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East India Construction Co. (P) Ltd. Vs. Union of India (Uoi) - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberMatter No. 114 of 1969
Judge
Reported inAIR1970Cal243
ActsArbitration Act, 1940 - Sections 8(1), 9 and 20
AppellantEast India Construction Co. (P) Ltd.
RespondentUnion of India (Uoi)
Appellant AdvocateM. Hazra, Adv.
Respondent AdvocateP.K. Sen and ;Bachawat, Advs.
Cases ReferredUnion of India v. D. P. Singh
Excerpt:
- .....mr. n. s. tyebji, retired chief engineer, eastern railway as the arbitrator in place of one of the appointed arbitrators mr. k. ramani. the circumstances under which this application has been moved may be stated as follows:--the petitioner entered into an agreement on february 2, 1963 with the respondent for construction of certain railway quarters at dhanbad. the said agreement contains an arbitration clause which is clause 63, the relevant provisions of which are stated below.'arbitration: (a) matters in question, dispute or differences to be arbitrated upon shall be referred for decision to:-- (i) ........................(ii) two arbitrators who shall be gazetted officers of equal status to be appointed in the manner laid down in clause 3 (b) for all claims of rs. 50,000 and above,.....
Judgment:

Masud, J.

1. This application raises an important point of law which, on the facts of the present case, appears to be a matter of first impression. The petitioner company has made the present application under Section 8 of the Indian Arbitration Act, 1940 for the appointment of one Mr. N. S. Tyebji, retired Chief Engineer, Eastern Railway as the Arbitrator in place of one of the appointed arbitrators Mr. K. Ramani. The circumstances under which this application has been moved may be stated as follows:--

The petitioner entered into an agreement on February 2, 1963 with the respondent for construction of certain railway quarters at Dhanbad. The said agreement contains an arbitration clause which is Clause 63, the relevant provisions of which are stated below.

'Arbitration: (a) Matters in question, dispute or differences to be arbitrated upon shall be referred for decision to:--

(i) ........................

(ii) Two arbitrators who shall be Gazetted Officers of equal status to be appointed in the manner laid down in Clause 3 (b) for all claims of Rs. 50,000 and above, and in all claims irrespective of the amount or value of such claims, if the issues involved are of a complicated nature, the General Manager shall be the sole Judge to decide whether the issues are of a complicated nature or not. In the event of the two Arbitrators being divided in their opinions the matters in dispute will be referred to an Umpire to be appointed in the manner laid down in Clause 3 (b) for its decision,

(a) .....................

(b) For the purpose of appointing two Arbitrators as referred to in Sub-clause (a) (ii). The above Railway will Bend a panel of more than three names of officers of the appropriate status of diffierent departments of the Railway to the Contractor who will be asked to suggest a panel of three names out of the list so sent by the Railway. The General Manager will appoint one Arbitrator out of this panel as Contractor's nominee and then appoint a second Arbitrator of equal status as a Railway nominee either from the panel or from outside the panel, ensuring that one of the Arbitrators not nominated is Invariably from the Accounts Department. Before entering into reference the two Arbitrators shall nominate an Umpire to whom the case will be referred in the event of any difference between the two Arbitrators ..................

(e) Subject as aforesaid, the Arbitration Act, 1940 and the Rules thereunder and any statutory notification thereof shall apply to the arbitration proceedings under this contract;'

In accordance with the said procedure for appointment of two Arbitrators the General Manager appointed Mr. Ramani, Officer on Special Duty, South Eastern Railway, Garden Reach as the Arbitrator, being the Contractor's nominee and also appointed Mr. K. C. Bose, Deputy Finance Adviser, Eastern Railway as Arbitrator, being Railway's nominee and the disputes and differences between the parties were referred to the said Arbitrators in terms of the said agreement. The said Arbitrators entered upon the reference on or about August 5, 1966. On August 24, 1968. Mr. Ramani wrote a letter to the General Manager, Eastern Railway informing him his inability to continue as Arbitrator in the said matter. On March 1969 the Chief Engineer, Eastern Railway wrote a letter to the petitioner company stating that the General Manager would take steps to appoint another Arbitrator in place of Mr. Ramani in accordance with the procedure mentioned in the said Arbitration Clause. On March 24, 1969 the petitioner wrote a letter to the respondent that, as Mr. Ramani had refused to act any further, the company gave the Railway their notice to concur in the appointment of the said Mr. Tyebji in place of Mr. Ramani. In the said notice, it was also stated that if the respondent did not concur in the said appointment within 15 days from the date of service the company would apply to Court for necessary orders. The respondent did not reply to the said letter and the petitioner has moved the present application on 25th April, 1969.

