State of Rajasthan and ors. Vs. G.S. Atwal and Co. - Court Judgment

Excerpt:
- - it has been further contended by the learned counsel for the petitioner that the aforesaid application was not amended by the non-petitioner despite objections having been raised regarding its maintainability and to the utter surprise of the petitioner without there being an application regarding deletion of sections 20 and 33 of the act, the learned trial court treated the application as having been moved under section 8 of the act and thereby it failed to follow the procedure as has been provided under the provisions of the act as well as the cpc and thus the order passed by the court below dated 29-5-95 is illegal being not in accordance with law. (2) if the appointments is not made within fifteen clear days after the service of the said notice, the court may, on the application.....orderarun madan, j. 1. this revision petition has been preferred before this court under section 115 of the code of civil procedure against the order dated 29th may, 1995, passed by the addl. district judge, karauli in civil misc. petition no. 5/95, whereby the learned trial court had allowed the application moved by the claimant-respondent under section 8(2) read with sections 20 and 33 of the arbitration act, 1940 (hereinafter to be referred as 'the act'). the brief facts giving rise to thefiling of the present revision petition are that an agreement was duly executed between the parties for execution of certain work as per the agreement. soon after the execution of the agreement certain disputes arose between the parties and for resolving the said disputes as per clause 23 of the.....

Judgment:
ORDER

Arun Madan, J.

1. This revision petition has been preferred before this Court under Section 115 of the Code of Civil Procedure against the order dated 29th May, 1995, passed by the Addl. District Judge, Karauli in Civil Misc. Petition No. 5/95, whereby the learned trial Court had allowed the application moved by the claimant-respondent under Section 8(2) read with Sections 20 and 33 of the Arbitration Act, 1940 (hereinafter to be referred as 'the Act'). The brief facts giving rise to thefiling of the present revision petition are that an agreement was duly executed between the parties for execution of certain work as per the agreement. Soon after the execution of the agreement certain disputes arose between the parties and for resolving the said disputes as per Clause 23 of the agreement, the same were required to be referred to the Arbitrator to be appointed by the State Government not below the rank of Superintending Engineer. It has been further contended in the petition that notwithstanding the aforesaid Clause 23 of the agreement, since no Arbitrator was appointed by the respondents, the petitioner was left with no remedy except to move the aforesaid application for appointment of the Arbitrator praying therein that the arbitration agreement be filed in the Court and the Arbitrator be appointed from amongst the persons named in the prayer clause.

2. The aforesaid application was contested before the learned trial Court. The petitioner State Government had raised certain preliminary objections regarding the maintainability of the application itself contending inter alia that the application under Sections 8 and 20 of the Act cannot be moved simultaneously and, therefore, the application itself was not maintainable and deserved dismissal from the trial Court. Apart from that it was also contended that the said application was also not maintainable under Section 33 of the Act. The non-petitioner did not file any rejoinder to the said reply filed by the petitioner and as such the matter was heard on merits and the learned trial Court thereafter allowed the application of the non-petitioner treating it to be the application under Section 8 of the Act and in pursuance of the prayer made in the application, appointed one Shri J. M. Gupta, retired Chief Engineer to act as an Arbitrator with the direction to pass award within a period of four months and file the same before the trial Court and the matter was fixed for compliance of the order on 5-10-95.

3. It is in the backdrop of the aforesaid circumstances that the present revision petition has been filed in this Court wherein the petitioner has assailed the impugned order dated 29-5-95 on the grounds inter alia thatthe impugned order has not only been passed by the trial Court in exercise of its jurisdiction not vested in it under the Act and the same is erroneous and illegal inasmuch as the trial Court committed material irregularity without knowing the scope and procedure to be followed for deciding the application moved by the non-petitioner. It has been further contended by the learned counsel for the petitioner that the aforesaid application was not amended by the non-petitioner despite objections having been raised regarding its maintainability and to the utter surprise of the petitioner without there being an application regarding deletion of Sections 20 and 33 of the Act, the learned trial Court treated the application as having been moved under Section 8 of the Act and thereby it failed to follow the procedure as has been provided under the provisions of the Act as well as the CPC and thus the order passed by the Court below dated 29-5-95 is illegal being not in accordance with law.

