V.S. Sirpurkar, C.J.
1. Present application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter called 'Act') is filed by Gulf (Oil) Corporation Limited, a company incorporated under the Companies Act, 1956 having its registered office at Hyderabad in the State of Andhra Pradesh. It is pointed out in this application that a Notice Inviting Tender (NIT for short) was floated by the respondent No. 1, M/s. Steel Authority of India Limited ('SAIL' for short) and the respondent No. 2, its General Manager and respondent No. 3, Chief Materials Manager. It is pointed out that the petitioner in pursuance of that advertisement, participated in the price bid and since the quotation offered by the petitioner was the lowest, he was termed as 'L-1' by the respondent No. 1. It is then pointed out that on 19th October, 2004, the petitioner submitted the price break up for the explosives to be supplied under the Request For Quotation (RFQ for short). It is then pointed that in the last week of October, 2004, the third respondent requested the petitioner's Head Office at Hyderabad over telephone to supply certain explosives which items were covered under the NIT dated 24th September, 2004 on urgent supply basis as the respondent No. 1 had required the explosives for the immediate use to be mines of the respondent No. 1. The petitioner supplied the said materials on various dates with the understanding that such supply of explosives were outside the purview of the tender and as well as online reverse auction, since no agreement was signed till that date in terms of such RFQ or NIT. The petitioner was also requested to supply further two truck loads of explosives by the respondent on 16th November, 2004 over telephone. This supply was recorded in the letter of the petitioner dated 17.11.2004.
2. The price bid or, as the case may be, tender offered by the petitioner was accepted on 19th November, 2004 by respondent No. 1, who through respondent No. 3, issued a Letter of Intent (LOI for short). However, on or about 3rd December, 2004, the petitioner wrote a letter to the respondent No. 3 informing the respondent No. 1 about non-acceptance of the said LOI by the petitioner for various reasons enumerated in the said letter including the aspect of nonpayment of their dues to the tune of Rs. 1.2 crores by the respondents. The respondent No. 1 immediately upon receipt of such letter, sent a communication dated 3rd December, 2004 threatening that the respondent would initiate the Risk Purchase Action against the petitioner as per Clause 14 of the LOI. The petitioner by his letter dated 4th December, 2004 to the respondent No. 3 denied and disputed that the risk purchase action could be invoked by the respondents against the petitioner since the petitioner had not accepted the LOI at all. On 6th December, 2004, the second respondent wrote a letter pointing out that the petitioner had participated and accepted all the terms and conditions of RFQ or NIT and thus Clause 22 of the RFQ could be invoked and the question of non-acceptance of the LOI by the petitioner could not and did not arise in view of the participation and acceptance of the terms and conditions This letter was received by the petitioner on 7th December, 2004. The petitioner also received another letter 7th December, 2004 advising the petitioner to resume supply of the balance quantity of explosives, that is the quantity mentioned in the tender notice minus the quantity already supplied by the petitioner on 3rd November, 2004 and 16th November, 2004. Again a notice was given by the respondent to invoke the risk purchase clause under Clause 14 of the LOI dated 19.11.2004. The respondent again pointed out on 9th December, 2004 that the delivery of explosives by the petitioner was to commence immediately after the receipt of the LOI as the petitioner had delivered four truck load of explosives already. It was pointed out that the LOI was a completed contract with all the terms and conditions and the petitioner was bound to execute all the orders placed in connection with the LOI and any unilateral violation would be construed as a breach of contractual obligation. A reference was then made to the further correspondence. The petitioner then pleads that the supply of the five truck load of explosives was absolutely outside the purview of the LOI and had no connection with the said LOI. The petitioner also sent the bills amounting to Rs. 6,59,953/- in respect of the explosives supplied by the petitioner which was urgently required by the respondent No 1 on or about 15th December, 2004. The petitioner again received a letter from the respondent on or about 7th January, 2005 informing that the respondents incurred additional espenses to the extent of Rs 20,28,412/- due to alternate procurement of explosives on account of the non-supply of the explosives by the petitioner in terms of the LOI and he was advised to pay the amount. The petitioner vide letter dated 20th January, 2005, denied its liability for making any payment. There is a reference to further correspondence in the application on this subject. It is then pointed out that the respondents issued an internal memorandum dated 23rd February, 2005, advising the Chief Finance Manager to deduct the amount of Rs. 20,28,412/- from the outstanding bills of the petitioner. The petitioner, therefore, pleads that there is a live dispute between the petitioner and the respondents on the following three points:
a) Whether there is any agreement to supply the explosives to the respondents by the petitioner herein in terms of the LOI dated 19th November, 2004,
b) Whether the Clause 14 of the LOI dated 19th November, 2004 can be invoked by the respondents herein for the purpose of risk purchase, and
c) Whether the respondents were justified on arbitrarily, illegally and wrongfully deducting the said amount of Rs. 20,28,412/- from the outstanding bills of the petitioner herein.