2. It may be stated here that the facts in this case are not disputed. The short point to be decided in this application is whether it is lawful for the General Manager to appoint an Arbitrator in place of Mr. Ramani in accordance with the procedure mentioned in the Arbitration Clause or whether the Court will appoint an Arbitrator in place of Mr. Ramani. Mr. M. Hazra, counsel for the petitioner. In moving the present application has contended that this is a fit case for the Court under Section 8 of the Arbitration Act to appoint an arbitrator in the vacancy caused by refusal of Mr. Ramani to continue as arbitrator. In support of the said contention he has relied upon Shamjimal v. Sefton & Co. Ltd., , A. Ramji Bhai & Co. v. Yusuf All Md. All Antra & Bros., AIR 1925 Sind 12 and Surendra Nath Paul v. Union of India, : AIR1965Cal183 .

3. Mr. P. K. Sen In the present application and also Mr. Bachawat in a similar application in the next matter on behalf of the respondent. Union of India, have, on the contrary, contended that, in the facts and circumstances of the present case, both under the said arbitration clause and also under the provisions of the Indian Arbitration Act this application is not maintainable and should be dismissed. In support of their contention they have distinguished the cases cited by Mr. Hazra and also relied upon Subal Chandra v. Md. Ibrahim : AIR1943Cal484 . Union of India v. Gorakh Mohan Das, : AIR1964All477 , and also Ram Chandra R. N. R. R. & C. Mills v. H. O. Mills, : AIR1958Cal620 .

4. It is now for me to examine the contentions of the counsel for both parties. The cases relied on by the counsel are certainly relevant but they mostly refer to cases of arbitration where the arbitration clause provided the appointment of a sole Arbitrator or the appointment of joint arbitrators at the initial stage of the reference. The facts in the present case, as stated above, stand on a different footing inasmuch as a new situation has arisen after the commencement of reference proceedings by two validly appointed arbitrators in terms of the contract. Mr. Hazra had made it clear that his client has to make the present application under Section 8 of the Arbitration Act as no other section in the Act, according to him. Is applicable. Mr. Sen however, has argued that in the present case the application should have been made under Section 9 or under Section 20 of the Act. In my view, Section 9 of the Act contemplates cases where disputes are referred 'to two arbitrators, one to be appointed by each party'.

The arbitration clause, in the present case, clearly provides that the General Manager is authorised to appoint the Railway's nominee and also the petitioner's nominee. Thus this is not a matter where the petitioner and the respondent are to appoint their respective arbitrators under the arbitration clause. It is true that the arbitration clause provides that the contractor is to select its arbitrators from a panel of three arbitrators supplied to it by the General Manager from a panel of arbitrators exceeding three and it is also true that the General Manager will also appoint another person as an arbitrator from or outside the panel as the respondent's nominee. But the fact remains that the appointment of the two arbitrators is to be made by the General Manager. Thus, it is not a case where the petitioner and the respondent will appoint their respective arbitrators. Similarly, I accept the contention of Mr. Hazra that the application is not maintainable under Section 20 of the Act also. Section 20 does not apply to a case where the reference has already commenced. Application under Section 20 is made at the stage where, in spite of the arbitration clause, for some reason or other, the party or parties do not proceed with the arbitration. Reliance may be placed on the Full Bench decision in Mangal Prasad v. Lachman Prasad, : AIR1964All108 .

5. In my view this is a case where application under Section 8 is maintainable. Section 8 of the Act reads as follows:--

'8. (1) In any of the following cases-

(a) where an arbitration agreement provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties, and all the parties do not, after differences have arisen, concur in the appointment or appointments; or

(b) if any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply the vacancy; or

(c) where the parties or the arbitrators are required to appoint an umpire and do not appoint him;

any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy.

(2) If the appointment is not made within fifteen clear days after the service of the said notice, the Court may on the application of the party who gave the notice and after giving the other parties an opportunity of being heard, appoint an arbitrator or arbitrators or umpire, as the case may be, who shall have like power to act in the reference and to make an award as if he or they had been appointed by consent of all parties.'

