Union of India Vs. M/S. Bharat Battery
Manufacturing Co. (P) Ltd. [2007] Insc 822 (13 August 2007)
H.K.
Sema & Lokeshwar Singh Panta
CIVIL
APPEAL NO. 3692 OF 2007 ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO. 19881
OF 2006 H.K. SEMA, J.
1.
Leave granted.
2.
This appeal preferred by the Union of India is directed against the judgment
and order dated 26.5.2006 of the High Court of Delhi in Arbitration Petition
No. 213 of 2006.
By the
aforesaid order the High Court appointed an arbitrator on a petition filed by
the respondent under Section 11(6) of the Arbitration and Conciliation Act,
1996 (in short 'the Act').
3. To
answer the question involved in this appeal, it may not be necessary to delve
the entire facts leading to the filing of the present appeal. Suffice it say
that in response to an invitation to tender inquiry No. A.M-5/RC-14100105/
072003/ WT/ BTYS/ Defence/ 2003-04/ 75 for supply of battery secondary lead
acid, an offer dated 7.10.2002 was submitted which was revised by letter dated
8.4.2003. On the basis of the revised offer dated 8.4.2003 a rate contract No.
AM-5/RC-14100105/ 072003/ WT/ BTYS/ DEF/ 2003-04/ 75/ BHARAT/ COAC/ 185 dated
5.5.2003 for the period 5.5.2003 to 16.3.2004 was executed between the
appellant and the respondent.
4. Clause
12 of rate contract entered into between the parties contained a price
variation clause. As the variation factor of the batteries, on account of
fluctuation of lead price had not been incorporated, the respondent made a
request to the appellant to incorporate the same. The respondent herein also
requested the appellant to issue amendment towards rate of sales tax. It
appears that the said request was complied with almost after one year by a
letter dated 2.7.2004.
However,
it is alleged that during the pendency of the rate contract, the appellant
issued a supply order No. 01/ RC/Z9/ BTY/ 047/ BHARAT/ 2004-05 dated 16.3.2004
for supply of 19,021 batteries. The respondent herein supplied the same to the
appellant. The respondent also submitted detailed calculation of unit price of
battery as per price variation clause and the photocopies of Hindustan Zinc
Price Circular. It is contented that although the appellant continued to
receive the batteries but did not issue the amendment with respect to price variation
clause for the quarter April to June, 2004, July to September 2004, October to
December 2004, January to March 2005, April to June 2005, July to September
2005, October to December 2005 and January to March 2006. As the appellant did
not issue the amendment with respect to price variation clause, nor settled the
dispute, which had arisen between the parties, the respondent herein sent a
notice under Section 11 of Arbitration and Conciliation Act, 1996 on 7.6.2005.
Through the said notice the respondent demanded that the appellant either issue
the necessary amendments on account of price variation with respect to the
above mentioned quarters or appoint an arbitrator within 30 days. The notice
dated 7.6.2005 was acknowledged by the appellant vide acknowledgement slip
bearing No. 26110 dated 9.6.2005. Having not complied with the notice, another
notice dated 2.1.2006 was issued by the respondent invoking the arbitration
agreement and seeking appointment of arbitrator.
The
second notice was also acknowledged by the appellant by slip no. 33190 dated
3.1.2006.
5.
Despite the aforesaid notices and the receipt thereof, the appellant neither
resolved the disputes between the parties nor appointed an arbitrator within 30
days from the receipt of the request to do so, compelling the respondent to
file a petition under Section 11(6) of the Act on 30.3.2006.
6.
Clause 24 of the agreement deals with the arbitration between the parties. The
relevant portion of Clause 24 reads as under:
"i)
In the event of any question, dispute or difference arising under these
conditions or any special conditions of contract, or in connection with this
contract (except as to any matters the decision of which is specially provided
for by these or the special conditions) the same shall be referred to the Sole
arbitration of an officer in the Ministry of Law, appointed to be the
Arbitrator by the Director General of Supplies and Disposals. It will be no
objection that the arbitrator is a Govt. Servant that he had to deal with the
matters to which the contract relates or that in the course of his duties as a
Govt. servant he has expressed views on all or any of the matters in dispute or
difference. The award to the Arbitrator shall be final and binding on the
parties to this contract.
ii) In
the event of the Arbitrator dying, neglecting or refusing to act or resigning
or being unable to act for any reason, or his award being set aside by the
Court for any reason, shall be lawful for the Director General of Supplies
& Disposals to appoint another Arbitrator in place of the outgoing
Arbitrator in the manner aforesaid.
iii)
It is further a terms of this contract that no person other than the person
appointed by the Director General of Supplies & Disposals as aforesaid
should act as Arbitrator and that, if for any reason that is not possible, the
matter is not to be referred to arbitration at all."
7.
Having stated the brief facts in a nut-shell, we may now note a few important
dates, which are relevant for the purpose of proper adjudication of the present
controversy:
(a)
Notices of appointment of arbitrator were issued on 7.6.2005 and 2.1.2006
respectively, which were duly received by the appellant with acknowledgment.
(b)
The appellant failed to appoint an arbitrator within 30 days from the date of
receipt of request to do so from the respondent.
(c) On
30.3.2006, the respondent filed Section 11(6) petition before the High Court.
(d)
The High Court, by the impugned order dated 26.5.2006, appointed Justice K.S.
Gupta, a retired Judge, Delhi High Court, as an arbitrator.
(e) On
15.5.2006, the appellant said to have appointed one Dr. Gita Rawat as a sole
arbitrator, purportedly in terms of Clause 24 of the agreement.