4. During the course of hearing Shri Manish Bhandari, learned counsel for the petitioner has contended that the trial Court has committed grave illegality in not following the procedure as envisaged under the Act and the application moved by the non-petitioner was not maintainable in its present form and that the learned trial Court was not competent to appoint the Arbitrator in the matter as the appointment was contrary to Clause 23 of the agreement. In order to resolve the controversy between the parties, I deem it appropriate to refer to Clause 23 of the agreement which is reproduced herein-below for ready reference :--

'Clause 23-- If any question, difference or objection whatsoever shall arise in any way in connection with or arising out of this instrument or the meaning of operation of any part thereof or the rights, duties or liabilities of either party then save in so far as the decision of any such matter as hereinbefore provided for and has been so decided, every such matter constituting a total claim of Rs. 50,000/- or above, whether its decision has been otherwise provided for and whether it has been finally decided accordingly, or whether the contract should be terminated or has been rightly, terminated and as regards the right or obligation of the parties as the result of such termination shall be referred for adjudication to a sole arbitrator to be appointed as hereinafter provided.

For the purpose of appointing the sole arbitrator referred to above the Chief Engineer on receipt of notice and prescribed fee from the contractors send a panel of 3 names not below the rank of Superintending Engineer of the Rajasthan Government and who shall all be presently unconnected with the contract. The fees of the arbitrator shall be determined as per formula indicated below:--

(a) For disputes up to Rs. 5.00 lacs fees Rs. 2,500.00.

(b) For disputes over Rs. 5.00 lacs fees @ '4% of the amount over Rs. 5.00 lacs.

(c) Clerkage and Stationary Fees

(i) Clerkage ... (10% of Total fees) (ii) Stationary ...(5% of Total fees) Total payable fees would not be more than Rs. 10,000/-.

The contractor shall on receipt of the names as aforesaid select any one of the persons named, to be appointed as a sole arbitrator and communicate his name to the Chief Engineer. The Chief Engineer shall thereupon appoint the said person as the sole arbitrator without delay. The arbitrator shall give reasons for award.

Subject as aforesaid the provisions of the Arbitration Act, 1940, for any statutory modification or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceedings under this clause.'

5. Shri Manish Bhandari, learned counsel for the petitioner has further contended that bare perusal of Clause 23 of the Agreement shows that there is no mention regarding the appointment of the arbitrator by the concerned authorities rather specific power has been conferred on the Chief Engineer to appoint a sole arbitrator though for this purpose, he is required to mention names of 3 persons not below the rank of Superintending Engineer of State Government and the contractor has been given discretion to choose one out of the three names. It has been further contended by the learned counsel that in such circumstances it was only the application under Section 20 'of the Act, which was maintainable and not by having resort to any other provision i.e. Section 8 of the Act and hence the exercise of powers by the trial Court in appointing the arbitrator, as referred to above, is illegal and without jurisdiction and, therefore, the impugned order appointing the arbitrator deserves to be quashed and set aside. It has been further contended that the trial Court has committed illegality in not appointing a person as arbitrator who is in service of the State Government but rather a retired Chief Engineer has been appointed and if at all the Court had any power to appoint an arbitrator then it should have been as per the terms of the agreement by nominating any existing Superintending Engineer or other officer of the higher rank of the State Government. Learned counsel for the petitioner has further contended at the bar that the basic ingredients of Section 8(1) of the Act have not been fulfilled in absence of which the trial Court was not competent to appoint arbitrator out of the panel of three names, as referred to above and hence the application under Section 8 of the Act was misconceived and not maintainable. It has further been contended that the basic requirements as envisaged under Section 8(2) of the Act had to be fulfilled prior to moving of the application by the aggrieved party and since the conditions were not fulfilled, therefore, the application was not maintainable, hence the power to appoint an arbitrator could be exercised by the Court only under Section 20 and not under Section 8 of the Act.

6. In order to appreciate the controversy it will be pertinent to refer to the relevant provisions of Sections 8 and 20 of the Act. Section 8 of the Act deals with power of the Court to appoint an arbitrator or umpire which provides as under:--

'Section 8. Power of Court to appoint arbitrator or umpire--

(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 arbitrator, 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 appointments 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.'

7. Section 20 of the Act deals with power of Court directing the parties to file in the Court an arbitration agreement and in absence of sufficient cause being shown, the Court has the power to order to parties to file in the Court an arbitration agreement and on the agreement being filed make an order of reference to the arbitrator appointed by the parties whether named in the agreement or otherwise or where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court. Section 20(4) of the Act provides as under:--

'Section 20 Application to file in Court arbitration Agreement.-- (1) to (3).............................

(4) Where no sufficient cause is shown, the Court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court.'

