Highways Authority of India & Anr Vs. Bumihiway Ddb Ltd. (Jv) & Ors
 Insc 613 (25
Ar. Lakshmanan & Tarun Chatterjee
out of SLP (C) No. 8924/2006) Dr. AR. Lakshmanan, J.
appellant National Highways Authority of India has filed the present appeal
against the judgment and order of the High Court of Orissa at Cuttack dated
06.01.2006 in Arbitration Petition No. 23 of 2005 whereby the High Court in
modification of its order dated 01.07.2005 substituted Mr. Justice P. Chenna Keshav
Reddy, former Chief Justice of Andhra Pradesh and Gauhati High Court as the
Presiding Arbitrator in place of Mr. Justice Y. Bhaskar Rao.
appellant National Highways Authority of India (in short "the NHAI")
issued letter of acceptance to respondent No.1, Bumihiway DDB Limited (JV), New
Delhi for award of the contract for widening to 4/6 lanes and strengthening of
existing 2-Lane carriage of National Highway5 from Km 233.000 to Km 284.000
between Ichapuram to Ganjam in the State of Orissa, which was a part of the
Chennai-Kolkata Corridor of the Golden Quadrilateral connecting Delhi, Mumbai,
Chennai and Kolkata.
11.06.2001, the appellants entered into an agreement with respondent No.1 for
the aforesaid contract. The contract agreement contained a mechanism for
resolution of disputes between the parties as contained in Sub-Clause 67.3
Sub-Clause 67.3 reads as follows:
dispute in respect of which the Recommendation(s), if any, of the Board has not
become final and binding pursuant to Sub-Clause 67.1 shall be finally settled
by arbitration as set forth below. The arbitral tribunal shall have full power
to open-up, review and revise any decision, opinion, instruction,
determination, certificate or valuation of the Engineer and any
Recommendation(s) of the Board related to the dispute.
A dispute with
an Indian Contractor shall be finally settled by arbitration in accordance with
the Arbitration & Conciliation Act, 1996, or any statutory amendment
thereof. The arbitral tribunal shall consist of 3 arbitrators, one each to be
appointed by the Employer and the Contractor. The third Arbitrator shall be
chosen by the two Arbitrators so appointed by the Parties and shall act as Presiding
arbitrator. In case of failure of the two arbitrators, appointed by the parties
to reach upon a consensus within a period of 30 days from the appointment of
the arbitrator appointed subsequently, the Presiding arbitrator shall be
appointed by the President, Indian Roads Congress.
the purposes of this Sub-Clause, the term "Indian Contractor" means a
contractor who is registered in India and is a juridic person created under Indian law as well as a joint
venture between such a contractor and a Foreign Contractor.
If one of the
parties fail to appoint its arbitrator in pursuance of sub-clause (i) and (ii)
above, within 30 days after receipt of the notice of the appointment of its
arbitrator by the other party, then the President of Indian Road Congress both
in cases of foreign contractors as well as Indian Contractors, shall appoint
the arbitrator. A certified copy of the order of the President of Indian Road
Congress making such an appointment shall be furnished to each of the parties.
proceedings shall be held at Delhi in India, and the language of the
arbitration proceedings and that of all documents and communications between
the parties shall be English.
The decision of
the majority of arbitrators shall be final and binding upon both parties. The
cost and expenses of Arbitration proceedings will be paid as determined by the
arbitral tribunal. However, the expenses incurred by each party in connection
with the preparation, presentation, etc. of its proceedings as also the fees
and expenses paid to the arbitrator appointed by such party or on its behalf
shall be borne by each party itself." During the pendency of the contract
period, the appellant noticed some defaults on the part of respondent No.1 who
had neglected the execution of the contract due to which the project of
national interest had been delayed by more than 5 years. Thus action in terms
of clause 63.1(d) of the conditions of contract was taken by the appellants and
respondent No.1 was evicted from the site on 14.01.2004.
contractor, respondent No.1, initiated proceedings under Section 9 of the
Arbitration and Conciliation Act, 1996 and filed Arbitration Application No. 2
of 2004 in the Court of District Judge, Ganjam who, vide order dated
02.04.2004, restrained the appellants from expelling respondent No.1 from the
work site till dispute between the parties are adjudicated as per the contract
agreement. The Court further refused to pass any orders restraining the
appellants from encashing the Bank Guarantees.
said order was challenged by both the parties before the High Court of Orissa.
The High Court, vide common order dated 02.11.2004, disposed off both the
appeals directing appellant No.1 to constitute Dispute Review Board within a
period of 6 weeks. The order of restraint passed by the District Judge was set
aside and liberty was granted to appellant No.1 to go for re-tendering process
with liberty to respondent No.1 to participate. The aforesaid order was again
challenged by both the parties by filing separate special leave petitions,
SLP (C) No.
