S.K. Gupta, J.
1. This petition has been preferred under Section 11(6) of the Jammu and Kashmir Arbitration and Conciliation Act, 1997 (hereinafter for short referred to as 'the Act, 1997) in seeking appointment of an Arbitrator within the period of notice as given by the petitioner.
2. The petitioner is a Company and established its unit for manufacture of Rosin and Turpentine and Rosin Derivatives after putting an initial investment of Rs. 2.5 crores at Bari Brahmana, Jammu. The unit is stated to have been established in response to the various incentives offered by the Government of Jammu and Kashmir to attract and induce the entrepreneurs from all over the country. The unit established by the petitioner started commercial production from September, 1979. Since Oleo Pine Resin Gum, a raw material to be used in the petitioner's unit, was a monopoly product of the Government, quotas were allotted to different units working in the State and supplied on payment of the price fixed by the Forest Department of the Jammu and Kashmir Government. A formal Agreement is stated to have been executed between the Government and the petitioner-Company, indicating the price of the raw material, viz., Resin, to be supplied to the petitioner-Company by the Forest Department in the terms and conditions of the Agreement.
3. It is further the case of the petitioner that the price of raw material along with General Sales Tax on the supply of the quota of the raw material, was required to be paid in advance. According to the petitioner, there was a clear understanding and specific condition that the amount so paid in the shape of Sales Tax shall be paid back to the unit in terms of the incentives. The petitioner-Company, however, stated to have made payment on account of the price of the quota along with General Sales Tax in lump sum and started lifting the stock effective from June, 1979. As the supply was provided from time to time in terms of the practice prevalent at that time, the payment already made in advance was adjusted towards the price and the Sales Tax. The petitioner-Company claims to have made excess payment effective from 01-04-1979 to 30-09-1984 against the quota supplied to the petitioner. After having gone through accounts, the petitioner-Company found to have made excess payment of Rs. 8,36,000/- in the accounts of the Forest Department and the same was required to be refunded to the petitioner. The excess amount stated to have been paid to the Forest Department has been worked out to Rs. 5,07,466/- with West Circle and Rs. 3,28,660.67 with East Circle, which is outstanding since the year 1984. This amount is stated to have been deposited in the Forest Department against the price of quota (raw material) supplied to the petitioner between the periods referred above.
4. When quota system regarding supply of raw material for the unit of the petitioner came to an end in the year 1995-96, it was, on verification of the accounts, found that excess money has been paid to the Forest Department against the price of the supply of raw material through quota allotted from time to time, the petitioner applied for its refund. Respondents were also provided the details of the excess amount paid in their accounts against the price of the raw material. When the request of the petitioner did not receive any positive response for the refund of the excess amount, a notice was served to the Minister Incharge, Forest Department, in terms of Clause 19 of the Agreement, which pertained to arbitration for reference of dispute to the Arbitrator. The notice was dispatched through registered post on 24th January, 2003, besides Dasti Notice, which stood received in the office of the Minister on 5th March, 2003. Inaction of the respondents to act in accordance with Arbitration Clause 19 of the Agreement to appoint an Arbitrator and refer the dispute for arbitration within the stipulated period, occasioned the cause of action to the petitioner to approach the Court in invoking the provisions of Section 11(6) of the Act, 1997.
5. The respondents in their reply admitted that Oleo Pine Resin Gum was a monopoly product of the Government. The raw Resin was extracted by the State from the Chir Pine trees of the State Forests and use and distribution of its bye products, namely, rosin and Turpentine, was through JKI to the medium and small- scale units for their commercial products. The respondents did not dispute the execution of the Agreement with regard to the supply of the raw material, resin, to the petitioner's unit for manufacture of their commercial products, but, however, denied to have made any commitment by the State to the petitioner for continuous supply of resin, and Agreement also provided supply of resin subject to production. Because of the broader Policy of the State to conserve the forests and to stop resin tapping to the minimum, the extraction of the resin was curtailed to the minimum, which led the State in passing of Resin Extraction Act, 1986, in the best interest of the State (hereinafter for short 'the Resin Act'). The constitutional validity of the aforesaid Resin Act, however, was challenged before the Supreme Court on the ground that the State having invited entrepreneurs to establish their units in the State in assuring the continuous supply of the raw material (resin) at a specified rate per year, now could not resile/deviate from their promises and stop the supply of raw Resin. It is further stated that though the portion of the Resin Act was not stayed, but the Apex Court ordered to reserve 6500 MTs of Resin out of the extracted resin during 1986-87 and released the remaining in favour of JKI. The reserved quantity, however, was subsequently distributed under the orders passed by the Apex Court from time to time at the rate prevalent in the year 1987. The petitioner-Company was also asked to lift the supply of the raw material @ Rs. 9/- fixed from April, 1987. The petitioner firm, however, challenged this rate by filing a writ petition No. 649/1988 in the High Court in alleging that rate prevalent in the year 1987 was not Rs. 9/-, but was Rs. 6.80. The High Court, however, passed an order dated 22-04-1989 directing the State to charge @ Rs. 6.80 and for the balance of Rs. 2.20, the firm shall furnish a bank guarantee. But the Hon'ble Supreme Court allowed the State to charge rate of 1987 without escalation of 1988, vide its order dated 10-01-1990. The State, however, finally accepted Rs. 6.80 per kilo as rates for the material, which stood extracted during the year 1986-87, and the raw material of their share was removed by the unit in terms of direction of the Apex Court. The Resin Act was finally quashed by the Apex Court in its judgment dated 12-05-1989 with the observations that the parties are free to make an application for allotment of the quota.
