F.I. Rebello, J.@mdashThe applicants have moved u/s 11 of the Arbitration & Conciliation Act, 1996. It is their case that there is an arbitral clause in the contract between the parties. The applicants invoked the arbitral clause by their letter dated 16th March, 2001. The Respondents failed to nominate the arbitrator. As the respondents had failed to nominate their arbitrator, the present application was filed invoking the provisions u/s 11(6) of the Act. u/s 11(6) it is contended that it would not be the named arbitrator in the contract who is to be appointed as arbitrator but it is open to the designated authority or to the chief Justice to nominate an impartial person to decide the disputes including the claims and counter claims of the parties. This power can be spelt out from the language of Section 11 and can be resorted to in the event a person or authority referred to under the arbitral clause chooses to abdicate its duty or responsibilities to nominate the arbitrator. In support thereof, reliance has been placed on various authorities which will be adverted to in the course of the order. This therefore, is the question that has to be answered.
On the other hand, on behalf of the Respondents, their learned counsel contends that the letter dated 16.3.2001 is not an invocation of the arbitral clause. The Petitioners having not invoked the arbitral clause, the question of nominating an arbitrator by the designated authority designated under the Act does not arise. It is further contended that once that be the case, Section 11 Could not have been invoked by Petitioners herein. Alternatively, it is contended that assuming that section can be invoked, it is only the authority named who can be directed to nominate the arbitrator as that is the procedure agreed between the parties. Section 11 does not confer power on the learned Chief Justice or his designate to supplant the terms of the contract between the parties. All that it provides is that the authority has to issue a direction to direct nomination or appointment of the arbitrator by the said authority. Reliance has again been placed on various judicial pronouncements etc. Such a nomination, it is contended, is a nomination by the designate but in terms of the contractual terms between the parties. Only if the contract does not provide for a named person to be nominated or the contract does not provide a term for the procedure for appointment, will the designate u/s 11 make a nomination. Otherwise, even on failure by the named authority under the contract, what the designate will do is to nominate or direct nomination in terms of the contractual terms so as to specifically constitute the Arbitral Tribunal at the earliest.
2. With the above, we may now consider the issue that has arisen considering the powers conferred on the Chief Justice or his designate u/s 11 of the Act of 1996. The nature of the power is no longer res integra having been decided by the Apex Court in
"11(6). Where under an appointment procedure agreed upon by the parties ;
(a) party fails to act as required under that procedure; or
(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,
a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment."
The contention urged on behalf of the Petitioners, is that in any of the situations covered by the Clause (a), (b) and (c) of Sub-section (6) of Section 11 on the failure to appoint arbitrator, it is the Chief Justice or the person or institute designated who will take necessary measure for appointment, unless the agreement for the appointment of arbitrator provides other means for securing the appointment. On the reading of the very section Respondent contention is that once there is an arbitral clause, if the authority authorised under the arbitral clause, does not refer the parties to arbitration in respect of arbitrable claims, what Section 11(6)(c) provides is that the learned Chief Justice or the designate would secure appointment by directing the authority named in the contract to nominate, when there has been failure on the part of the authority to nominate the Arbitrator. This would be the necessary measure.
3. That will require determination firstly whether Petitioners have invoked the arbitral clause and there has been refusal by the named authority. The several situations contemplated would be to enquire if for example no arbitrator is named to act as sole arbitrator then to fill in the gap by nominating arbitrator considering that the parties have failed to appoint one. Similarly in the case of more than one arbitrator, where two arbitrators appointed cannot agree to the name of third then to secure appointment of the third arbitrator in the like cases. The third situation, as in our case, when the person including an institution fails to perform any function entrusted under that procedure.
What happens in the third situation if the person or institution named, does not take steps to nominate. Does that result in the learned Chief Justice or his designate securing the appointment other than in terms of the contract. Is that the necessary measure contemplated. If the answer is yes, that would mean that the contract between the parties can be displaced by an authority exercising administrative powers. It is well settled proposition of law that the contract between the parties has to be given effect to. It is only a court under powers conferred which can rewrite the contract to the extent possible between the parties for the purpose of effectively deciding the disputes and controversies and for making an effective order or decree. The other situation is when the statute itself clearly so provides. In all other cases, the contract has to be performed in the manner it has to be performed.