24813-24814 of 2004
SLP (C) No.
25890-25891 of 2004 This Court, vide order dated 13.01.2005, directed both the
parties to maintain status quo in the meanwhile.
Dispute Review Board gave its recommendations on 26.02.2005 against which
respondent No.1 vide letter dated 03.03.2005 referred the disputes arising
thereof to arbitration under Clause 67 of the Conditions of Particular
Application of the contract. Respondent No.1 nominated its arbitrator as
respondent No.3 herein. In reply to a letter dated 03.03.2005, the appellants
also invoked arbitration clause vide letter dated 10.03.2005. Thereafter, the
appellant on 31.03.2005 nominated Mr. D.P.Gupta respondent No.5 herein as their
letter dated 09.04.2005, respondent No.3 requested Mr.D.P.Gupta to concur with
the name of the Presiding Arbitrator as proposed by him. This Court, vide order
dated 15.04.2005, passed the following order in the aforesaid special leave
granted. Heard Parties.
Portion of the impugned order whereby Applicant in Civil Appeals arising out of
S.L.P. (Civil) Nos. 24813-24814 is permitted to participate in the re-tender
process is stayed.
clarify that the observations made by the High Court will not be taken into
account in other proceedings including the Arbitration which may be invoked by
the parties." Mr.D.P.Gupta, vide letter dated 15.04.2005, disagreed with
the names proposed by respondent No.3. Thereafter, in view of the disagreement
between the two nominated arbitrators, respondent No.1 sought clarification
from respondent No.2 herein vide its letter dated 29.04.2005.
No.1 requested respondent No.2 if any judicial arbitrator is available with
them for the purpose of nomination as Presiding Arbitrator. It was pointed out
that respondent No.1 never sought any intervention of respondent No.2 for
appointment of the Presiding Arbitrator rather it only sought clarification in
this regard. Vide letter dated 03.05.2005, respondent No.2 - Indian Road
Congress (IRC) informed respondent No.1 that there does not exist any judicial
arbitrator in its panel. Thereafter, respondent No.1 filed Arbitration Petition
No. 23 of 2005 before the High Court under Section 11(6) of the Arbitration
& Conciliation Act,1996 (hereinafter referred to as "the Act")
requesting for the appointment of the Presiding Arbitrator. The said petition,
according to the appellants, was in gross violation of the statutory provisions
of Section 11(6) as also against the contractual terms agreed to between the
parties without making any reference to respondent No.2 for the appointment of
the Presiding Arbitrator.
11.05.2005, the appellants requested respondent No.2 to appoint the Presiding
Arbitrator in view of the disagreement between two nominated arbitrators as
stipulated in the contractual terms. In the meanwhile, respondent No.2, by a
letter dated 31.05.2005, requested the appellants for submission of 50% of the
processing fee to enable them to make the appointment as requested. Respondent
No.1, vide letter dated 02.06.2005, informed respondent No.2 regarding the
filing of the petition before the High Court for appointment of the Presiding
Arbitrator and asked them to wait for the outcome of the judgment since the
matters were subjudiced before the Court. On 01.07.2005, Arbitration Petition
No. 23 of 2005 was listed for hearing before the High Court and the High Court
ordered to appoint Mr. Justice Y. Bhaskar Rao as the Presiding Arbitrator.
Respondent No.1, vide letter dated 06.07.2005, further clarified that the said
appointment was made since IRC had failed to appoint the Presiding Arbitrator
within the stipulated time of 30 days of the request made by the parties.
11.07.2005, Mr. D.P.Gupta submitted his resignation which was accepted by the
appellants and one Mr. L.R. Gupta was appointed as their arbitrator who, in
turn, refused to accept the appointment as made by the appellants. On
26.07.2005, Mr. Justice Y. Bhaskar Rao informed the co- arbitrators that he has
decided not to proceed with the arbitration. Thereafter, the appellants
appointed one Mr. Surjeet Singh as their arbitrator. After resumption of the
proceeding in arbitration on the resignation of the Presiding Arbitrator,
appellant No.1 filed its counter affidavit in the arbitration petition. On
30.08.2005, since the two arbitrators had failed to agree on the name of the
Presiding Arbitrator, appellant No.1 requested respondent No.2 for the
appointment of the Presiding Arbitrator. In reply to the aforesaid letter,
respondent No.2 vide letter dated 06.09.2005, informed that the meeting of the
Executive Committee will be held on 09.09.2005 for the appointment of the
No.3, vide letter dated 31.08.2005 to both the parties, stated that in view of
the failure of both the arbitrators to appoint the Presiding Arbitrator,
appropriate steps should be taken in this regard. Respondent No.1 filed its
rejoinder affidavit before the High Court. The High Court, vide interim order
dated 09.09.2005 directed to list the matter on 23.09.2005 and directed
respondent No.2 not to appoint any arbitrator in the meantime till the next
date of hearing. The High Court, vide final judgment dated 06.01.2006, appointed
Mr. P. Chenna Keshava Reddy, former Chief Justice of Andhra Pradesh and Gauhati
High Court as the Presiding Arbitrator, which according to the appellants, is
in clear and express violation of the contract agreement entered into between
the parties. Being aggrieved by the impugned order, the above civil appeal was
heard Mr. G.E. Vahanvati, learned Solicitor General of India, appearing on
behalf of appellants and Mr. Altaf Ahmad, learned senior counsel appearing on
behalf of the respondents and carefully perused the pleadings, the order
impugned in this appeal and other records.