6. Section 8(1) provides that in any of the following cases, as set out in (a), (b) or (c), any party may serve the other party with a written notice to concur in the appointment of an arbitrator where a vacancy has arisen. If, after such notice, the other party does not concur in the appointment of the arbitrator mentioned in the notice, the party giving notice may make an application to the Court to appoint an arbitrator. Admittedly, this is not a case under Section 8(1)(a) inasmuch as the two arbitrators are not to be appointed by consent of the parties. Mr. Hazra is right when he has stated that the present case would come under the second contingency mentioned in Section 8(1)(b). Mr. Sen and Mr. Bachawat on behalf of the Union of India have submitted that Section 8(1)(b) also contemplates cases where the arbitrators are to be appointed by consent of the parties. According to them, the appointment of arbitrators under the arbitration clause in this case is not to be made by consent. In my view, this contention cannot be accepted. The two contingencies mentioned in Section 8(1)(a) and 8(1)(b) mentioned in the said sections have been expressed in disjunctive form. Section 8(1)(a) has specifically mentioned the words, 'one or more arbitrators to be appointed by consent of the parties', whereas Section 8(1)(b) does not mention the said words. Obviously where the arbitrators are not to be appointed by consent. Section 8(1)(b) is attracted and, as such, there is nothing unlawful for the petitioner to serve the respondent with a written notice to concur in the appointment of Mr. Tayebji as the petitioner's nominee. As the respondent has not concurred in the said appointment the petitioner has validly moved the present application for appointment of the arbitrator by Court, My attention has been drawn to some of the observations of Mr. Paruck where opinions have been expressed that Section 8(1)(b) is also referable to cases where the arbitrators are to be appointed under the arbitration clause by consent of the parties. In my view those observations are not warranted by the words expressed in Section 8(1)(b). Even assuming that Section 8(1)(b) applies to cases where the joint arbitrators are to be appointed by consent of the parties, there is nothing which debars the Court to appoint an arbitrator under Section 8(1)(b) of the Arbitration Act, vide : AIR1965Cal183 . Further, it may also be argued that the appointment of the arbitrators in the present case has been made as a result of consent of the parties themselves. The parties not only have entered into the arbitration agreement but also have agreed to the procedure to be adopted in the appointment of arbitrators. The petitioner and the respondent have agreed that for appointment of arbitrators the General Manager will supply a panel of more than three persons to the contractor for the letter's selection and the contractor will select three persons from the said panel, out of which the General Manager will appoint one as the contractor's nominee. It is also agreed that the General Manager will appoint another person from within or outside the said panel as the respondent's nominee. Thus the parties under the Arbitration Clause may be said to have consented to the appointment of two arbitrators by following the said procedure, vide : AIR1965Cal183 ,

7. There is another reason why the petitioner ought to succeed in the present application. The parties in the present case are petitioner-company and the respondent Union of India and they have agreed to have two arbitrators appointed by a third party, a persona designate, namely, the General Manager of the Railways, The General Manager, for the purpose of this reference, has already appointed the two arbitrators, namely. Mr. K. Ramani as the contractor's nominee and Mr. K. C. Bose as the Railway's nominee. During the pendency of the reference, a vacancy has been caused and the arbitration agreement does not state that the vacancy would not be supplied. Nor the agreement provides that the parties would not supply the vacancy. Admittedly Mr. Ramani has neglected or refused to act or is being incapable of acting on account of alleged pressure of work as set out in Mr. Ramani's letter dated 24th August, 1968. In the premises, if the vacancy of Mr. Ramani has again to be filled up by the General Manager, who strictly speaking, is not a party in dispute, such exercise of authority by the General Manager will be outside the Arbitration Agreement. If parties have empowered a third party to appoint two arbitrators under the Arbitration clause and the said third party has exercised that power by appointing them and if, after exercise of such power, one of the appointed arbitrators fails or neglects or is incapable to continue and a vacancy is caused, the Court alone can supply the vacancy unless there is a machinery provided In the Arbitration Clause itself to meet such a contingency, vide Wilson & Sons v. Eastern Counties Navigation & Transport Co., (1892) 1 QB 81 at p. 83. In such a case, the power of a third party is exhausted after the exercise of his power or authority under the agreement. The proper construction of Section 8(1)(b), in my view, is that where the appointed arbitrator neglects or refuses to act or is incapable of acting or dies and there is no machinery in the arbitration clause itself providing for such contingency, the Court may appoint an arbitrator. The Arbitration agreement may specifically provide a procedure to appoint an arbitrator if a vacancy arises after one of the appointed arbitrators expresses his inability to continue arbitration. In the present case the arbitration clause does not provide such a contingency and, as such, the third party's jurisdiction to appoint another arbitrator in supplying the vacancy is ousted. Reliance may be placed on the observations of Bhandari, C. J. in (Supra) at page 192 where the learned Judge in a similar situation has made the following observations:--

'The Director General having exercised the power of nomination vested in him by appointing Mr. Rao exhausted his power and had no power to appoint Bakshi Shibcharan Singh or any other arbitrator.'

