State of
W.B. Vs. National Builders (Sahai, J)
[1993] INSC 437 (13 October 1993)
SAHAI,
R.M. (J) SAHAI, R.M. (J) PANDIAN, S.R. (J) ANAND, A.S. (J) CITATION: 1994 AIR
200 1994 SCC (1) 235 JT 1993 (6) 144 1993 SCALE (4)187
ACT:
HEADNOTE:
The
Judgment of the Court was delivered by R.M. SAHAI, J.- The two questions of law
that arise for consideration in this appeal are if the refusal of an arbitrator
to resign while not accepting the joint request of the parties to extend time
for arbitration and leave it to them to decide their future course of action
amounts to refusal to act by the arbitrator within the meaning of Section
8(1)(b) of the Arbitration Act (in brief 'the Act') and if it be so whether the
power to appoint next arbitrator vests in the court or it has once again to be
in accordance with the procedure provided in the agreement.
2.
Dispute about settlement of claim in respect of construction of 250 bed
hospital at Basudevpura having arisen between the respondent (contractor) and
the appellant (Public Works Department of the State of West Bengal) the Chief
Engineer nominated a Superintending Engineer as 238 arbitrator in accordance
with Clause 25 of the agreement, the relevant part of which runs as under:
"Except
where otherwise provided in the contract all questions and disputes ... shall
be referred to the sole arbitration of the Chief Engineer of the department.
Should the Chief Engineer be for any reason be unwilling or unable to act as
such arbitrator, such questions and disputes shall be referred to an arbitrator
to be appointed by the Chief Engineer."
3.
When despite 59 sittings the proceedings did not come to an end and the
arbitrator entertained certain applications of the appellant at a belated stage
the respondent sought his resignation for legal misconduct. The application was
decided by the arbitrator by a detailed order with following observations:
"I
have given my opinion that there has been no misconduct on any of the grounds
before me by the learned claimant, yet I am of the opinion justice delayed is
justice denied and since in this case there has been delay and the process in
which the learned Advocates of both the parties are leading and pleading the
case, delay is inevitable, if the claimant suffers from loss of confidence and apprehends
miscarriage of justice from the arbitrator whose award is vital to him I shall
not intend to interfere in his way of pursuit for justice.
I,
therefore, direct that further extension of time on consent of both the parties
will not be allowed by me and the extended date of arbitration is being allowed
to expire.
As
regards claimants' humble prayer to me that I would be pleased to resign from
the office, I am restraining myself in issuing any order as it concerns
interest of both the parties and I leave it to both the parties to
decide." With this order the respondent approached the Chief Engineer and
sought for appointment of a retired Additional Chief Engineer named in the
application as the sole arbitrator.
The
request was not accepted as according to the Chief Engineer the arbitrator
appointed was still continuing. The respondent was however permitted to
approach the court for extension of time. Tile respondent, instead of filing
application for extension of time, approached the Court of Assistant District
Judge under Section 12(2) of the Act for revoking authority of the sole
arbitrator and filling the vacancy by appointing another arbitrator. The
application was allowed as in the opinion of the court the arbitrator in the
circumstances of the case had refused to act. The order was challenged by way
of application under Article 227 of the Constitution. The application was
dismissed as the inference drawn by the trial court that the arbitrator refused
to act was a plausible one. It is against this order that this appeal has been
filed. It is not clear if during pendency of the application under Article 227
in the High Court the appellant had applied for any interim order for stay of
further proceedings before the arbitrator.
However
even if it was prayed for then it presumably was not granted as, 239
admittedly, during pendency of the application the arbitrator appointed by the
Assistant District Judge started the proceedings in which the Executive
Engineer appeared but expressed his inability to participate in absence of any
instruction from the department and also because the department had decided to
challenge the order of the trial court before the High Court. In any case it is
not disputed that the arbitrator, since, has given the award which has not been
challenged by the department. May be the department might have been advised,
that the finality of the award could be subject to decision of this appeal as
if the appointment of the next arbitrator is held to be invalid the proceedings
consequent to it shall fall automatically.
4. To
decide if the court was justified in assuming jurisdiction to appoint another
arbitrator as the arbitrator appointed by the Chief Engineer under Clause 25
refused to act, it is necessary to examine the scope of Section 8(1)(b) of the
Arbitration Act which reads as under:
"8.
(1) In any of the following cases(a) ....
(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
arbitrators, as the case may be, do not supply the vacancy; or (c) ....
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." This provision vests the court with supervisory jurisdiction
to interfere with relationship between the parties and the arbitrator if any of
the situations as provided in this sub- section comes into being. What was
claimed by the respondent, which has been accepted by the courts below, is that
the sole arbitrator appointed by the Chief Engineer refused to act. The
question, therefore, is what does this expression mean? Refusal to act in legal
sense means denial to do something which one is obliged to do under law.
