Judgment:
ORDER
1. This arbitration applications filed under Section 11 of the Arbitration and Conciliation Act, (for short 'the New Act') read with Para 2 of the Scheme for Appointment of Arbitrators framed by the Chief Justice of this Court under subsection (10) of Section 11 of the Arbitration and Conciliation Ordinance, 1996 seeking appointment of an independent Arbitrator for adjudicating the disputes that arose between the parties in connection with construction of staff quarters at Vikarabad TDU (D) under written Agreement No.94/ CAO/C/SC/92, dated 20-8-1992.
2. The material facts leading to filing of this application are the following:
The applicant-a partnership firm - is a Railway Contractor. It was entrusted with the work of construction of staff quarters at Vikarabad TDU (D) by the respondents (hereinafter referred to as 'the Railways' for short) under the aforesaid agreement. The approximate value of the work that was to be done under the agreement was Rs.32,65,944/- and the schedule date of completion was 23-12-1992.
3. The agreement contained an Arbitration Clause in Clause 64 of the General Conditions of the Contract, which forms part of the agreement. The relevant portions of the said clause are as under :-
'64(1)(i) 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 fails to make decision within a reasonable time, then and in any such case, save the 'excepted matters' referred to in Clause 63 of theseconditions, the Contractor, after 90 days but within 180 days of his presenting his final claim on disputed matter, shall demand in writing that the dispute 'or difference' be referred to arbitration.
(1) (ii) and (iii).....
(2).....
(3) (a) Matters in question, dispute or difference to be arbitrated upon shall be referred to for decision to-
(3)(a) (i).....
(3) (a)(ii) - Two Arbitrators who shall be Gazetted Railway Officers of equal status to be appointed in the manner laid in Clause 64 (3) (b) for all claims of Rs.5,00,000/- (Rs. Five Lakhs) and above, and for 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 involved are of a complicated nature or not. In the event of the two Arbitrators being divided in their opinions the matter under disputes will be referred to an Umpire to be appointed in the manner laid down in Clause (3) (b) for his decision.
(3) (a) (iii).....
(3)(b) For the purpose of appointing two Arbitrators as referred to in sub-clause (a) (ii) above, the Railway will send a panel of more than three names of gazetted Railway Officers of one or more departments of the Railway to the Contractor, who will be asked to suggest to the General Manager one name out of the list for appointment as the contractor's nominee. The General Manager, while so appointing the Contractor's nominee, will also appoint a second Arbitrator as the Railway's nominee........'.
Even though the work was scheduled to be completed on 23-12-1992, it was actually completed on 28-2-1996. Each party blames the other for the delay. The case of the applicant was that final bill was not paid to it immediately after completion of the work, but was paid very belatedly on 31-3-1998. In the meanwhile, the applicant by its letter dated 27-3-1998, addressed to the Chief Engineer/C/Plg., (Construction), 2nd respondent herein, raised as many as six claims and demanded their settlement. As there was no reply, the applicant again wrote to the 2nd respondent by its letter dated 26/29-6-1998 requesting reference of the claims to arbitration in terms of Clause 64(3) of the General Conditions of the Contract. As there was no response, the applicant issued a notice to the General Manager of the South Central Railway, 1st respondent herein, on 16-9-1998 seeking reference of the claims to Arbitration within 30 days from the date of receipt of the said notice. As there was no response to the said notice, the applicant issued a remainder on 3-3-1999. Since there was no reply from the 1st respondent, the applicant filed the present application requesting appointment of an Arbitrator.
4. In the elaborate counter filed on behalf of the Railways, mostly dealing with the merits of the case, the objection that was taken is that the claims were not raised within the period prescribed under Clause 50(2) of the General Conditions of the Contract. This would be clear from a perusal of para 8 of the counter-affidavit. It may be thus seen that, in essence, the objection of the Railways is that the claims are barred by limitation.
5. During the course of oral arguments, Sri G.S. Sanghi, learned Standing Counsel for Railways, strenuously contended that since the claims are barred by time, they cannot be referred to arbitration.
6. The learned Counsel for the applicant, on the other hand, submits that the issue of limitation is a contentious issue and it should be left to the decision of theArbitrator.
7. Therefore, the question that arises for consideration is: whether the issue of limitation has to be decided by the designate of the Chief Justice at the time of appointing an Arbitrator or should it be left to the Arbitrator?
8. This issue is no longer res integra. Having regard to the language employed in Section 16 of the New Act, a three Judge Bench of the Supreme Court in Konkan Railway Corporation Limited v. M/s. Mehul Construction Company, 2000 (5) Supreme 657, held thus:
'When the matter is placed before the Chief Justice or his nominee under Section 11 of the Act it is imperative for the said Chief Justice or his nominee to bear in mind the legislative intent that the arbitral process should be set in motion without any delay whatsoever and all contentious issues are left to be raised before the arbitral Tribunal itself. At that stage it would not be appropriate for the Chief Justice or his nominee to entertain any contentious issue between the parties and decide the same .....