3. The petitioner then pleads that there was Clause 23 in the LOI providing the arbitration. The clause is as under:
ARBITRATION: All questions, claims disputes or differences of any kind whatsoever arising out of or in connection with or concerning this contract, at any time, whether before or after the determination of the contract other than questions, claims, disputes or differences of the decision of which specific provisions have been made in the foregoing clauses of this condition (hereinafter referred as 'excepted matter' and decisions on which excepted matter according to the said specific provisions shall be final and binding on the parties to this contract and shall not be reopened or attempted to be reopened on the ground of any informality, omission, delay or error in the proceeding or on any other ground whatsoever) shall be referred by the parties hereto for the decision by a sole Arbitrator to be appointed as hereinafter mentioned.
The notice regarding the invoking of the arbitration clause shall be served by the parties hereto by registered post at their address given in the contract.
Matter in question, dispute, claim or differences other than the expected matter in respect of this contract to be submitted to the Arbitrator as aforesaid shall be referred for decision to a sole Arbitrator to be appointed by the Chief Executive (Director for SAIL, Raw Material Division, Managing Director for BSP/IISCO) in which arbitration is invoked.
In case the designation of the Chief Executive is changed or his office abolished, the officer who for the time being is entrusted with the functions of the Chief Executive, by whatever designation such officer is called, shall be the person designated to appoint the sole Arbitrator. The Arbitrator so appointed shall adjudicate upon the disputes between the parties hereto. The sole Arbitrator appointed as stated above, shall from the time of his appointment and throughout the arbitration proceedings, without any delay, disclose to the parties in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality provided that the mere fact that such sole Arbitrator is an employee of SAIL/IISCO shall not be regarded as such circumstances. The Arbitrator shall decide the questions, claims, disputes or differences submitted to him by the parties in accordance with the substantive law for the time being in force in India.
The Arbitrator shall hear the cases independently and impartially and shall not represent the interest of any party.
The venue of the arbitration shall be as decided by the SAIL/IISCO.
The question of procedure for conduct of the arbitration proceeding shall be decided by the Arbitrator, in consultation with the parties before proceeding with reference. The Arbitrator may hold preparatory meeting(s) for this purpose. In the preparatory meeting(s) as aforesaid, the Arbitrator in consultation with the parties shall also determine the manner of taking evidence, the summoning of expert evidence, and all such matters for the expeditious disposal of the arbitration proceedings. The Arbitrator shall be entitled to actually incurred espenses only, in respect of preparatory meeting(s).
The provision of the Arbitration and Conciliation Act, 1996 and the rules framed thereunder, if any, and all modifications/amendments thereto shall deem to apply and/or be incorporated in this contract as and when such modifications/amendments to the Act/Rules are carried out.
Work/supply under the contract shall continue by the supplier, under the contract, during the Arbitration proceedings and recourse to arbitration shall not be a bar to continuance for the work or supply.
4. It is further submitted that the petitioner wrote a letter dated 3rd March, 2005 invoking the said Clause 23 requesting the respondent No. 2 of the respondent No. 1 to appoint the Arbitrator in terms of Clause 23. The petitioner then pleads that till date, the respondents herein not having appointed an Arbitrator within 30 days, it has approached the Court by this application under Section 11(6) of the Act on 20th July, 2005.