8. In support of his contentions advanced at the Bar, Shri Manish Bhandari, learned counsel for the petitioner, has placed reliance upon the following judgments:--

(1) National Project Construction Corporation Ltd. v. S.P. Enterprise (P): AIR 1989 Cal 155;

(2) Ved Prakash Mithal v. The Union of India : AIR 1984 Delhi 325;

(3) Sunil Mukherjee v. Union of India : AIR 1978 Cal 37;

(4) State of Rajasthan v. Mehta Chetandas Kishandas, 1978 WLN 321;

(5) Western Coalfields Ltd. v. Harichand Rai and etc. : AIR 1986 Bom 105;

(6) Chander Bhan v. State of Punjab, AIR 1977 SC 1210;

(7) The State of Rajasthan v. Sharma & Co., 1980 WLN 233;

(8) The Union of India v. Om Prakash, AIR 1976 SC 1745;

(9) Union of India v. Prafulla Kumar, AIR 1979 SC 1457;

(10) The State of Rajasthan v. Ferro Concrete Construction (India) Pvt. Ltd. 1992 (1) WLC 363.

9. In the matter of National Project Construction Corporation Ltd. v. S.P. Enterprise, AIR 1989 Cal 155 (supra), the question which had arisen for consideration of the Calcuatta High Court was in the context of interpretation of Section 8(2) and Section 20(4) of the Act. The learned Division Bench of the Calcutta High Court held that the scope of Section 8 of the Act is different to that of Section 20 of the Act. A party may pursue his relief under either section depending upon the circumstances and the steps taken by him but he cannot pursue his relief under both the sections simultaneously because the proceedings under the two sections contemplate not the same end-result. Under Section 8 the Court may appoint an arbitrator of its choice whereas under Section 29(4) of the Act, the Court compulsorily has to refer the dispute to the arbitrator appointed by the parties and it is only where the parties have not appointed any arbitrator, person or authority to act as arbitrator, that the Court can refer the matter to an arbitrator of its choice. Under these circumstances it was held by the High Court that the petition of the opposite party under Section 8(2) of the Act before the trial Court was premature and was also not maintainable.

10. In the matter of Ved Prakash Mithal v. Union of India, AIR 1984 Delhi 325 (supra) the question which had arisen for determination of Delhi High Court was that where a clause in an arbitration agreement between a contractor and the Government provided that in case of disputes the arbitrator would be appointed by the Chief Engineer and the Chief Engineer refused to appoint the arbitrator on request by the contractor, it was held that neither Section 8(1)(a) nor Section 8(1)(b) of the Act apply to the case. It was further held that to a case where the authority to nominate the arbitrator is vested in the Chief Engineer, Section 8 of the Act on its own terms shall have no application since the. , clause provides for an appointment by a named person i.e. Chief Engineer in the case he is persona designata. Following the decision of the Apex Court in the matter of Prafulla Kumar's case (AIR 1979 SC 1457) it was held by the High Court that the Court has only to see in such a situation that if there are disputes the same are to be referred to the arbitrator as per the agreement between the parties and that the arbitrator can decide those questions. The Chief Engineer was accordingly directed to appoint an arbitrator in accordance with Clause 25 of the Agreement within two months from the said order.

11. In the matter of State of Rajasthan v. Mehta Chetandas Kishandas, 1978 WLN 321 (supra), this Court while dealing with the scope of Section 8(2) of the Act held that in absence of nomination by the State Government, the provisions of the arbitration agreement cannot come into operation and since the State Government had not made any nomination of an arbitrator prior to the making of the application under Section 8(1)(a) of the Act, the question of refusal or negligence by such nominated person did not arise and the case of the applicant was held to be fully applicable by the provisions of Section 8(1)(a) of the Act.

12. In the matter of Chandra Bhan Harbhajan Lal v. State of Punjab, AIR 1977 SC 1210 (supra), the question which had arisen was in respect of an arbitration clause in a contract for construction work which provided that in the matter of a dispute the case shall be referred to Settlement Committee consisting of authorised officer named therein since the dispute had arisen between the parties. The State Government appointed the Committee who took up the dispute but before conclusion of its work, the Government unilaterally abolished the Committee and subsequently appointed the Second Committee who entered upon arbitration and passed the Award. Upon the validity of the Award being challenged the Apex Court while afirming the findings of the High Court held that there was no bar to the Government appointing a fresh Committee to go into the dispute and decide the same in accordance with the agreement.

13. In the matter of Union of India v. Prafulla Kumar Sanyal, AIR 1979 SC 1457 (supra) while dealing with the scope of Section 24(4) of the Act, the Apex Court held that the expression 'the Court shall make an order of reference to the arbtirator appointed by the parties', is not required to appoint arbitrator who has not actually been appointed but for whose appointment adequate provision has been made and the feasibility of appointing arbitrator according to the terms of the contract should be considered.