G.E. Vahanvati, learned Solicitor General made the following submissions:
The High Court
was not justified in making the appointment under Section 11(6) of the Act
ignoring the statutory provisions as read under Sections 15(2), 11(6), 11(3)
and 11(4) of the Act conferring jurisdiction on the Court to make the
appointment only on failure of the persons/institutions designated to perform
the functions entrusted to it and the agreed procedure;
arbitration agreement clearly envisages the appointment of the Presiding
Arbitrator by the IRC and there is no specification that the arbitrator has to
be different persons depending on the nature of this dispute. It is not open to
ignore it and invoke the exercise of powers under Section 11(6) of the Act.
The High Court
was not justified in referring to the principles of hierarchy and ignoring the
express contractual provisions for appointment of the Presiding Arbitrator
against the well settled law as laid down by this Court. The order in effect
amounts to re- writing the contract against the text, spirit, fabric and intent
of the agreed terms.
Ahmed, learned senior counsel appearing for the respondents, per contra,
submitted that since the arbitrators nominated by the respondent, namely, Mr.
Justice Ashok A. Desai and Mr. Justice K. Jayachandra Reddy had rejected the
proposal regarding appointment, the respondent on 29.04.2005 wrote a letter to
Indian Roads Congress and sought information from the IRC as to whether any
judicial arbitrator preferably former Chief Justice of the High Court or above
positions was available in the IRC panel of the arbitrators for the purpose of
nomination of the Presiding Arbitrator. By communication dated 03.03.2005, IRC
intimated that they do not have any judicial arbitrator in their panel. Since
the IRC failed to appoint the Presiding Arbitrator in terms of the Act, the
respondent on 05.05.2005 filed arbitration application under Section 11 of the
Act in the High Court. The High Court after taking into consideration of the
facts and by consent of both the parties by its order dated 01.07.2005
appointed Mr. Justice Y. Bhaskar Rao as the Presiding Arbitrator. Mr. Altaf
Ahmed further submitted that the appellants have never challenged the order
dated 01.07.2005 appointing the Presiding Arbitrator till date.
Mr. Justice Bhaskar Rao, Presiding Arbitrator expressed his inability to act as
the Presiding Arbitrator and accordingly intimated directly to the High Court
of Orissa regarding his inability to act as the Presiding Arbitrator.
when the matter was listed on 05.08.2005, the High Court directed the counsel
for the appellants to obtain instruction from the appellants. In the meantime,
Mr. Ashok Desai, arbitrator appointed by the respondents and Mr. Surjeet Singh,
arbitrator appointed by the appellants carried out discussions regarding the
appointment of the Presiding Arbitrator. On 06.01.2006, learned counsel for the
appellants, under annexure-9, had suggested the names of five retired Judges of
the various High Courts including the name of the retired Chief Justice/retired
Judge of the Supreme Court of India for appointing one of them as the Presiding
counsel for the appellants herein also submitted that anyone from the said list
may be appointed as the Presiding Arbitrator. Learned counsel further fairly
submitted that he does not like to suggest any particular name from the said
list though the Court may appoint any one of them as the Presiding Arbitrator
and appointed Justice P. Chenna Keshava Reddy as the Presiding Arbitrator in
place of Justice Y. Bhaskar Rao with the consent of both the parties. Learned
senior counsel for the respondents invited our attention to the proceedings of
the Court dated 23.06.2006 in Misc. Case No. 6 filed by the appellants in ARB
Application No. 23 of 2005 which came up for hearing before the Chief Justice
of the High Court of Orissa. By order dated 23.06.2006 on the Miscellaneous
Application filed by the appellants, it was clarified as under:
order dated 6-1-2006, I appointed Justice P. Chenna Keshava
Reddy, Former Chief Justice of Guwahati High Court as the Presiding Arbitrator
on a Fee of Rs. 10,000/- per sitting which should be equally shared by both
further stipulated in the said order that the learned Arbitrator shall be
entitled to Rs.10,000/- per sitting towards clerkage etc. Justice P. Chenna Keshava
Reddy's name was picked up from a list of various names under Annexure-9
supplied by the petitioner. In that order it was inter alia, recorded that
learned counsel for Opposite Party nos. 1 and 2 fairly submitted that any one
from the said list may be appointed as the Presiding Arbitrator. Now, learned
counsel for Opposite Party nos. 1 and 2 submits that it was not submitted by
him that any one from the said list may be appointed as Presiding Arbitrator.