5. This application was opposed by the respondents on the sole ground that the petitioner himself having denied the existence of the contract or having repudiated the contract himself, cannot rely on the arbitration clause. The said Clause 23 is an arbitration clause and is a part and parcel of the same contract.
6. The learned Counsel for the petitioner pointed out that this application was decided upon by Hon'ble Justice (Smt.) Indira Banerjee who had allowed the same. However, the Arbitrator was not named by the Chief Justice, Under the system then prevailing in the Calcutta High Court, the Chief Justice had allotted the subject of arbitration to Hon'ble Justice (Smt.) Indira Banerjee to find out as to whether the Arbitrator could be appointed under Section 11(6). However, it was only the Chief Justice himself who used to name the Arbitrator. According to the learned Counsel, once the learned Single Judge of this Court had held that an Arbitrator could be appointed in the matter under Section 11(6), it would not for the Chief Justice to go into the contested questions as that would amount to the Chief Justice sitting in appeal over the judgment of the learned Single Judge, which was not permissible.
7. The objection was obviously wrong for the simple reason that the task which was allotted by the Chief Justice was only to find out as to whether an Arbitrator could be appointed in the sense that whether there was a dispute in between the parties and whether there was an arbitration clause. At the time prevalent, law was as reported in : [2002]1SCR728 (Konkan Railway Corporation Limited and Anr. v. Rani Construction Pvt. Ltd.), which suggests that the task of the Chief Justice to name the Arbitrator was an administrative function and not a judicial function. Obviously, therefore, if the Chief Justice had allotted the task to the learned Single Judge to find out as to whether the Arbitrator could be appointed or not, that task was also nothing but the delegation by the Chief Justice of his administrative function though partly since the Chief Justice had not delegated the power of naming the Arbitrator under Section 11(6) of the Act to the learned Single Judge. It was only the task to find out as to whether the Arbitrator could be appointed under the provision of Section 11(6). Under the circumstances, the order passed by the learned Single Judge holding that the Arbitrator could be appointed was also merely an administrative task and could not have a judicial colour under the law then existing . However, as per Supreme Court judgment in SBP & Co. v. Patel Engineering Ltd. and Anr. reported in 2005(8) SCC 618, now the task to appoint an Arbitrator has been held to be a judicial function.
8. Since in this case, the Arbitrator was not named by the Chief Justice, it would now be a judicial function to appoint the Arbitrator. The learned Counsel relied on various paragraphs of the said ruling. However, in my opinion, the ruling very clearly suggests that the Chief Justice's task was then an administrative function. The observations in paragraphs 2, 8-12, 14, 17, 18, 19, 23-26, 36-40, 42, 44 and 47, which have been relied upon by the learned Counsel are of no consequence and it will have to be considered as to whether the Arbitrator can be appointed in the present dispute.
9. The appointment of the Arbitrator is being opposed on behalf of the respondents on account of the fact that the petitioner himself had refused to accept the contract and thus repudiated the same. It is, therefore, urged before me that the contract no more existed and as such, there could be no question of the arbitration clause remaining therein intact so as to be acted upon. That is the only ground on which the appoinment of Arbitrator is opposed by the respondents.
10. There can be no dispute that,
A) This Court has territorial jurisdiction since the RFQ or NIT was issued from Calcutta and the petitioner also sent his offer at Calcutta.
B) There is an arbitration clause contained in LOI dated 19th November, 2004 which has already been quoted above.
C) There is a live dispute between the parties.
D) There has been a failure on the part of the respondents to appoint an Arbitrator.
10.1. Therefore, ordinarily there is no hitch to appoint an Arbitrator. However, the only objection raised by the respondents is to be considered here as to whether there is an agreement between the parties and whether the petitioner has repudiated the contract and whether the arbitration clause still remains intact.