4. Considering the nature of the controversy, that has arisen and as several matters of this nature have arisen specially in Governmental and semi Government contracts, counsel have been heard at length on the above contentions. In so far as Governmental or semi Governmental contract, it must be borne in mind that Government officers in service normally are appointed, firstly because they are conversant with the nature of the dispute and secondly to control expenditures and further as there is a disciplinary control in case of proven mala fides.
5. For the purpose of considering the controversy, it may be necessary to find out as to what was the position prevailing under the Act of 1940 when the courts did appoint arbitrators when the parties to the agreement failed to nominate the arbitrator and thereby abdicated its function. it is no doubt true that the Apex Court has observed in
"If the appointment is not made within 15 clear days after service of the notice, the court may, on an application of the party, to give notice and after giving other parties opportunity of being heard, appoint arbitrator or arbitrators or Umpire as the case may be who shall have like power to act in the reference and to make the award as if he or they had been appointed by consent of the parties."
It is therefore, clear that by a statutory fiction of law, the arbitrator appointed by the court is deemed to be arbitrator appointed by consent of the parties.
The other relevant provision is Section 20 Sub-section (4) which reads as under:
"Where no sufficient case is shown, the court shall order agreement to be filed and shall give 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."
This power u/s (4) can only be invoked on an application being made to the court for reference to arbitration wherein the agreement contains a clause for arbitration. The power under Sub-section (4) is given to the court to make an order of reference firstly to the arbitrator appointed by the parties whether in the agreement or otherwise, and only in the event the parties cannot agree then to appoint an arbitrator. Power has been statutorily conferred. The power therefore, is statutory.
These sections therefore, specifically provide that the court has powers to appoint a person as arbitrator only on failure as set out therein. The failure is when they can not agree.
6. With that let us consider some of the judgments referred to by the learned counsel to find out whether the controversy can be resolved based on decided authority. In
7. The question will still then remain whether appointment has to be made de hors the contract on failure by the named authority or institution. The entire object of Section 11 is to secure constitution of the Arbitral Tribunal expeditiously. The findings in Datar Switchgear have been relied upon by learned counsel for the Petitioners to contend that it is the designated authority alone who can make appointment of arbitrator as respondents have forfeited their right. Reliance is also placed in the judgment in
Next reliance was placed on the judgment in
"Where an appointment procedure has been agreed upon by the parties but a party fails to act as required by that procedure or the parties, or the two arbitrators appointed by them, fail to reach the agreement expected of them under that procedure or a person or institution fails to perform the function entrusted to designate to nominate an arbitrator, unless the appointment procedure provides other means in this behalf. The decision of the Chief Justice or his designate is final."
The following observations in Paragraph 18 of the judgment are also relevant and which read as under:
"There is nothing in Section 11 that requires the party other than the party making the request to be noticed. It does not contemplate a response from that other party. It does not contemplate a decision by the Chief Justice or his designate on any controversy that the other party may raise, even in regard to its failure to appoint an arbitrator within the period of thirty days. That the Chief Justice or his designate has to make the nomination of an arbitrator only if the period of thirty days is over does not lead to the conclusion that the decision to nominate is adjudicatory. In its request to the Chief Justice to make the appointment the party would aver that this period has passed and, ordinarily, correspondence between the parties would be annexed to bear this out. This is all that the Chief Justice or his designate has to see.
Finally the observations in Paragraph 19 which reads as under:
"As we see it, the only function of the Chief Justice or his designate u/s 11 is to fill the gap left by a party to the arbitration agreement or by the two arbitrators appointed by the parties and nominate an arbitrator. This is to enable the Arbitral Tribunal to be expeditiously constituted and the arbitration proceedings to commence. The function has been left to the Chief Justice or his designate advisedly, with a view to ensure that the nomination of the arbitrator is made by a person occupying high judicial office of his designate, who would take due care to see that a competent, independent and impartial arbitrator is nominated."
8. To my mind, these observations would disclose the true nature or import of Section 11. The entire purpose of Section 11 is to fill the lacuna occasioned by the failure of the parties to the arbitration agreement or by the two arbitrators appointed by the parties, with the object of expeditiously constituting the tribunal and allowing the arbitration proceedings to commence. What the Chief Justice or designate will do is to secure the appointment where the parties have not done even without notice to the Respondent and thereby take the necessary measures, unless the agreement on the appointment procedure provides other means for securing appointment. It can also be said from those observations that an arbitrator can be appointed by the Chief Justice or his designate on failure by the authority or the institution.