What learned counsel for Opposite Party nos. 1 and 2 submitted is that he left
the question of appointing the Presiding Arbitrator to the discretion of this Court.
May be what learned counsel for Opposite Party nos. 1 and 2 submits is correct.
However, that discretion having left with me to appoint any one as the
Presiding Arbitrator, I acted within my jurisdiction in appointing Justice P. Chenna
Keshava Reddy as the Presiding Arbitrator. This misc. case is accordingly
disposed of." It was submitted by Mr. Altaf Ahmed that in view of the
clarification issued by the Chief Justice of the High Court nothing survives in
the present appeal and that the appellants having not challenged the main order
of the Presiding Arbitrator cannot assail the order of mere substitute of name
of the Presiding Arbitrator more so, in view of the clarification issued by the
High Court of Orissa. Learned senior counsel further submitted that the
appellants having accepted the order of the High Court dated 01.07.2005 is thus
precluded/estopped from challenging the order dated 06.01.2006 as the
subsequent order is nothing but continuation of the proceedings dated
01.07.2005 wherein Mr. Justice Y. Bhaskar Rao was appointed and he had
expressed his inability to accept the office. Learned senior counsel submitted
that the appeal is devoid of any merit as the impugned order is in accordance
with law and is just and proper in the facts and circumstances of the case.
shall now consider the rival submissions made by both the parties in extenso in
facts of the present appeal, the following questions of law have arisen for
consideration and determination by this Court from the arguments of both the
What is the
scope of jurisdiction of the Court on the resignation of an arbitrator
considering a specific mandate and mechanism under Section 15(2) of the
Arbitration and Conciliation Act, 1996 and Clause 67.3 of the Contract?
resignation of one of the arbitrators, the statutory provision that comes into
play is Section 15(2) or Section 11(6) of the Arbitration and Conciliation Act,
Arbitration Clause, which is a sacrosanct Clause, can be rewritten by
appointment of a judicial arbitrator when no qualification thereof is provided
in the agreement?
consent given by one of the parties (if treated to be so on assumption) is
enough for the clause to be re-written? The present appeal involves the issue
relating to appointment of the Presiding Arbitrator in accordance with the
agreed contractual terms between the parties. As per Clause 67 of the contract
agreement, a dispute resolution mechanism has been agreed to wherein the
parties agreed that any dispute arising between them shall, in the first
instance, be referred to a Dispute Review Board (DRB).
67.3 further stipulates that for the purpose of constitution of the Arbitral
Tribunal in respect of challenge to the recommendation of DRB, in case of
failure of the two arbitrators appointed by the respective parties to arrive at
a consensus within a period of 30 days from the appointment of the arbitrator
appointed subsequently, the Presiding Arbitrator shall be appointed by the
President, Indian Road Congress.
present case, for the purpose of appointment of Presiding Arbitrator, the
respondent unilaterally approached the High Court of Orissa at Cuttack under Section 11(6) of the
Arbitration and Conciliation Act, 1996, in express violation of the contract
agreement without first requesting the Indian Road Congress being the
designated authority for appointment of the Presiding Arbitrator.
evident from the record that after the appointment of the Presiding Arbitrator
on 1st July 2005, the arbitrator appointed by the
appellants Mr. D.P. Gupta resigned on 11th July 2005. The new arbitrator nominated by
the appellants did not accept the appointment on 20th July,2005. Thereafter, Mr. Justice Y. Bhaskar Rao resigned on 26th July, 2005. On the vacancy created by the
resignation of Mr. Justice Y. Bhaskara Rao, the process of appointment of the
Presiding Arbitrator started afresh in accordance with the agreed terms of the
Contract. The appellant appointed its arbitrator Mr. Surjeet Singh on 28th July,2005. Hence, the process of discussion
between the two nominated arbitrators was reinitiated as per the agreed
contractual terms and in accordance with Section 15(2) of the Arbitration &
Conciliation Act, 1996. The two arbitrators failed to arrive at a consensus
and, therefore, after 30 days, the appellants referred the issue of appointment
of Presiding Arbitrator to IRC on 30th August, 2005.