6. Further stand of the respondents was that after the quashment of the Resin Act, 1986 by the Apex Court, the petitioner-Company took a plea that the Agreement has been revived and in terms of the Agreement, they were entitled for quota of the raw material @ Rs. 4.25 per kg. It was further stand of the petitioner in the application for the release of the quota at the aforesaid rate, that the Government Orders No. 551 of 1988 and No. 84 of 1988, by virtue of which the rates of the Resin were fixed @ Rs. 6.80 per kg and Rs. 9/-, seized to operate after the Act of 1986 was quashed. The controversy raised by the petitioner is not covered under the Arbitration Act, 1997. No cause of action has accrued to the petitioner seeking appointment of an Arbitrator and reference of dispute for adjudication.
7. Heard the arguments advanced by the learned counsel appearing for the respective parties, in extenso. I have also perused the record meticulously, besides relevant provisions of law touching the matter in controversy.
8. The dispute in the present petition pertains only to the excess amount, stated to have been paid by the petitioner in the accounts of the Forest Department against the price of the quota supplied to the petitioner between 01-04-1979 to 30-07-1984. The Agreement was executed between the petitioner and the respondents. The Agreement so executed indicated the price of the Resin supplied to the petitioner-Company and payable to the Forest Department. According to the petitioner, supply of the material against the quota was interrupted in the year 1984 and litigation started. The Resin Act subsequently introduced was also quashed by the Apex Court. The petitioner claims that on verification of the accounts, it was found that an amount of Rs. 8,36,000/- had gone surplus in the accounts of the Forest Department, as the supply of the material was curtailed during the pendency of the cases in the Courts. The petitioner represented to the respondents for the refund of the excess amount through various communications, but did not get positive response and finally served a notice for appointing an Arbitrator and reference of the dispute for adjudication under Sub-section (6) of Section 11 of the Act, 1997.
9. The provisions of Section 11 (6) of the Act, 1997 prescribe the events, when a party may request the Chief Justice or his designate to nominate an Arbitrator and the nomination shall be made by the Chief or any person designated by him. The respondents in their reply have not specifically denied the plea of the petitioner regarding the payment of excess amount made against the supply of quota in the accounts of the Forest Department, which despite various representations has not been refunded and a dispute is fully covered under Clause 19 of the Agreement containing Arbitration Clause for appointment/ reference of the dispute to the Arbitrator for adjudication. The only plea taken by them is that the application is misconceived, does not cover under the Act and, as such, no Arbitrator can be appointed. The non-refund of excess payment, as alleged to have been made in the accounts of the Forest Department by the petitioner-Company effective from 01-04-1979 to 30-08-1984 against the supply of quota, the supply was curtailed subsequently and the excess amount paid became outstanding since 1984, according to the petitioner, has given rise to a dispute referable to arbitration. It has been specifically stated by the petitioner in para 10 of the petition that when his representation went without response from the respondents regarding refund of the amount, a notice was served in terms of Clause 19 of the Agreement to the Minister Incharge, Forest Department, for appointment of an Arbitrator. It is further indicated that the notice was sent on 24/01/2003 by registered post and also dasti service was effected in the office of the Minister on 5th March, 2003, but the respondents did not take steps for the appointment of the Arbitrator within the period of notice as given by the petitioner. This plea of the petitioner remains unrebutted/un-replied by the respondents in their reply.