Black's
Law Dictionary explains it thus: 'The act of one who has, by law, a right and
power of having or doing something of advantage, and declines it'. In private
law, of which arbitration is a part with court's power to supervise and
intervene in arbitral proceedings within statutory framework, an arbitrator who
is appointed, with common consent of parties, may not proceed with arbitration
for various reasons. The refusal to act may be express or implied. If an
arbitrator resigns or informs the parties his inability to act it would be
express refusal. And even the courts cannot force him to arbitrate. In Shibcharan
v. Ratiraman when despite his refusal the Subordinate Judge directed the
records to be sent back to the arbitrators to submit the award 1 ILR (1885) 7
All 20: 1884 AWN 212 240 within ten days who, thereafter, made the same it was
set aside by the High Court and it was held:
"Expression
has recently been given by this Court to the view, that one of the most
essential principles of the law of arbitration is, that the adjudication of
disputes by arbitration should be the result of the free consent of the
arbitrator to undertake the duties of arbitrating between the contending
parties who have agreed to repose confidence in his judgment. Indeed, the
finality of such award is based entirely upon the principle that the
arbitrators are judges chosen by the parties themselves, and that such judges
are willing to settle the disputes referred to them.
This
essential characteristic of the effect of such adjudications is necessarily
vitiated if compulsion is employed by the Court."
5.
Refusal to act may be inferred as well. On what facts such an inference can be
raised cannot be laid down with certainty. There can be no fixed principle for
it. When an arbitrator has failed to discharge his obligation so as to give
rise to an inference that he has refused to act it shall have to be decided by
the court on facts and circumstances of each case. For instance in Priyabrata
Bose v. Phani Bhusan Ghose2 the High Court held that even when the arbitrator
was not willing to proceed unless his fees were paid in advance, it was refusal
to act. Inaction by the arbitrator or inordinate delay in rendering the award are
yet some of other reasons due to which courts have raised an inference that the
arbitrator refused to act. (See Manohar Singh Sahay & Co. v. Jogendra Singh
Kalra3, State of U.P. v. Sardul Singh Kulwant Singh4 and Gajanand Sita Ram v. Phul
Chand Fateh Chand5. The parties appoint an arbitrator by consent and he
undertakes to decide the dispute out of his free will. He may withdraw his
consent expressly or may act in a manner giving rise to inference that he was
not willing to act any more. In either case the basic principle is that the
arbitrator cannot be forced to act. But such an inference should not be readily
raised. The court's primary concern should be to uphold the arbitration. But
once the court is satisfied that the arbitrator has refused to discharge his
obligations then it has statutory duty to intervene and act in accordance with
Section 8(1)(b) of the Act. From the order of the arbitrator extracted earlier
what is made out is that he felt that the respondent had lost confidence in
him. With opinion, thus formed, he refused to accede to the request of the
parties to extend the time for the award and directed parties to decide their
future course of action. True that he did not resign. It is also true that the
Chief Engineer insisted that the arbitrator was continuing. But where the
arbitrator refused to extend time and brought arbitration to an end leaving it
open to parties to decide their future course of action as one of the parties
whose vital stakes were involved did not have confidence in him, the courts 2
AIR 1937 Cal 523 3 AIR 1984 Pat 3: 1983 BBCJ (HC) 606 4 AIR 1985 All 67: 1985
All CJ 117 5 AIR 1930 All 675: 1930 ALJ 1373 241 do not appear to have
committed any error of law in drawing inference that the arbitrator had refused
to act.
6.
More important issue than this that was urged was that since Clause 25 of the
agreement empowered the Chief Engineer to nominate any other person to act as
arbitrator the intention was to fill the vacancy in the same manner as provided
in the agreement. This raises an important issue as to whether the power of the
Chief Engineer to arbitrate himself or to nominate any other person as
arbitrator is exhausted or revived after the earlier arbitrator nominated by
him refused to act. In other words does the power to appoint a sole arbitrator
under the agreement come to an end with such appointment or every time an
arbitrator refuses to act the parties are to take recourse to appoint another
arbitrator as provided in the agreement itself. Settlement of dispute between
the parties through medium of an independent person in whom both parties repose
confidence is the basic foundation on which the entire law of arbitration is
founded. When the agreement provides that dispute between parties shall be
referred to the person named in an agreement it is an appointment by consent.
But where the arbitrator so appointed refuses to act the next appointment could
again be made either as agreed between the parties and provided for in the
arbitration clause or by consensus. But where either is absent no party to the
arbitration agreement can be forced to undergo same procedure, for the simple
reason that the arbitrator having refused to act he cannot be asked to
arbitrate again. In law the result of such refusal is that the agreement clause
cannot operate. It, therefore, follows that in a case where the arbitration
clause provides for appointment of a sole arbitrator and he had refused to act
then the agreement clause stands exhausted. And it is for the court to
intervene and appoint another arbitrator under Section 8(1)(b), 'if arbitration
agreement does not show that it was intended that the vacancy should not be
supplied'. That is, the agreement should not debar any further arbitration. If
it is provided in the agreement that if the arbitrator appointed in accordance
with the agreement refuses to act then the dispute shall be resolved by another
arbitrator, there is an end of the matter. But if the agreement does not show
this then the next arbitrator can be appointed by the court only.