14. Shri Mehta, learned counsel for the respondent has controverted the contentions advanced by the learned counsel for the petitioner and has supported the impugned order against which the present revision petition has been preferred. He has contended at the bar that the application moved by the respondent-claimant was perfectly justified and valid in accordance with the provisions of Section 8(2) and Section 20(4) of the Act and the trial Court had not committed any illegality, impropriety or error of jurisdiction in passing the impugned order in appointing Retd. Chief Engineer of the Irrigation Department to act as arbitrator which has been assailed in this revision petition. It has been vehemently contended by Shri Mehta, learned counsel for the respondent at the Bar that Section 8(2) of the Act clearly stipulates that if the appointment of an arbitrator is not made within 15 clear days after the service of the notice, the Court may, on the application of the party, who gave the notice and after giving the other party an opportunity of being heard appoint an arbitrator or arbitrators who shall have he like powers to act in reference and to make an Award as if he or they had been appointed by the consent of the parties. It has been contended in this regard that since the petitioner had failed to appoint an arbitrator or to give its consent in accordance with Clause 23 of the agreement, the respondent-claimant was not obliged to wait indefinitely for the appointment of the arbitrator since otherwise the very purpose of the arbitration agreement would have been frustrated and defeated by deleting the appointment of the arbitrator since State Government had intended to delay the appointment of the arbitrator which would have frustrasted the agreement itself, hence it was not necessary for the respondent-claimant to have awaited the decision of the State Government beyond the specified time. The learned counsel further contended that under the circumstances there was no embargo or legal bar for the Court to appoint an arbitrator in accordance with Section 20 of the Act since Section 20(4) of the Act clearly stipulates that where no sufficient cause has been shown the Court shall order the agreement to be filed and shall make an order of reference to the arbitrator appointed by the parties, where in the agreement or otherwise or where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court. Hence, the trial Court was fully justified in appointing the arbtirator, as referred to above, the impugned order passed by the learned trial Court deserves to be sustained by this Court. In support of his contentions advanced at the Bar, Shri Mehta has placed reliance upon the following judgments:--

(1) Nandyal Co-op. Spinning Ltd. v. K.V. Mohan Rao, 1993 (2) SCC 654;

(2) G. Ramchandra Reddy & Co. v. Chief Engineer, Madras, M.E.S., AIR 1994 SC 2381;

3. The Vice-Chancellor, Jammu University v. Dushinant Kumar Rampal, AIR 1977 SC 1146;

4. Ex. Engineer, Prachi Divn. Bhubaneshwar v. Gangaram Chhapolia, AIR 1980 Orissa 51;

5. Kasturba Health Society v. National Building Construction Corporation Ltd., AIR 1995 Bom 267;

6. Union of India v. D.P. Singh, AIR 1961 Patna 228;

7. Allied Construction Co. v. N.T.P.C. Ltd. 1991 (2) R LR 90;

8. State of Rajasthan v. Mehta Chetandas Kishandas, 1978 WLN 321.

15. In the matter of Ex. Engineer, Prachi Divn, Bhubaneswar v. Ganga Ram Chhapolia, AIR 1980 Orissa 51 (supra), the question which had arisen for consideration of the Orissa High Court was regarding the powers of the Court to appoint an arbitrator under Sections 3 and 13 of the Act. It was held by the High Court as under:--

'When the parties do not concur in the appointment of an arbitrator or arbitrators, or the party who was to appoint the arbitrator does not make a proper appointment in accordance with the agreement within time, the Court may, on the application of the party who gave the notice and after giving the other party an opportunity of being heard, appoint an arbitrator or arbitrators, as the case may be, who shall have the 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.'

16. In the matter of Union of India v. D.P. Singh, AIR 1961 Pat 228 (supra), the question which had arisen for consideration of the Patna High Court was as to whether an application under Section 8(1)(a) of the Act would be maintainable where the party having the sole power under the arbitration agreement to appoint an arbitrator makes a default. It has held by the High Court that the application under the aforesaid provision would certainly be maintainable where notwithstanding a party had the sole power under the arbitration agreement to appoint an arbitrator had failed to make the said appointment when called upon to do so. It was further held that there will be no bar to an appointment of an arbitrator by the Court even if the agreement has not expressly provided that the appointment should be made by consent of both the parties. It was further held that the Court's discretion is unfettered and it need not consult defaulting party, and the Court has absolute discretion in the matter of appointment of an arbitrator after hearing the other party, however, the discretion has to be exercised fairly and not arbitrarily.