9. What is the import of the expression "necessary measures to secure appointment". Would this be a power in the learned Chief Justice or his designate to override the arbitral agreement. We may understand the issue in this case by reproducing the arbitral clause as it would be necessary for deciding the controversy. The arbitral clause as contained in Clause 22 (a) reads as under:
"Any disputes and/or difference of any nature whatsoever or regarding any right, liability, act, omission on account of any of the parties hereto arising out of or in relation to this agreement shall be referred to the sole arbitration of Director (Marketing) of the Corporation, or of some officer of the Corporation who may be nominated by the Director (Marketing). It is known to the parties to the agreement that the arbitrator so nominated is an employee of the Corporation and may be a shareholder of the Corporation. In the event of the arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason, the Director (Marketing) as aforesaid at the time of such transfer or vacation of office or inability to act may designate another officer of the corporation to act as arbitrator in accordance with the terms of the agreement. Such person shall be entitled to proceed with the reference from the point at which it was left by his predecessor. It is also a term of this agreement that no person other that the Director (Marketing) or a person nominated by such Director (Marketing) of the Corporation as aforesaid shall act as arbitrator hereunder. The award of the arbitrator so appointed shall be final, conclusive and binding on all parties to the agreement, subject to the provisions of the Arbitrator and Conciliation Act, 1996 or any statutory modification of or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this Clause."
10. It is also necessary to advert to Sub-clause 22(e) as my attention has been invited to certain observations made in disposing of an application u/s 11(6). The clause contains a provision that if for any reasons the authority is unable to nominate arbitrator then the matter shall not be referred to arbitration at all. My attention was invited to an order which has held that such clause would be void considering Section 11(6) of the Act of 1996, in Shri P. Kumaran v. Executive Engineer, Works Division and Ors., 1998 (3) ARBLR 98 (BOM). That order was firstly rendered before the Judgment of the Apex Court in Konkan Railway (supra) which finally took a view that power u/s 11(6) is administrative in character. That decision was rendered in an application u/s 11. Once that be the case, the decision is not by a court but by an Administrative Authority holding high office. However, the order at any rate cannot be construed as a binding precedent as it is not a Judgment of a Co-ordinate Bench. Secondly the issue whether an arbitral clause or clause of the agreement is void, as per the law now settled can only be decided by the Arbitral tribunal u/s 16 of the Act of 1996. This cannot be decided in an Application u/s 11(6). See Konkan Railway (supra). Considering that whether the clause is void or not need not be gone into and can be left for consideration by the arbitral tribunal which would be constituted if the issue does arise. In the judgment in Konkan Railway v. Mehul Construction Company, the question before the Apex Court was as to what should be the correct approach of the Chief Justice or his nominee in relation to the matter of appointment of Arbitrator u/s 11(6) of the Act and what is the true nature of the said order and some other questions. I need not advert to it in view of the subsequent judgment in Rani Construction (supra). My attention however, was invited to certain observations in Paragraph 5 of the judgment. It was noted by the Apex court that power under Sub-section (6) seeks to remove obstacles arising in the absence of agreement for appointing the arbitrator. Obstacles were identified at Clause (a), (b) and (c) of Sub-section 6. What Sub-section (6) provides is a cure to these problems by permitting the aggrieved party to request the Chief Justice or any person or institution designated by him to take the necessary measure i.e. to make the appointment, unless the agreement on the appointment procedure provides other means for securing the appointment. The apex Court further noted that while discharging function under Sub-section (6), the Chief Justice or his nominee will be acting in his administrative capacity and that such a construction would subserve the very object of the new Arbitration Law. The agreement to refer dispute to arbitration is voluntary. Parties can agree that if certain situation, do not arise or conditions are not satisfied, then they will not proceed to arbitration but will get their disputes removed through courts. Such an agreement can never be void. An agreement to resolve disputes by arbitration is not an agreement ousting jurisdiction of the civil court, but if such agreement exists, civil court will give effect to it unless the parties themselves give a go-bye to the agreement.
11. Under the Arbitration Act 1940, in
"There is no general power for the court to appoint an arbitrator unless the case falls within the relevant provisions of the Act nor will the court will the court make an appointment where the arbitration agreement provides a method by which appointment is to be made."