In this connection very often some learned Judges have expressed their view that if the arbitration clause provides the appointment of an arbitrator by third party with the qualification that such person is authorised to appoint an arbitrator 'willing to act' then in such a case the power or such third party is not exhausted if subsequently the arbitrator appointed by him expresses his unwillingness to act. Reference may be made to AIR 1925 Sind 12 and also : AIR1965Cal183 (Supra). With great respect to the learned Judges It seems to me that, logically speaking, the addition of the words 'willing to act' should not make any substantial difference on the legal position. Whenever an appointing authority appoints a particular person as an arbitrator, it is obvious that such appointment is subject to his willingness to act. There is no sense in appointing a person who is unwilling to act. It is true that willingness to act means willingness to continue to act till the award is made. But the main point is that after a particular person is appointed an arbitrator who at initial stage has expressed his willingness to act can the appointing authority again exercise its power to appoint another arbitrator, if subsequently the appointed arbitrator expresses his unwillingness to act? In my view, the authority to appoint an arbitrator, once executed, cannot be executed again, unless, of course, the arbitration agreement itself provides for such a situation. The power of an appointing authority to appoint successive arbitrators cannot be lawfully exercised unless there is special clause to that effect in the arbitration clause itself. There must be some evidence to show that the parties have intended that, in such a case, the power of the appointing authority to appoint a new arbitrator is revived and the arbitration clause itself is the proper medium where such intention could find its expression. Further, there are good reasons why the power of the appointing authority should be exhausted, once he has exercised that power. If the power is not exhausted, a difficult situation might arise; for instance, if the Union of India is not satisfied with the conduct of the appointed arbitrator, such arbitrator might be transferred by the Union of India to enable the appointing authority to have a substituted arbitrator on the plea of the first arbitrator's inability to continue as arbitrator. Even assuming that the additional qualification 'willing to act' makes a difference, in the instant case before me, there is no such additional qualification in the arbitration clause and, as such, the power of the General Manager to appoint another arbitrator as the contractor's nominee has already been exhausted.

8. Before I conclude, reference may be made to some of the decisions on which the counsel for the petitioners and the respondent have relied. As stated earlier, the facts in those decisions are all distinguishable from the facts of the present case. In AIR 1943 Cal 484 the arbitration clause provided for reference of disputes to a single arbitrator in case if the parties agreed upon one, and otherwise to two arbitrators one to be appointed by each party to the differences. But in that case there were three parties to the differences and, as such, the arbitration clause became unworkable. Das, J. rightly came to the conclusion that an application under Section 8 of the Arbitration Act was not maintainable in such a case. The learned Judges in the Bench decision of the Calcutta High Court in : AIR1958Cal620 (supra) and also the Full Bench decision in : AIR1964All477 , have held that Section 8 of the Arbitration Act has no application where the arbitration clause provides that two arbitrators, one to be nominated by each of the two parties, were to be appointed inasmuch as such joint appointment is not a case of appointment by consent of the parties. It may be stated here that in both these cases the question of an appointment of an arbitrator arose before the commencement of the reference. Similarly the decision in Union of India v. D. P. Singh, : AIR1961Pat228 relates to a case of the appointment of an arbitrator under Section 8(1)(a) of the Act. In that case the arbitration clause contemplates a reference of the disputes to the sole arbitration of an officer nominated by the General Manager, Railways. The learned Judge has come to the conclusion that as the parties had agreed to have the nominee of the General Manager as the sole arbitrator the appointment of such arbitrator was deemed to have been made by consent of the parties under Section 8(1)(a) of the Act Or, in other words, the word 'consent' In Section 8(1)(a) of the Act was construed to include Implied consent also. The decision in (1892) 1 QB 81 (Supra) refers to the principal question there whether the conduct of an arbitrator who has gone abroad is to be construed as refusal to act as an arbitrator. In the said decision, however, the learned Judges have held that unless there is a machinery In the arbitration clause itself to supply the vacancy in a case where the appointed arbitrator refuses to act, the Court has the jurisdiction to appoint a new arbitrator in such a contingency. The arbitration clause in the said case specifically says that 'the differences should be referred to Mr. Martineau, or failing him, a person to be nominated by the President of the Institution of Civil Engineers.' On the construction of the said arbitration clause, the learned Judges came to the conclusion that the arbitration clause there clearly provided that in the event of failure of Mr. Martineau to act, a nominee of the President of the Institute of Civil Engineers would be the arbitrator and, as such, it was held that the Court had no jurisdiction to appoint an arbitrator.

9. For the reasons stated above the contention of Mr. Hazra should be accepted. The parties have not made any submission on the question whether Mr. N. S. Tayabji, retired Chief Engineer, Eastern Railway, should be appointed by the Court as the arbitrator in place of Mr. Ramani as set out in paragraph 'A' of the petition. No comment has been made on the proposal to appoint Mr. Tayabji nor any allegation has been made against him. In the premises, there will be order in terms of prayer 'A'.. It may be added here that no argument has been made on the question whether Mr. Tayabji should be appointed as the sole arbitrator under Section 8 of the Arbitration Act. As the present application involves substantial point of law I direct that each party will bear its own costs.


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