11. For deciding this, recourse would have to be taken to Section 4 of the Indian Contract Act. It is as under:
4. Communication when complete.-The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
The communication of an acceptance is complete,-
as against the proposer, when it is put in a course of transmission to him so as to be out of the power of the acceptor;
as against the acceptor, when it comes to the knowledge of the proposer. The communication of revocation is complete,-
as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it; as against the person to whom it is made, when it comes to his knowledge.
12. It is obvious that the advertisement by the respondents for tenders was an invitation to make an offer. Therefore, when the petitioner submitted to the respondent the tender, that amounted to an offer in terms of Section 4 of the Act. This communication of proposal and offer was complete when the offer by the petitioner was received by the respondents. It is an admitted position here that it was so received. Therefore, it is a case of completed proposal since it has come to the knowledge of the respondents. It is also an admitted position here that this offer was accepted by the respondents by letter dated 19th November, 2004. Therefore, as against the petitioner the communication of an acceptance was complete when the said letter was put in the course of transmission or when it Was posted. The moment it came to the knowledge of the petitioner, that is when he received the letter, the communication of acceptance became complete against the respondents. Under Section 5 of the Contract Act, the proposal could be revoked at any time before the communication of the acceptance was complete as against the petitioner, but not afterwards. Therefore, in this case, the petitioner could not validly revoke the acceptance by the respondents because the acceptance had become complete. In this case, the proposal made was accepted absolutely in express terms. Thus here was a case where the petitioner had become promissor by making a proposal and the respondents had become promissee by accepting the same. There was an agreement in writing in terms of LOI containing an arbitration clause. Therefore, the respondents cannot say now that merely because the petitioner had repudiated the contract, there was no contract at all. The contract would have to be held to be existing on account of the LOI having been sent by the respondents to the petitioner. This objection by the respondents, SAIL would, therefore, has to be rejected and is rejected.
13. The further question is as to whether there is an existence of arbitration clause in the wake of refusal on the part of the petitioner to accept the LOI. As clarified, the LOI has already been received by the petitioner. Even if he refuses to act according to the same and wants to come out of the same, it would not be the end of the contract. It is settled law that even where the contrat is repudiated by one party to the contract and even that repudiation is accepted by the other party, still the arbitration clause remains alive because even if the contract ends, still the question of damages would remain.
14. It is held in Heyman and Anr. v. Darwins Ltd. reported in 1942(1) All England Law Reports 337, that where the arbitration clause, on its proper construction, is wide enough to include any dispute in connection with the contract even if there is repudiation by one party accepted by the other, the contract would still exist for certain purposes and as such, the arbitration clause being wide enough, would still be effective. It was held in this case that a repudiation merely ends the liability of the parties to perform the contract but not the liability to pay damages for any breach of the contract and, therefore, the contract still remains and thereby even the arbitration clause would be still effective. The judgment further goes on to hold that even a party who has repudiated the contract, may invoke the arbitration clause without contravening the doctrine of approbation and reprobation. This celebrated decision has been followed in number of other cases (See: : AIR1958All506 , Municipal Board v. Eastern U.P. Electric Supply Co. Ltd. and Ors.) Here, the Allahabad High Court has held that even if there is a frustration of contract under Section 56, the arbitration clause would still be operative.
15. The Supreme Court also has taken the same view regarding the frustration of contract in a reported decision in : [1968]1SCR821 , Naihati Jute Mills Ltd. v. Khyaliram Jagannath. It was held that in case of frustration, it is the performance of the contract which conies to an end but the contract would still be in existence for purposes, such as, the resolution of disputes arising under or in connection with it and the question as to whether the contract became impossible of performance and was discharged under the doctrine of frustration, would still have to be decided under the arbitration clause which operates in respect of such purposes. The situation is no different here. Though the petitioner had repudiated the contract by not accepting the same, the question would still be as to whether the petitioner could validly do so. Further questions regarding the liabilities arising out of the breach of contract, if any, would also remain alive and so would be the arbitration clause. In that view, the application will have to be allowed and is allowed.
16. In view of the above order, I propose to appoint Sri Justice Ajit Sengupta (Retd.) as the Arbitrator in respect of the disputes.