing the award. The costs of and in connection with the arbitration shall be in the discretion of the arbitrator who may have a suitable provision for the same in his award. Subject as aforesaid the Arbitration Act 1940 shall apply to the arbitration proceedings under this clause."
7. As per the above clause, all disputes and differences arising out of or in any way touching or concerning the contract, shall be referred to the sole arbitration of any person appointed by the Managing Director of the Food Corporation of India; and the award of such arbitrator shall be final and binding on the parties to-the contract It provides for the substitution a d arbitrators in the event of original arbitrator being transferred or vacating his office; dying or being unable to act for any reason. by giving power to the managing director to substitute or appoint any other person as arbitrator , in the place of the original arbitrator and such substituted arbitrator is entitled, to proceed with the reference from the stage at which it was left by his predecessor. The parties also have agreed that no person other than a person appointed as aforesaid should act as arbitrator and if for any reason that it is not possible the matters are not to be referred to arbitration at all.
8.It is unnecessary to refer the other Portions of the clause at this stage. Thus the parties have agreed to have the arbitration through the medium of the Managing Director of the Food Corporation of India. They have agreed to an arbitrator being appointed by the Managing Director of Food Corporation of India and to be bound by the 'award of any arbitrator appointed by him. If for any reason such an arbitration is not possible, the parties have specifically agreed that the matter shall not be referred to any arbitration at all.
9. Having regard to the fact that the parties have agreed to adopt a particular machinery for the appointment of an arbitrator to resolve the disputes, it is the submission of the learned counsel for the appellant, that it is not open to the respondent unilaterally to go behind the agreement and to seek the appointment of an arbitrator through court. It is for this reason, the learned counsel contends that an application under Section 20 of the Arbitration Act, to have the agreement filed into court, to have an arbitrator appointed and to have the disputes between the appellants and respondents settled through an arbitration, is not maintainable, in this case.
10. We are inclined to agree with the contention of the learned counsel for the appellant that the appointment of an arbitrator, contrary to the terms of the arbitration agreement, is not possible. Section 20 contemplates any of the parties to an arbitration agreement, coming before the court, for filing that agreement and for setting up a machinery for arbitration in pursuance of the agreement. Though in this case the learned trail Judge has not specifically passed an order, directing the filing of the arbitration agreement, the fact that he has chosen to point an arbitrator on the basis of the arbitration agreement, clearly leads to the inference that the learned Judge has taken the arbitration agreement on file. The order appointing !an arbitrator has to naturally follow the filing of an award. Once an arbitrator is appointed by the trial court, it will mean that there is a direction also for I the filing of the arbitration agreement. Without filing such an arbitration agreement, the order appointing an arbitrator by the court is not legally possible.
11. Therefore, we construe the order for the trial court as one directing the filing of the arbitration agreement and the appointment of an arbitrator. It is in this view, we hold this appeal as maintainable as directed against an order directing the filing of an arbitration agreement, falling under clause (iv) of Section 39 of the Arbitration Act.
12. In this case, before filing the petition under Section 20 of the Act, the respondent has called upon the appellant to agree for the appointment of an arbitrator. Since the appellant has not expressed his willingness to have an arbitrator appointed, as called by the respondent, it has approached the court with a petition, for filing the arbitration agreement, so that an arbitrator could be appointed as per the machinery set out therein. In those circumstances, the application filed by the respondent, under Section 20 of the Arbitration Act, for filing the arbitration agreement and to have the arbitrator appointed on the terms of the agreement, has to be taken as maintainable. However, the objection of the learned counsel for the appellant is for the appointment of an arbitrator by the trial Court without recourse to the machinery set out in the arbitration agreement, The said objection in our view has to be sustained.
13. On a due consideration of the matter, we are of the view that the order of the trial court, appointing an arbitrator of its choice, cannot be sustained in law especially in the face of the various clauses contained in the arbitration agreement. As already pointed out, the arbitration agreement contemplates the appointment of an arbitrator by the Managing Director of the Food Corporation of India, and if the appointment of such an arbitrator is not possible, there should not be any arbitration at all for resolving the disputes between the parties. In this case, the respondent has not given any reason as to why the arbitration agreement by the parties under the arbitration agreement could not be resorted to and that an arbitration outside the procedure set out in the arbitration agreement is called for.
14. As pointed out by the Supreme Court in Union of India v. Prafulla Kumar, , normally the court should make an order of reference to the arbitrator appointed by the parties under the arbitration agreement. However, the court after considering the feasibility of appointing an arbitrator according to the terms of the contract, finds that it is not feasible, it can refer the disputes to an arbitrator not contemplated by the parties. In this case, the respondent has not approached the Managing Director of the Food Corporation of India for appointing the arbitrator, as provided in the arbitration agreement It is also not its case that the arbitration contemplated by the parties under the arbitration agreement is not feasible at all. In these circumstances, we have to give effect to the solemn agreement entered into between the parties, as regards the manner and method of appointment of an arbitrator agreed to by them.
15. In an earlier case reported in D. Gobindram v. Shamji and Co., , the Supreme Court while dealing with the court's
power of appointment of an arbitrator under Section 20(4) of the Arbitration Act observed that if the parties had appointed the arbitrator or arbitrators the reference should be to them and if the parties do not agree, the court may be required to make a decision as to who should be selected as an arbitrator. The court further observed that in the case, the parties by their agreement have placed the power of selecting an arbitrator or arbitrators in the hands of another person (in that case the Chairman of the Board of Directors), the court can certainly perform the ministerial act of sending the agreement to him to be dealt with by him.
16. As already pointed out, the arbitration agreement sets out adequate and exhaustive machinery for the appointment of an arbitrator to decide the disputes between the parties. Taking into account, the said adequate and exhaustive machinery, agreed to between the parties, as to the arbitrators to be appointed and that as per the machinery the Managing Director of the Food Corporation of India had been nominated by the parties to select an arbitrator we set aside the order of the trial court in so far as it appoints one R. Parthasarathi, as an arbitrator, and direct the arbitration agreement to be sent to the Managing Director of the Food Corporation of India, with a direction to appoint an arbitrator as contemplated by the arbitration agreement, to decide the outstanding disputes between the parties.
17. Having regard to' the lapse of time since the termination of the contract which took place in the year 1975, the Managing Director of the Food Corporation of India will immediately appoint an arbitrator, so that the arbitration proceedings may be over as expeditiously as possible. The appeal is accordingly allowed, but, there will be no order as to costs.
18.The learned counsel would further point out that any reference to the arbitration at this distant point of time will be barred by limitation. At this stage, it is neither possible nor necessary to go into all such questions. Suffice for us to say that it is open to the parties to raise all legal objections that are open to them, before the arbitrator, and the arbitrator is bound to consider all those objections, while he is disposing of this reference.
19 Appeal allowed.