seen from the aforesaid facts that the situation which existed prior to the
resignation of Mr. Justice Y. Bhaskara Rao and those which came about
subsequent thereto only affirm that the vacancy created by the resignation of
Mr. Justice Y. Bhaskara Rao was accepted by the parties to be filled up in
accordance with the original rules of appointment, which is wholly in
consonance with Section 15(2) of the Arbitration & Conciliation Act, 1996.
was placed on the case of Yashwith & Anr., 2006 (7) Scale 48 (at para 4) wherein
this Court had held that "The withdrawal of an arbitrator from the office
for any reason is within the purview of Section 15(1) (a) of the Act and
therefore, Section 15(2) would be attracted and a substitute arbitrator has to
be appointed according to the rules that are applicable for the appointment of
the arbitrator to be replaced." However, the process which had been
reinitiated by the two nominated arbitrators was restrained by the High Court
vide order dated 9-9-2005. It is pertinent to mention that
the re-initiation of the process of appointment was accepted by the Respondents
as is evident from the rejoinder filed by them before the High Court.
submitted that the resignation and death of an arbitrator mandates application
of Section 15(1) and 15(2) of the Arbitration Act. Section 15(1) and 15(2) are
complete and wholesome and contra distinct to Section 11(6). Mr. Justice Y. Bhaskar
Rao's resignation brought the matter back from vestiges of Section 11(6) though
in the first place in law there were none and brought the matter squarely
within Section 15(2). Any decision given under Section 11(6) is wholly
miscarriage in law and would tantamount to putting the Act upside down. It was
also submitted that the matter on Section 15(2) is no longer res integra as per
the dictum in Yashwith Construction.
be further seen that the impugned order is not an order merely to fill up the
vacancy created by the resignation but is a judicial order which takes into
account all the facts and circumstances before giving the judicial
determination for the appointment. The said judicial order has, ipso facto,
replaced the earlier administrative order of 1.7.2005. In this regard, reliance
was placed on the judgment of this Court in the case of SBP & Co. vs. Patel
Engineering Ltd. & Anr. (2005) 8 SCC 618. In paragraph 47 of this judgment,
this Court held as under:
therefore, sum up our conclusions as follows:
exercised by the Chief Justice of the High court or the Chief Justice of India
under Section 11(6) of the Act is not an administrative power. It is a judicial
The power under
Section 11(6) of the Act, in its entirety, could be delegated, by the Chief
Justice of the High Court only to another Judge of that Court and by the Chief
Justice of India to another Judge of the Supreme Court.
In case of
designation of a Judge of the High Court or of the Supreme Court, the power
that is exercised by the designated Judge would be that of the Chief Justice as
conferred by the statute.
Justice or the designated Judge will have the right to decide the preliminary
aspects as indicated in the earlier part of this judgment.
will be his own jurisdiction to entertain the request, the existence of a valid
arbitration agreement, the existence or otherwise of a live claim, the
existence of the condition for the exercise of his power and on the
qualifications of the arbitrator or arbitrators. The Chief Justice or the
designated Judge would be entitled to seek the opinion of an institution in the
matter of nominating an arbitrator qualified in terms of Section 11(8) of the
Act if the need arises but the order appointing the arbitrator could only be
that of the Chief Justice or the designated Judge.
Designation of a
District Judge as the authority under Section 11(6) of the Act by the Chief
Justice of the High Court is not warranted on the scheme of the Act.
Once the matter
reaches the Arbitral Tribunal or the sole arbitrator, the High Court would not
interfere with the orders passed by the arbitrator or the Arbitral Tribunal
during the course of the arbitration proceedings and the parties could approach
the Court only in terms of Section 37 of the Act or in terms of Section 34 of
Since an order
passed by the Chief Justice of the High Court or by the designated Judge of
that Court is a judicial order, an appeal will lie against that order only
under Article 136 of the Constitution to the Supreme Court.
There can be no
appeal against an order of the Chief Justice of India or a Judge of the Supreme
Court designated by him while entertaining an application under Section 11(6)
of the Act.
In a case where
an Arbitral Tribunal has been constituted by the parties without having
recourse to Section 11(6) of the Act, the Arbitral Tribunal will have the
jurisdiction to decide all matters as contemplated by Section 16 of the Act.