The
expression used in the subsection is clear indication that the court is
precluded from exercising its power only if the parties intended that the
vacancy should not be filled. In other words the court shall exercise jurisdiction
to appoint another arbitrator except where it is specifically debarred from
doing so. The word 'show' used in the clause appears to be significant. It in
fact furnishes the key to the construction of the expression.
Mere
neglect or refusal to act alone is not sufficient to empower the court to
intervene. The agreement must not further show that the parties intended that
the vacancy shall not be supplied. To put it affirmatively in absence of clear
words or explicit language to the contrary the court may appoint another
arbitrator. The true effect of the word is that it extends jurisdiction of the
court to exercise power, if the agreement does not specifically debar it from
doing so. To put it simply the court's power to interfere and appoint an arbitrator
comes into operation if the arbitrator 242 refuses to act and the agreement
does not show that the parties did not intend that the vacancy shall not be
supplied. In Prabhat General Agencies v. Union of India6 it was held by this
Court: (SCC p. 82, para 4) "... that the language of the provision is not
'that the parties intended to supply the vacancy' but on the other hand it is
that 'the party did not intend to supply the vacancy'.
In
other words if the agreement is silent as regards supplying the vacancy the law
presumes that the parties intended to supply the vacancy. To take the case out
of Section 8(1)(b) what is required is not the intention of the parties to
supply the vacancy but their intention not to supply the vacancy." In Chander
Bhan Harbhajan Lal v. State of Punjab7 it was
held that where a committee of arbitrators nominated by the Government becomes
incapable of acting as such "it was within the competency of the Court to
proceed to appoint a new committee". In Union of India v. R.B. Ch. Raghunath
Singh & Co.8 the arbitration clause provided for settlement of dispute and
differences by the Chief Commissioner/Director of Storage, Ministry of Food,
Government of India and his decision was to be final and binding. The post of
Director of Storage was abolished and the Chief Commissioner refused to act.
The question arose whether the Court could appoint an arbitrator in exercise of
power under Section 8(1)(b). It was claimed on behalf of the Union of India
that where there was a named arbitrator even though he was named by office, it
was not open to the Court to supply the vacancy in his place under Section 8(1)(b)
of the Act. The contention was repelled and it was held that the argument was
without any substance as: "the Court had no power to supply the vacancy
under Section 8(1)(b) only if the arbitration agreement did show that the
parties did not intend to supply the vacancy. If no such intention could be
culled from the arbitration clause, the court could supply the vacancy."
(SCC p. 22, para 4) It is thus settled that even where an authority is named by
office to be the sole arbitrator but he refuses to act then the jurisdiction to
appoint another arbitrator vests in the court. Since Clause 25 of the agreement
extracted earlier does not indicate that the parties did not intend to supply
the vacancy the court in our opinion rightly assumed jurisdiction under Section
8(1)(b) to appoint another arbitrator.
7.
Basis for assuming such jurisdiction, as stated earlier, is that the clause is
rendered inoperative. Where the agreement provides for appointment of a
specific person either by name or by designation and that person refuses to act
then the question of appointing him again cannot arise.
Refusal
by such a person results in the agreement clause ceasing to operate. When two
parties agree for appointment of A or B by name or designation and the person
so named refuses to act then the agreement shall be deemed to have exhausted
itself. The person so named having refused to act, he 6 (1971) 1 SCC 79 7
(1977) 2 SCC 715 8 (1979) 4 SCC 21 243 cannot be asked again to arbitrate. That
would be contrary to the very basis of arbitration that no one can be forced to
act against his free will. It would also be contrary to the agreement and if
there is no agreement to appoint another person, the only remedy is to approach
the court to exercise its statutory power and appoint another arbitrator.
Same
result follows where the arbitration clause empowers the sole arbitrator either
to arbitrate himself or to nominate anyone else. It was urged that the
principle of agreement clause coming to an end cannot apply where the sole
arbitrator has been given power to nominate another person. According to the
learned counsel once the nominee refused to act the Chief Engineer was again
empowered to nominate another person in his place. In our opinion the
submission is not well founded in law. A person nominated by the sole
arbitrator stands substituted in his place. He does not have any independent
personality. The power and authority exercised by him is the same as the
authority which nominated him. Therefore, once the nominee refuses to act it
shall be deemed that the arbitrator mentioned in the arbitration clause has
refused to act and therefore, the clause would cease to operate in the same
manner as the Chief Engineer himself has refused to act. The appointment of
next arbitrator could, only be in accordance with Section 8(1)(b) of the Act.
8. For
these reasons the appeal fails and is dismissed with costs.
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