Section 16 empowers the arbitral Tribunal to rule on its own as well as on objections with respect to the existence or validity of the arbitration agreement. Conferment of such power on the arbitrator under 1996 Act indicates the intention of the Legislature and its anxiety to see that the arbitral process is set in motion. This being the legislative intent, it would be proper for the Chief Justice or this nominee just to appoint an Arbitrator without wasting any time or without entertaining any contentiousissues at that stage, by a party objecting to the appointment of an Arbitrator'.
From the aforesaid authoritative pronouncement, it follows that whenever a preliminary objection like the present one is taken by a party objecting appointment of an Arbitrator, the Chief Justice or his designate has to appoint an Arbitrator and leave the issue for his decision. It is no doubt true that the aforesaid question has been again referred to for fresh consideration to a larger Bench of the Supreme Court in M/s. Konkan Railway Corporation Limited v. M/s. Rani Construction Private Limited, JT 2000 (Suppl.) 2 SC 150 = 2000 (7) Supreme 125. But that cannot be a ground to reject the petitioner's application or to defer the matter indefinitely. I am bound to follow the law laid down by the Supreme Court till it is over-ruled or modified by a larger Bench of the Supreme Court.
9. In this view of the matter, I have no hesitation to reject the objection raised by the learned Standing Counsel for the Railways.
10. The learned Standing Counsel for Railways, however, strenuously contended that in case the matter is to be referred to arbitration, then, in view of the agreed procedure contained in Clause 64(3)(a)(ii) and (3)(b) of the General Conditions of the Contact, I cannot appoint Arbitrator/ Arbitrators, but can only direct the 1st respondent to appoint Arbitrators in terms of the said Clause and to refer the claims to their arbitration. In support of this contention, he relied upon the decision of the Supreme Court in A. Mohammad Yunus (dead) by LRs. v. Food Corporation of India, 2000 (7) Supreme 722.
11. Having given my anxious consideration to the aforesaid contention, I find it difficult to accept the same.
12. It is no doubt true that the parties have agreed on a procedure for appointing the Arbitrators in this case and the agreed procedure is contained in sub-clauses (3)(a) (ii) and (3) (b) of Clause 64 of the General Conditions of the Contract, extracted hereinabove. But the Chief Justice or his designate, while acting under Section 11(6) of the New Act, is not bound by that agreed procedure. A brief, but careful, analysis of the relevant provisions of Section 11 of the New Act clearly brings out this point.
13. Section 11 of the New Act, which is a self-contained Code in itself, broadly classifies the arbitration agreements, for the purpose of appointment of Arbitrators, into two categories. The first category is where the parties have agreed on the number of Arbitrators, but did not indicate the procedure for their appointment. Sub-sections (3), (4) and (5) deal with this category of agreements, with which we are not concerned here. The second category is where the parties have not only agreed on the number of Arbitrators, but also on the procedure of their appointment. Sub-section (6) deals with this category, with which we are concerned in this case.
14. Sub-section (2) gives liberty to the parties to agree on a procedure for appointing the Arbitrator/Arbitrators, but mandates that such procedure shall be subject to sub-section (6). The said sub-section (2) is as under:
'11. Appointment of arbitrators :
(1) .....
(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators'.
As already noted, sub-section (6) deals with arbitration agreements where the parties have also agreed upon an appointmentprocedure. In such cases, if a party fails to act as required under that procedure or if a person, including an institution, fails to perform any function entrusted to him under the procedure, the opposite party may request the Chief Justice or his designate to appoint an Arbitrator/Arbitrators. When such a request is made, the Chief Justice or his designate gets jurisdiction to appoint an Arbitrator/Arbitrators. While doing so, he is not bound by the agreed procedure in view of the mandatory provision contained in sub-section (2) referred to hereinabove. In other words, the Chief Justice or his designate can appoint an Arbitrator/Arbitrators of his choice deviating from the agreed procedure. This position would be further more clear from a reading of sub-section (8) of Section 11, which is as under:
'11(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'.
It may be at once noted here that there is no mention to the agreed procedure in subsection (8) even though Clause (a) of that sub-section mentions about the qualifications required of an Arbitrator by the agreement of the parties. This clearly indicates the intention of the Legislature that while making an appointment under sub-section (6) of Section 11 of the New Act, the Chief Justice or his designate is not bound by the agreed procedure of appointment and can appoint an independent and impartial person of his choice as an Arbitrator provided he has the qualifications, if any, mentioned in the agreement. It may be mentionedhere that the Arbitration Clause in this case does not prescribe any special qualifications for the Arbitrators.