17. In the matter of Nandyal Co-op. Spinning Mills Ltd. v. K.V. Mohan Rao, 1993 (2) SCC 654 (supra), the appointment of the arbitrator appointed by the Court was challenged on the ground that nomination of arbitrator by a party to the contract in terms of the contract was not binding on the other party by virtue of waiver of right to question the nomination. It was held by the Apex Court that where parties agree to appointment of a representative of one of the parties as an arbitrator who had occasion to express his views as against in dispute dealt with by him earlier relating to the contract, such appointment cannot be objected to because of waiver but can be questioned only on the ground of bias, disc honesty etc. It was further held by the Apex Court that the objection of the party regarding appointment of arbitrator was not maintainable when the arbitrator had already been appointed by the Court and the applicant had due intimation regarding such appointment before the expiry of 15 days time as envisaged under Section 8(1)(a) of the Act and since no arbitrator had been appointed by the aggrieved party, the administrative head of the appellant had abdicated himself of the power to appoint arbitrator under the contract, therefore, the court gets jurisdiction to appoint an arbitrator and hence the contention of the appellant was not tenable having contracted himself out from adjudication of his claim by the Civil Court. The appointment of the arbitrator by the Court was, therefore, justified and in accordance with the provisions of the Act.

18. In the matter of G. Ramachandra Reddy & Co. v. Chief Engineer, M.E.S., AIR 1994 SC 2381 (supra) the apex Court while reversing the decision of the Madras High Court reported in AIR 1993 Mad 265, held that the Court should endeavour that the contract should always be given effect to though the contracting party had failed to act according to the contract. It was further observed that what is to be examined is whether the contract provides for the appointment of the named arbitrator and if so, the parties normally would be bound by the terms of the contract and the Court would not be justified to appoint any arbitrator unless the arbitrator refused or neglected to enter upon reference. It was further observed that in absence of any named arbitrator it would be open to the contracting parties to agree for appointment of an arbitrator by agreement even after the proceedings were led in the court under Section 20 of the Act. In absence of any such agreement, the Court gets jurisdiction and power to appoint an arbitrator, therefore, the appointment of the arbitrator made by the Court was held valid and proper. It was further held by the Apex Court relying upon its earlier decision in the matter of Union of India v. Prafulla Kumar Sanyal AIR 1979 SC 1457 (supra), that if an arbitrator had not been appointed by the parties as required by Sub-section (4) of Section 20 of the Act, the Court has to find out whether the parties agreed upon an arbitrator and has to appoint the person agreed to as an arbitrator. If there is no such agreement, the Court will have to appoint an arbitrator of its choice.

19. Applying the ratio of the above decisions to the present case it is evident that in absence of the named arbitrator and also in view of the failure of the contracting parties to agree to appoint an arbitrator, it was open to the trial Court to appoint an arbitrator in accordance with the provisions of Section 8(1) and Section 20(4) of the Act and the trial court has rightly exercised its discretion in appointing the arbitrator in accordance with law.

20. I have heard the learned counsel for the parties at length and have also examined their rival claims and contentions referred to above and also the ratio of the decisions referred to by the learned counsel for the parties and in my considered opinion the facts and circumstances of this case reveals that since the petitioner-State Government had failed to appoint the arbitrator in accordance with Section 8(1)(a) of the Act within the stipulated period of 15 days as envisaged under Clause 23 of the agreement, the respondent-claimant was not obliged to wait indefinitely since rights which were already vested with the claimant had got to be exercised in accordance with Section 8(2) of the Act and, therefore, the respondent-claimants could not get its rights defeated at the instance of the State Government. I am further of the considered opinion that under these circumstances the very purpose of the arbitration agreement in view of Clause 23 of the agreement would have stood defeated and hence the appointment of the Arbitrator by the trial Court was perfectly justified, valid and in accordance with law. I am further of the opinion that the ratio of the decisions of the Apex Court as well as of High Courts cited by the learned counsel for the respondent are fully attracted to the facts of the present case and there is no illegality, impropriety or any error in the impugned order passed by the trial Court. The scope of revision under Section 115, C.P.C. is even otherwise limited and it is a settled law that the revisional powers of the Court under Section 115, C.P.C. are to be exercised very sparingly to undo the illegality apparent on the face of the record and in my considered opinion the impunged order does not suffer from any error, illegality or impropriety which calls for interference by this Court.

21. As a result of the above discussion, the revision petition lacks merit and is accordingly dismissed, and the appointment of the Arbitrator by the learned trial Court is held valid, just and in accordance with the provisions of the Act, as referred to above. The arbitrator is accordingly directed to proceed with the reference and give his Award in accordance with law. No order as to costs.