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Excalcer Vs. the State of West Bengal - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberMatter No. 1078 of 1979
Judge
Reported inAIR1980Cal86
ActsArbitration Act, 1940 - Sections 8 and 9
AppellantExcalcer
RespondentThe State of West Bengal
Appellant AdvocateHeranmay Dutt, Adv.
Respondent AdvocateAmaresh Chakbraborty, Adv.
DispositionPetition allowed
Cases Referred(Tradax Export S. A. v. Volkswagenwerk A. G.
Excerpt:
- .....or after the completion or abandonment thereof shall be referred to the sole arbitration of the chief engineer of the department. should the chief engineer be for any reason unwilling or unable to act as such aribitrator, such questions and deputes shall be referred to an arbitrator to be appointed by the chief engineer. the award of the arbitrator shall be final, conclusive and binding on all parties to the contract.'2. by a letter dated 29-11-77, addressed to the chief engineer the petitioner called upon him to enter upon the reference as the sole arbitrator but the chief engineer sat tight over the matter and did not take any step. thereafter by a notice dated 2-7-79 issued under section 8 of the arbitration act 1940 the petitioner called upon the respondent to concur in the.....
Judgment:
ORDER

Pratibha Bonnerjea, J.

1. In April 1977 the petitioner entered into a contract with the resnondent for execution of flood protection work from chainage 903 to 906 along the left bank of Mundeswari river. Such contract was arrived at by the acceotance of the petitioner's tender No. 55/S/M of 77-78 in BF No. 2911 (i) (ii) by the respondent by its letter No. 296 dated 11-5-77. Pursuant to this agreement, the respondent issued works order on or about 11-5-77. It is alleged that the petitioner had to execute various extra works in course of execution of the works under the contract at the instance of the respondent. Thereafter disputes and differences arose between the parties in connection with the said contract which contained an arbitration clause as follows :--

'Clause 25 -- Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever, in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or those conditions or otherwise concerning the works, or the execution or failure to execute the same, whether arising during the progress of the work, or after the completion or abandonment thereof shall be referred to the sole arbitration of the Chief Engineer of the Department. Should the Chief Engineer be for any reason unwilling or unable to act as such aribitrator, such questions and deputes shall be referred to an Arbitrator to be appointed by the Chief Engineer. The award of the arbitrator shall be final, conclusive and binding on all parties to the contract.'

2. By a letter dated 29-11-77, addressed to the Chief Engineer the petitioner called upon him to enter upon the reference as the sole arbitrator but the Chief Engineer sat tight over the matter and did not take any step. Thereafter by a notice dated 2-7-79 issued under Section 8 of the Arbitration Act 1940 the petitioner called upon the respondent to concur in the appointment of Sri Durga Mohan Mukherjee, a retired Chief Engineer, Agriculture Department, as the sole arbitrator. The respondent did not concur in the said appointment and the statutory period of 15 days expired. Under the cricumstances the petitioner has taken out his present application under Sections 5, 8, 11 and 12 of the Arbitration Act for appointment of Sri Durga Mohan Mukherjee as the sole Arbitrator and/or for appointment of any fit person by Court as the Arbitrator on the ground that the Chief Engineer as the sole Arbitrator has neglected and refused to act.

3. The respondent filed its affidavit-in-opposition through one Ramendra Mohan Ganguly affirmed on 19-11-79 denying the allegations in the petition. In paragraph 11 of the said affidavit, the respondent has alleged that the notice dated 2-7-79 is bad in view of the fact that such a notice can only be issued after the Chief Engineer is called upon to nominate an arbitrator but he fails to do so. According to the respondent, the application is premature.

4. The counsel for the respondent submitted that the petitioner has no right to move the Court for appointment of an arbitrator without first requesting the Chief Engineer to nominate an arbitrator in terms of the express agreement between the parties. He submitted that the court has no jurisdiction to appoint an arbitrator in absence of such a prior request. The petitioner's counsel disagreed with this submission on behalf of the respondent and stated that the appointment of the Chief Engineer as the sole arbitrator being complete, his unwillingness or inability to act is a ground for moving the court under Section 8 of the Act. To ascertain which view is correct, interpretation and construction of the present arbitration agreement would be necessary. We very often come across this type of arbitration clause in almost all government contracts. It is a matter of public importance to know the exact scope and effect of this type of arbitration agreement. A close scrutiny of this clause would reveal that the Chief Engineer is given two powers and/or authorities viz., the first is to act as the sole arbitrator and the second is to act as a person designated under the agreement to appoint an arbitrator for the parties if he himself ss unwilling or unable to act as the arbitrator. If the Chief Engineer's appointment as an arbitrator is complete, as submitted by the petitioner, then the inevitable conclusion would be that the parties have authorised a negligent arbitrator unwilling to act to nominate his own successor and to exclude the operation of Section 8 or 9 of the Act viz., Court's power t'o appoint in such cases. This type of appointment of an arbitrator by a negligent arbitrator is unknown in law. The Arbitration Act contemplates appointments in three ways--(1) appointment by parties to the contract (2) appointment by Court and (3) appointment by a third party expres-sly mentioned in the contract in accordance with Section 4 of the Act. The Act of 1940 provides that arbitrators can appoint umpire or umpires under certain circumstances but not an arbitrator. Tn view of this, it appears that if the appointment of the Chief Engineer is complete and effective then he cannot act as persona designata and appoint another arbitrator.