15. Even under the Arbitration Act, 1940 (hereinafter referred to as 'the Old Act'), the position is not different. Considering the jurisdiction of the Court under Sections 8 and 20 of the Old Act, the Supreme Court has ruled that a party/person, who is empowered under the agreed procedure of the arbitration agreement, will forfeit his right to make such appointment if he fails to act when called upon by the opposite party, within the stipulated time, and, in such circumstances, the Court will get jurisdiction to appoint an Arbitrator/Arbitrators of its choice. See the decisions of the Supreme Court in Nandyal Co-op. Spinning Mills v. K.V. Mohan Rao, : [1993]2SCR280 and G. Ramachandra Reddy and Company v. Chief Engineer, Madras, MES, : [1994]3SCR808 .
16. Relying upon the aforesaid decisions of the Supreme Court, the Hon'ble Mr. Justice R. Bayapu Reddy, the then nominee of the Chief Justice of the High Court of Andhra Pradesh, overruled almost a similar objection in Marshall Corporation Limited v. Union of India, : 1997(5)ALT421 , holding thus :
'.....But the High Court rejectedsuch contention of the Department and observed that as the Department did not exercise its option to appoint the Arbitrator within the specified period after the receipt of notice, they have forfeited their right to appoint the Arbitrator and it is for the Court to exercise its jurisdiction to appoint the Arbitrator under Section 8(2) of the Arbitration Act (Old). Therefore, the said contention of the learned Counsel for the respondents is untenable and cannot be accepted. In view of all such facts and circumstances, the present applicationsfiled for appointment of an Arbitrator by the Hon'ble Chief Justice of the High Court are maintainable and an independent arbitrator of the choice of the Court can be appointed for deciding the disputes that have arisen between the parties'.
17. I am in respectable agreement with the aforesaid reasoning of the learned Judge.
18. In this case, the 1st respondent has failed to appoint the Arbitrators within the stipulated time when the applicant made a demand for the same. Thus, he has forfeited his right to appoint the Arbitrators. Therefore, the question of directing the 1st respondent again to appoint Arbitrators does not arise.
19. The decision of the Supreme Court in, A. Mohammad Yunus (supra), relied upon by the learned Standing Counsel for Railways, has no application to the facts of this case. In that case the arbitration clause is as under:
'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 FCI .....It is also a term of this contract that no person other than a person appointed by the FCI 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'.
In view of the aforesaid clear term in the contract, the Supreme Court has confirmed the order of a Division Bench of the Kerala High Court, which has set aside the award of an Arbitrator, who was not appointed in the manner prescribed in the agreement.
20. In the present case, the crucial words 'It is also a term of this contract that no person other than a person appointed by the FCI 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' are not therein the arbitration clause. In the absence of such a stipulation, the ratio of the aforesaid decision of the Supreme Court cannot be made applicable. Further more, the power of the Court under Sections 8 and 20 of the Old Act to appoint an independent Arbitrator/ Arbitrators of its choice in cases where a party or a person entrusted with the power to appoint an Arbitrator/Arbitrators, under the agreement, has failed to act, was not considered by the Hon'ble Supreme Court in that case.
21. The question that still remains for consideration is - how to constitute the Arbitral Tribunal? Is it by appointing a sole Arbitrator or two Arbitrators as agreed between the parties?
22. The answer to the said question is to be found in Section 10 of the New Act, which is as under:
'Section 10 Number of Arbitrators: -
1. The parties are free to determine the number of arbitrators, provided that such number shall not be an even number.
2. Failing the determination referred to in sub-section (1), the arbitral Tribunal shall consist of a sole Arbitrator'.
A close reading of the aforesaid provision clearly shows that the parties are at liberty to determine the number of Arbitrators, but such number shall not be an even number. Sub-section (2) further provides that if the parties fail to provide for an odd number of Arbitrators, the arbitral Tribunal shall be constituted by a sole Arbitrator.
23. In this case, as already noted, sub-clause (3)(a)(ii) and (3)(b) of Clause 64 of the General Conditions of the Contract provides for arbitration by two Arbitrators i.e., even number of Arbitrators. Therefore, the arbitral Tribunal in this case shall consist of a sole Arbitrator in view of the aforesaid mandatory provision contained in sub-section (2) of Section 10 of the New Act.
24. For all the aforementioned reasons, I have no hesitation to hold that an independent and impartial Arbitrator has to be appointed as a sole Arbitrator in this case.
25. Having regard to the fact that the agreement does not prescribe any qualifications for the Arbitrator and the dispute between the parties is not of technical nature, I deem it appropriate to appoint a retired Judge of High Court of Andhra Pradesh as a sole Arbitrator.
26. Accordingly, Sri Justice A. Gopala Rao, a retired Judge of A.P. High Court, is appointed as the sole Arbitrator. The Arbitrator is at liberty to fix his own fee. The applicant is, however, directed to deposit, initially, an amount of Rs.25,000/- (Rupees twenty five thousand only) with the Arbitrator as an advance towards his fee.
The application is accordingly allowed. No costs.