8. It
is contended by Mr. P.P. Malhotra, learned Additional Solicitor General
appearing for the appellant, that the High Court did not follow the procedure
prescribed under Section 11(8) of the Act. According to him, the appointment of
Justice K.S. Gupta as a sole arbitrator is not in consonance with Clause 24 of
the agreement inasmuch as Clause 24 of the agreement provides that if any
dispute arises, the same shall be referred to the sole arbitration of an
officer in the Ministry of Law, appointed to be the Arbitrator by the Director
General of Supplies and Disposals.
9. We
are unable to countenance with the submission of the learned counsel for the
appellant. Section 11(8) of the Act could have come to the aid of the appellant
had the appellant appointed the arbitrator within 30 days from the date of
receipt of request to do so from the respondent or the extended time as the
case may be. In the present case, as noticed above, Section 11(6) petition was
filed on 30.3.2006 by the respondent. The appellant stated to have appointed
one Dr. Gita Rawat on 15.5.2006, i.e. after Section 11(6) petition was filed by
the respondent on 30.3.2006, which is not permissible in law. In other words,
the appellants are stopped from making an appointment of the arbitrator in
terms of Clause 24 of the agreement after Section 11(6) petition is filed by
the respondent. Once Section 11(6) petition is filed before the Court, seeking
appointment of an arbitrator, the power to appoint an arbitrator in terms of
arbitration clause of the agreement ceases.
10.
Mr. Malhotra, learned ASG referred to the decision of a three-Judge Bench of
this Court in Union of India And Another (appellant) v. M.P. Gupta (respondent)
(2004) 10 SCC 504, wherein this Court held that since there was express
provision contained that two gazetted railway officers shall be appointed as
arbitrators, Justice P.K. Bahri could not be appointed by the High Court as the
sole arbitrator. This case was not in a situation where Justice P.K. Bahri was
appointed after Section 11(6) petition was filed. It appears from the facts
that Justice P.K. Bahri was appointed a sole arbitrator dehors clause (3)(a)(iii)
of the arbitration agreement in that case. It also appears that Justice P.K. Bahri
was appointed by the Court as the sole arbitrator on a petition filed by the
respondent therein by an ex-parte order.
11.
The facts of that case, therefore, are clearly distinguishable from the facts
of the present case. The aforesaid decision is of no help to the appellant in
the present case.
12.
Learned counsel for the appellant also referred to the decision of this Court
in S. Rajan (appellant) v. State of Kerala and Another (respondent) (1992) 3
SCC 608. In that case, this Court was of the view that in a case where the
agreement itself specifies and names the arbitrator, the Court has no
jurisdiction to appoint an arbitrator not specified in the agreement itself.
13. In
the given facts of this case afore-stated, the ratio of this decision is also
of no help to the appellant.
14. A
three-Judge Bench of this Court in Punj Lloyd Ltd. (appellant) v. Petronet MHB
Ltd. (2006) 2 SCC 638 considered the applicability of Section 11(6) petition
and considered the facts which are similar to the facts of the present case and
held that once notice period of 30 days had lapsed, and the party had moved the
Chief Justice under Section 11(6), the other party having right to appoint
arbitrator under arbitral agreement loses the right to do so.
While
taking this view, the Court had referred to the judgment rendered in Datar
Switchgears Ltd. (appellant) v. Tata Finance Ltd. and Another (2000) 8 SCC 151
wherein at page 158 (para 19) SCC, this Court held as under:
"19.
So far as cases falling under Section 11(6) are concerned - such as the one
before us no time limit has been prescribed under the Act, whereas a period of
30 days has been prescribed under Section 11(4) and Section 11(5) of the Act.
In our view, therefore, so far as Section 11(6) is concerned, if one party
demands the opposite party to appoint an arbitrator and the opposite party does
not make an appointment within 30 days of the demand, the right to appointment
does not get automatically forfeited after expiry of 30 days. If the opposite
party makes an appointment even after 30 days of the demand, but before the
first party has moved the court under Section 11, that would be sufficient.
In
other words, in cases arising under Section 11(6), if the opposite party has
not made an appointment within 30 days of demand, the right to make appointment
is not forfeited but continues, but an appointment has to be made before the
former files application under Section 11 seeking appointment of an arbitrator.
Only then the right of the opposite party ceases. We do not, therefore, agree
with the observation in the above judgments that if the appointment is not made
within 30 days of demand, the right to appoint an arbitrator under Section
11(6) is forfeited."
15. As
already noticed, the respondent filed Section 11(6) petition on 30.3.2006
seeking appointment of an arbitrator.
The
appellant, thereafter, said to have appointed one Dr. Gita Rawat on 15.5.2006
as a sole arbitrator, purportedly in terms of Clause 24 of the agreement. Once
a party files an application under Section 11(6) of the Act, the other party
extinguishes its right to appoint an arbitrator in terms of the clause of the
agreement thereafter. The right to appoint arbitrator under the clause of
agreement ceases after Section 11(6) petition has been filed by the other party
before the Court seeking appointment of an arbitrator.
16. We
are, therefore, of the view that the order of appointment of Dr. Gita Rawat by
the appellant as a sole arbitrator dated 15.5.2006 was passed without
jurisdiction.
Once
Section 11(6) petition is filed by one party seeking appointment of an
arbitrator, the other party cannot resurrect the clause of the agreement
dealing with the appointment of the arbitrator, in this case Clause 24 of the
agreement.
17. In
the view that we have taken, there is no merit in this appeal and the same is,
accordingly, dismissed with no order as to costs.
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