10. It is pertinent to point out that the only function of the Chief Justice or his designate under Section 11 is to fill the gap left by a party to the arbitration agreement and the non-appointment of an arbitrator by the other party, and nominate an arbitrator. This is to enable the Arbitrator to be expeditiously appointed and the arbitration proceedings to commence. The function has been left to the Chief Justice or his designate advisedly, with a view to ensure that the nomination of the Arbitrator is made by a person occupying high judicial office or his designate, who would take due care to see that a competent, independent and impartial Arbitrator is nominated. Section 11 of the Act deals with the appointment of the Arbitrators. It provides that the parties are free to agree to on a procedure for appointing an Arbitrator or Arbitrators. If a party fails to appoint the Arbitrator within 30 days from the date of request from the other party, a party may request the Chief Justice to nominate an Arbitrator and the nomination shall be made by the Chief Justice or any person or institution designated by him. Where an appointment procedure has been agreed upon by the parties, but a party fails to act, as required by that procedure, or the parties fail to reach the agreement expected of them under that procedure or a person or institution fails to perform the function entrusted to him, a party may request the Chief Justice to nominate an Arbitrator only if the period of 30 days is over. It, however, does not lead to the conclusion that the decision to nominate is adjudicatory. What is, however, required to be noticed is that the request to the Chief Justice to make appointment of an Arbitrator has been made after notice period of thirty days has expired.
11. The respondents have nowhere disputed the request made by the petitioner by serving of a notice for the appointment of an Arbitrator. It is also not denied by the respondents that no Arbitrator was appointed or no steps were taken and the Arbitrator appointed within a period of 30 days from the receipt of request in this behalf from the petitioner, although the period of 30 days had expired.
12. It may further be pointed out that where opposite party has not made an appointment of an Arbitrator within 30 days of the demand under Section 11(6), the right to make appointment is not forfeited, but continues till the application under Section 11 of the Act, 1997 seeking appointment of an Arbitrator has been made by the party seeking such demand in the Court under Section 11 of the Act, 1997.
13. In the instance case, the demand for appointment of Arbitrator was made by the petitioner on 24th January, 2003 by registered post and the same was received by the office of the Minister Incharge, Forest Department, besides dasti notice, which stood received by the respondents on 5th March, 2003. It is also not disputed that the Arbitrator was not appointed and the respondents refused for settlement of the dispute within 30 days from the date of demand. The petitioner preferred an application before Hon'ble Chief Justice of this Court on 6th June, 2003, seeking reference of its dispute to the Arbitrator for adjudication through the arbitration in accordance with arbitration clause in the alleged Agreement. Where on the facts mentioned above, an arbitration agreement is said to have been executed by taking recourse to arbitration clause and the refund of excess amount deposited in the accounts of the respondents against the supply of raw material, is claimed by the petitioner and denied by the respondents, was itself a dispute, which deserved to be referred to the Arbitrator in accordance with arbitration clause.
14. Section 16 of the Act empowers the Arbitrator to decide the question of existence or validity of the arbitration agreement. The dispute raised by the petitioner pertains to the excess amount paid and is squarely covered under Clause 19 of the Agreement and deserves to be referred to the Arbitrator for determination. The existence and validity of the Agreement is to be decided by the Arbitrator and on this ground, the Court is not empowered to hold that the dispute is not referable as contended by Mrs. Shaista Hakim, Deputy Advocate General, appearing for the respondents. It is for the Arbitrator to rule 'on any question with respect to the existence or validity of the arbitration agreement' under Section 16 of the Act, 1997, which is confined to the width of its jurisdiction, but goes to the very root of its jurisdiction. Even where the Arbitrator has been improperly appointed without jurisdiction, it is open to the aggrieved party to require the Arbitrator or Arbitral Tribunal to rule on its jurisdiction, as is provided by Section 16 of the Act, 1997. Further submission made by respondents is that the present dispute is not covered within the purview of Arbitration clause. This is a matter, however, required to be determined by the Arbitrator in terms of Section 16 of the Act, 1997, and, therefore, the contention put across by the respondents is devoid of substance to merit acceptance.
15. After taking conspectus of the aforesaid facts and circumstances, I hold there exists a dispute between the parties in terms of arbitration clause in the Agreement. Further, I find that the respondents have failed to appoint an Arbitrator in compliance to the notice sent by the petitioner. It is not disputed that the claim of the petitioner of having made the payment of excess amount against the supply in the accounts of the Forest Department when not denied specifically by the respondents in the reply is itself a dispute referable to the Arbitral Tribunal/Arbitrator for arbitration. Since the matter in controversy pertains to the verification and settlement of the accounts, it is appropriate that a Chartered Accountant be appointed to settle the dispute between the parties. Therefore, in exercise of powers conferred under Section 11 of the Act, 1997, I hereby nominate Ashwani Khajuria & Company, Chartered Accountant, North Block, Bahu Plaza, Jammu as the sole Arbitrator to adjudicate upon the issues, claims and counter claims of the parties. The fee of the Arbitrator is fixed at Rs. 1,000/-per hearing, subject to ceiling of Rs. 15,000/-. It may, however, be clarified that fee per hearing so fixed would mean effective hearing. The fee shall be shared equally by both the parties, subject to outcome of the award. The Arbitrator shall make and publish the award in accordance with law.
16. Arbitration application stands disposed of in the terms as indicated above.