Since all were
guided by the decision of this Court in Konkan Rly. Corpn. Ltd. vs. Rani
Construction (P) Ltd. (2002) 2 SCC 388 and orders under Section 11(6) of the Act
have been made based on the position adopted in that decision, we clarify that
appointments of arbitrators or Arbitral Tribunals thus far made, are to be
treated as valid, all objections being left to be decided under Section 16 of
the Act. As and from this date, the position as adopted in this judgment will
govern even pending applications under Section 11(6) of the Act.
Judges had been designated by the Chief Justice of the High Court under Section
11(6) of the Act, the appointment orders thus far made by them will be treated
as valid; but applications if any pending before them as on this date will
stand transferred, to be dealt with by the Chief Justice of the High Court
concerned or a Judge of that Court designated by the Chief Justice.
The decision in Konkan
Rly. Corpn. Ltd. vs. Rani Construction (P) Ltd. is overruled." Before the
appellants could file an appropriate petition against the order dated 1.7.2005,
one of the arbitrators resigned on 11.7.2005 and thereafter, the Presiding
Arbitrator also resigned on 26.7.2005. Hence, the contention raised by the
respondents that the order dated 1.7.2005 had not been challenged and that the
impugned order only modifies a part of the said order and is only filling up
the vacancy created on resignation is wholly erroneous and unsustainable. It
was denied that the appellants have abandoned their right to challenge the
impugned order, as alleged by the respondents.
facts of the present case as enumerated above, the process of appointment
restarted in accordance with the original contractual rules after the
resignation of the Presiding Arbitrator. The judicial order which replaces the
administrative order is under challenge before this Court and, therefore, there
is no need to challenge the order dated 1.7.2005. It may further be pointed out
that the petition was disposed of on 1.7.2005 after the appointment and hence,
on resignation of the Presiding Arbitrator, Mr. Justice Y. Bhaskar Rao, the
respondent again approached the High Court for appointing the Presiding
Arbitrator leading to the impugned order.
pertinent to state that under Section 11(6) of the Act, the Court has
jurisdiction to make the appointment only when the person including an
institution, fails to perform any function entrusted to it under that
procedure. In the present case, the relief claimed by the respondents by
invoking Section 11(6) is wholly erroneous as prior to the order dated
1.7.2005, the respondents only sought a clarification from IRC and without
making a reference to them, immediately filed the petition under Section 11(6)
on the purported ground that the Indian Road Congress had failed to make the
appointment within the stipulated time. Therefore, the reliance placed by the
respondent on the judgment of this Court in the case of Punj Lloyd Ltd. vs. Petronet
MHB Ltd., (2006) 2 SCC 638 is wholly erroneous and is not applicable to the
facts of the present case.
also pertinent to notice that the order dated 1.7.2005 of the High Court is
preceded by an erroneous finding that the respondent, Bumihiway DDB Ltd. had
approached the IRC with the request and not having found a response have
approached the Court. It was submitted that the letter dated 29.4.2005 is
otherwise a mischievous clarification de hors contractual provisions which were
considered otherwise. The assumption of the Court being wrong, a consent read ejudem
generis therein is not consent in the eyes of law. In any case, Mr. Justice Y. Bhaskar
Rao's resignation 26 days after his appointment i.e., on 26.7.2006 forecloses
the chapter of consent.
Solicitor General appearing for the appellants argued that on the resignation
of an arbitrator, the statutory provision which steps in is only Section 15(2)
and not Section 11(6). Hence, after the resignation of Mr. Justice Y. Bhaskar Rao,
the process of appointment had restarted as per Section 15(2). However, the
concerned institution i.e. IRC being restrained by the High Court from making
the appointment, there was no failure on the part of the concerned institution
i.e. IRC so as to justify invocation of Section 11(6).
was placed on the case of Yashwith Construction P. Ltd. vs. Simplex Concrete
Piles India Ltd. & Anr. (supra) wherein this Court had reiterated the well
settled law and held that there was no failure on the part of the concerned
party as per arbitration agreement, to fulfil his obligation in terms of
Section 11 of the Act so as to attract the jurisdiction of the Chief Justice
under Section 11(6) of the Act for appointing a substitute arbitrator.
Obviously, Section 11(6) of the Act has application only when a party had
failed to act in terms of the arbitration agreement. In the light of the legal
position, it was submitted that the impugned order is wholly erroneous and liable
to be set aside.
view, the invocation of Section 11(6) of the Arbitration & Conciliation
Act, 1966 is squarely based on a default of a party. The ratio laid down in the
case of Datar Switchgear Ltd. vs. Tata Finance Ltd. & Anr. (2000) 8 SCC 151
is the correct proposition and the case of Punj Lloyds Ltd. vs. Petronet MHB
Ltd. (supra) followed Datar Switchgear. The question arises for consideration
here is who had defaulted and on what basis of default has the Court entered
jurisdiction under Section 11(6). This question though raised by the appellant
in the counter affidavit before the High Court has not been answered at all.