5. In my opinion, the proper construction of the agreement would be that under the contract, the appointment of the Chief Engineer is subject to his acceptance of the position either as an arbitrator or as a persona designata. His confirmation is necessary. The parties have conferred two distinct separate and alternative capacities or rights to the Chief Engineer -- one is to act as the sole arbitrator provided he accepts such position, or as a person designated in the agreement to appoint an arbitrator for the parties in terms of Section 4 of the Act. This appointment of an arbitrator by the Chief Engineer as persona designata will not be a substituted appointment in his place and stead as his own successor but will be the first and original appointment. The Chief Engineer has the option either to act or to appoint. Those two powers ond/or authorities and/or capacities are disjunctive -- one excludes the operation of the other. This would naturally mean that the appointment of the Chief Engineer as the arbitrator is not complete unless he accepts such position and his acceptance is necessary for perfect-ing his appointment and he is to signify in what manner he would act, either expressly or by implication by some overt act. This can be done if he intimates the parties in express terms that he would not act as an arbitrator but would appoint one or by appointing another as soon as he is approached by the parties to act as the arbitrator. If he does not signify his intention in any other manner stated above then his silence may be construed as his acceptance of his position as an arbitrator. It is true that some courts in India have held that the appointment of an arbitrator or umpire is complete as soon as it is made and to make the appointment complete, it is not necessary to secure his consent. Those decisions were given by the Courts on the basis of the facts of the cases before them (1911) 13 Bombay LR 826 (Mirza Sadik Hussain v. Mt. Kanzia Zoghara Begum), AIR 1927 Sind 126 (Macdonald & Co. v. Naraindas Pokerdas) and : AIR1969Bom227 (Kashavsing Dwarkadas v. Indian Engineer ing Co.) are authorities on this point. But close scrutiny of the facts of those cases would reveal that the arbitrators appointed in those cases were authorised to act in the capacity of arbitrators only and in fact all of them acted as such. No alternative power was conferred on them as has been done in the present case. In my opinion on the facts of the present case, the Chief Engineer was bound to elect and/or exercise his option as to in what capacity he would work soon after receipt of the letter of 29-11-77 and he should have signified his election either expressly or by implication by entering upon the reference or by appointing his nominee and all this should have been done within one month from the date of receipt of that letter. The facts of the present case being totally different from the fact's in the cases mentioned above, the principles laid down thereunder will not apply in the present case. An arbitration agreement has to be construed and/or interpreted on the basis of the language of the agreement. : AIR1967Cal168 (M/s. Teamco Pvt. Ltd. v. T. M. S. Mani) is an authority on this point where the Division Bench of this High Court has held at page 170 paragraph 14:

'Every agreement will have to be construed with reference to the language used therein'.

6. In my opinion, the words in the present agreement 'should the Chief Engineer be for any reason unwilling or unable to act' simply means that if the Chief Engineer be for any reason un-willing or unable to accept his position as an arbitrator then he would appoint another arbitrator for the parties. If he is unwilling or unable to arbitrate over the disputes himself, he is to inform the parties about the same either expressly or by implication as aforesaid and immediately his appointment as the sole arbitrator will be infructuous. This proposition, that the appointment of an arbitrator is not complete without his acceptances will be found in many cases including (1969) 2 QB 599 (Tradax Export S. A. v. Volkswagenwerk A. G. where at page 607 it has been held:--

'A mere nomination, unknown to the appointee, is not an 'appointment' of him. It does not' become an 'appointment' merely by being communicated to the other side. It becomes an 'appointment' of him as arbitrator only when he is effectively in the position of an arbitrator, clothed with the duties and authority of such. That stage of effective appointment is not reached before ha has been told that it is desired to appoint him in a particular matter and he has indicated his willingness to act in that matter.'

7. On the basis of the language of the present agreement, I have no doubt in my mind that the 'appointment' of the Chief Engineer as the 'Sole Arbitrator' or as a 'person designated' for the purpose of appointing an arbitrator for the parties is not complete until and unless the same is made known to him and he gets an opportunity to elect and or to exercise his option and to signify his intention as to in what capacity he would act. Such intimation and/or consent may be given either expressly or by implication by entering upon the reference or appointing a nominee soon after he is approached by the party to act to arbitrate over disputes. If he keeps silent beyond the period of one month then that would signify three things:--

1. He has accepted his position as an arbitrator.

2. He has neglected or refused to act within the meaning of explanation to Section 9 of the Act.

3. He has elected not to act as a persona designate.

8. In those circumstances, a party to the arbitration agreement can always come to court under Sections 8 and 9 of the Act for appointment of an arbitrator by court after complying with all other formalities required thereunder.

9. On the facts of the present case, I find that the Chief Engineer came to know about his appointments by the petitioner's letter dated 15-1-79. In spite of such knowledge he kept silent for over five months. This conduct on his part will clearly signify by implication that he has accepted his position as an arbitrator. The expiry of one month's time from the date of receipt of the said letter dated 15-1-79 without any attempt on the part of the Chief Engineer to enter upon the reference will give rise to the statutory presumption of his negligence and refusal to act as an arbitrator within the meaning of the explanation to Section 9 of the Act. The statutory notice required under Section 8 of the Act has been duly served on the respondent and the statutory period of 15 days has expired. In the premises, I hold that the application is prefectly maintainable and the petitioner is entitled to the order prayed for.

10. Mr. Mathura Nath Banerjee, Barrister-at-law is appointed arbitrator to arbitrate on the disputes between the parties. He is to enter upon the reference forthwith and make and publish his award within 4 months from the date of entering upon reference. His remuneration is fixed at 20 Cms. per sitting irrespective of hours, to be shared equally by the parties. The arbitrator will be at liberty to appoint a clerk, stenographer and an interpreter, if necessary, and their remuneration will be decided at the meeting of the parties to be held by the arbitrator. All parties and the arbitrator to act on a signed copy of the minutes of the order on the undertak-ing of the petitioner's Advocate on record to draw up and complete this order. Cost, cost in the arbitration proceeding.


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