Hence, the assumption of jurisdiction and adjudication by the High Court, in
our opinion, is vitiated.
reiterated by the learned Solicitor General appearing for the appellants that
there did not exist any concession on behalf of counsel for the appellants as
alleged. Vide the impugned order dated 6.1.2006, the High Court after detailed
discussions came to the conclusion that the Court was justified in making the
appointment of Presiding Arbitrator.
after the said judicial determination, a query was put to the appellants about
the selection of the name, which was categorically refused by their counsel. On
an application filed by the appellants before the High Court, the Court
clarified that "what learned counsel for opposite party Nos. 1 & 2
submitted is that he left the question of appointing the Presiding Arbitrator
to the discretion of this Court. May be what learned counsel for Opposite Party
Nos. 1 & 2 submits is correct." Therefore, the High Court accepted the
contention of the appellants that no consent was made in the appointment by the
appellant in the impugned order.
argued by Mr. Altaf Ahmed, learned senior counsel for the respondent, that
there has been a judicial determination by the High Court in the impugned order
which is based on the reasoning that hierarchically a judicial arbitrator must
sit with another judge only. This reasoning, in our opinion, is de hors the
sanction in the Contract. The appointment made by the High Court as per the
impugned order is against the express provisions of contract as held by this
Court in the case of You One Engineering & Construction Co. Ltd. vs.
National Highway Authority of India, (2006) 4 SCC 372 reaffirming that once the
arbitration agreement clearly envisages the appointment of the Presiding
Arbitrator by IRC, there is no qualification that the arbitrator has to be a
different person depending on the nature of the dispute. If the parties have
entered into such an agreement with open eyes, it is not open to ignore it and
invoke exercise of powers in Section 11(6).
beneficial to refer to the judgment of this Court in the case of Rite Approach
Group Ltd. vs. Rosoboronexport (2006) 1 SCC 206 wherein this Court has clearly
held that "in view of the specific provision contained in the agreement
specifying the jurisdiction of the Court to decide the matter, this Court
cannot assume the jurisdiction, and hence, whenever there is a specific clause
conferring jurisdiction on a particular Court to decide the matter, then it
automatically ousts the jurisdiction of the other Court." In the present
case, by making reference to the High Court under Section 11(6) and alleging
that one of the arbitrators is a retired judicial person, the respondent has
only admitted to rewrite the contract between the parties, which is against the
law of the land.
Ahmad, in reply to the arguments advanced by the learned Solicitor General
submitted that as the procedure contemplated in the agreement between the
parties had failed to achieve the purpose, the respondents had rightly invoked
the provisions of Section 11(6) of the Act and the appellant had given their
consent and that the order being a consent order is not amenable to challenge
before this Court. He further submitted that the said order cannot be
challenged for the reasons that
it is only a
modification of the order dated 1.7.2005 which itself was an order based on consent
given by the appellants.
The order dated
1.7.2005 was never challenged by the appellants either by way of a petition
under Article 226/227 of the Constitution of India before the High Court or
under Article 136 of the Constitution of India before this Court.
The counsel for
the appellants had submitted before this Court on 1.6.2006 that any one from
the said list for which time was given on 5.8.2005 for obtaining instructions,
be appointed as the Presiding Arbitrator.
counsel for the appellants once again submitted that he had left the question
of appointing the Presiding Arbitrator to the discretion of the High Court.
Ahmad further submitted that the decisions upon which reliance had been placed
by the appellants are not applicable to the facts of the present case for the
Engineering and Construction Company Limited and another vs. National Highways
Authority of India Limited, (supra) is a case in which the Indian Road Congress
had appointed a Presiding Arbitrator whereas in the present case the IRC had
failed to appoint a Presiding Arbitrator. The order dated 1.7.2005 was passed
by the High Court after 52days of the appellant moving an application before
Construction Private Ltd vs Simplex Concrete Piles India Limited and another,
(supra) is not applicable for the reason that it was a case in which the
Managing Director had initially appointed the arbitrator and was right in
appointing/substituting another arbitrator as the first arbitrator had
resigned. It was a case wherein the question was whether Section 11(6) would
operate or not and this Court had clearly held that Section 15(2) saves the
power of the Managing Director to appoint/substitute an arbitrator even though
the agreement does not specifically say so.
Approach Group Ltd vs. Rosoboron Export (2006) 1 SCC 206 is not applicable to
the facts of the present case because that was a case in which the arbitration
agreement specifically provided to resolve the dispute by negotiation, the
dispute would be submitted to the arbitration court under the Chamber of
Commerce and Trade of Russian Federation and the application of Section 11(6)
or 15(2) was not in question at all.
also invited our attention to the judgment of this Court in the case of Datar
Switch Gears, (supra) and Punj Lloyd Ltd. vs. Petronet MHB Ltd. (supra) wherein
this Court has repeatedly held that once a notice period of 30 days in the
present case and the other party has moved the Chief Justice under Section
11(6), party having right to appoint arbitrator under arbitral agreement loses
the right to do so.
counsel for the respondents, therefore, submitted that in the first place as
the orders passed were with the consent of the appellants, they cannot be
subject to challenge and secondly in view of Section 11(7) of the Act the
orders passed by the Chief Justice are final and binding and, therefore, civil
appeal is devoid of merit and does not call for any interference in the exercise
of powers under Article 136 of the Constitution.
proceeding further, we may also consider the salient features of the
arbitration procedure as agreed to by the parties under Clause 67.3 of the
Conditions of Particular Application (COPA) which reads as under:-
between the Contractor and Employer is required to be settled under the
Arbitration and Conciliation Act, 1996 or any amendment thereof.
Tribunal shall consist of Three Arbitrators.
Out of the three
Arbitrators to be appointed, one each is to be appointed by the Employer and
If one of the
parties fails to appoint its arbitrator within 30 days after receipt of the
notice of the appointment of its arbitrator by the other party, then the
President of Indian Road Congress shall appoint the arbitrator. A certified
copy of the order of the President of Indian Road Congress making such an
appointment shall be furnished to each of the parties.
Arbitrator shall be chosen by the two Arbitrators so appointed by the Parties
and shall act as Presiding Arbitrator which is to be appointed by consensus of
the two arbitrators within a period of 30 days from the appointment of the
arbitrator appointed subsequently.
In case of
failure of the two arbitrators, appointed by the parties to reach upon a
consensus within a period of 30 days from the appointment of the arbitrator
appointed subsequently, the Presiding Arbitrator shall be appointed by the
President, Indian Roads Congress.
rightly pointed out by the appellants, the High Court failed to appreciate that
in accordance with Section 15(2) of the Act on the termination of the mandate
of the Presiding Arbitrator, the two nominated arbitrators were first required
to reach a consensus and on their failure to arrive at a consensus only
respondent No.2 was authorized to make the appointment. Unless respondent No.2
failed to exercise its jurisdiction, the High Court could not assume
jurisdiction under Section 11(6) of the Act. Respondent No.1 has wrongly invoked
the jurisdiction of this Court without first following the procedure agreed to
between the parties. Thus no cause of action had arisen in the facts of the
case to seek the appointment from the High Court under Section 11(6) of the Act
and thus the said petition was premature. The High Court also is not correct in
relying on the contention of the respondent No.1 that in case one of the
arbitrators is retired Chief Justice, the Presiding Arbitrator should be at
least a retired Chief Justice or a retired Judge of a High Court with
considerable experience. It was submitted by learned Solicitor General
appearing for the appellants that the said finding of the High Court is self
contradictory inasmuch as if the Presiding Arbitrator is a retired Judge of the
High Court and one of the arbitrators is a retired Chief Justice of the High
Court, the member of hierarchy is upset. Even otherwise, there does not exist
any such provision in law which requires that if one of the arbitrators is a
retired Judge the Presiding Arbitrator also has to be a retired Judge. The
parties have entered into a contract after fully understanding the import of
the terms so agreed to from which there cannot be any deviation. The Courts
have held that the parties are required to comply with the procedure of
appointment as agreed to and the defaulting party cannot be allowed to take
advantage of its own wrong.
reasoning of the High Court is accepted, then the law laid down by this Court
in the case of You One Engineering as well as Right Approach Group will be
rendered nugatory. Further, it will set a precedent which will vitally affect
the appellant which is a Central Government undertaking in all the future
contractual agreements. Before concluding, we clarify that the pleadings before
the Arbitral Tribunal are not complete and written statement is yet to be filed
by the appellant as the appellants have raised their objections with respect to
the appointment before the arbitration proceedings which has been duly recorded
by the Arbitral Tribunal in the orders passed by them.
view of the order now passed setting aside the appointment of the Presiding
Arbitrator by the High Court, the appointment of the Presiding Arbitrator as
per the procedure contemplated under the contract agreement has to be followed
and IRC (Ministry of Shipping, Road Transport and Highways, R.K.Puram, New
Delhi should be approached. The parties are at liberty to approach the
Arbitrators for any further interim directions.
the aforesaid reasons, we allow the appeal and set aside the order passed by
the High Court in ARB No. 23 of 2005. No costs.