A similar clause as contained in the present arbitral agreement had come up for construction under the Act of 1940 before this court. A Division Bench of this court in
In
"Where, therefore, they are named, this section will have no application. Similarly, the arbitrator or arbitrators are required to be appointed by all parties to the reference with consent. On the contrary, if there is some other mode of appointment, for example, Section 4, where the parties to the agreement agree that the arbitrator has to be appointed by a person designated in the agreement either by name or hold, for the time being in office, certainly, this section will not apply. It has also been held by this court in
My attention was also invited on behalf of the Respondent by their learned counsel to the judgment of learned Single Judge of Punjab and Haryana High Court in
For the purpose of construction of the clause in the agreement which had voluntarily been entered into on behalf of the Petitioners, learned counsel relies on the judgment in
12. In the instant case, as we have noted earlier, the power to secure appointment is of the Chief Justice of his designate. The Chief Justice or the designate does not decide the right of the parties but only secures an appointment. There is no power u/s 11 of the Act of 1996, as or example u/s 8(b) of the Arbitration Act 1940. The power u/s 11 is a measure to secure appointment of the arbitrator in the course of exercising administrative powers. That can only be to give effect to the contract or in the event the contract cannot be given effect to then to give effect to arbitral clause by nominating arbitrator so as to enable the parties to go to the forum of their choice. To my mind, there is nothing to indicate that the Chief Justice or his designate where the clause provides for arbitral procedure for nominating arbitrator even in case of failure to make nomination can completely give a go bye to the arbitral clause and appoint another person as arbitrator even when the person or authority named is available. In the first instance, it would be to give effect to he agreement between the parties. An administrative authority does not displace the terms of the contract unless power is conferred by statute and it is expressly required to be dealt. Otherwise, the administrative authority can only give effect to the provisions of the contract, by directing the parties to arbitration in the manner provided. The manner provided normally should be by securing the appointment in terms of the contract between the parties. Where the terms of the agreement do not provide for securing the nomination as per explanation u/s 11(6)(3) and 11(6), then to secure the nomination u/s 11(6)(c), to secure nomination by normally directing the named authority to secure the appointment within a time frame failing which to make the appointment.
Thus on a close look at the provisions of Section 8 and 20 of the Act of 1940, that there are specific provisions for appointment by consent of the parties or otherwise by the court. Such power u/s 11(6) of the Act of 1996 is conferred on the Chief Justice or his designate who will act administratively. Under the Act of 1996, what the Chief justice or a designate would do is to secure the constitution of the Tribunal by proper measure such as to direct the authority to nominate arbitrator in those cases like Section 11(6)(c), where the contract so provides otherwise to constitute the Tribunal by nominating an arbitrator like in case of Section 11(6)(c) and (b). There is no other power in the administrative authority whether in the Chief Justice or his designate.
13. To sum up the following propositions emerge:
1. The Chief Justice or his designate even if the authority or institution named does not nominate the Arbitrator which is required to be done or to constitute the Arbitral Tribunal, will ordinarily direct the authority or institution to nominate the Arbitrator and effectively constitute the Arbitral Tribunal. This is more so in the case of public bodies and Corporation, where failure on the part of an official holding howsoever a high post, shall not result in that body being saddled with an arbitral Tribunal not in terms of the contract it entered into or was entered on its behalf.
2. It is only in the event, for some good reason that the Arbitrator cannot be named or, the Tribunal constituted in terms of the contract, shall the Chief Justice or designate nominate the Arbitrator or constitute the Arbitral Tribunal beyond the terms of the Contract.
14. Considering the clause and nature of the controversy, involved it is not possible in exercising jurisdiction u/s 11 to decide whether there is an arbitrable dispute or claims which are arbitrable. However, considering provisions of the Act of 1996, the learned counsel for the Respondents was asked whether the respondents have any object to refer the claims of the Petitioners to arbitration. The learned counsel points out that if the Petitioners within twelve weeks from today seek reference of the claims which they want to get adjudicated by the arbitrator and by the procedure for nomination provided in the contract, they have no objection for referring those claims to arbitration in terms of the procedure for appointing an arbitrator under the contract.
15. In my opinion, therefore, it will not be possible to grant relief of appointing an outside arbitrator as is sought by the applicants. However, as there is arbitral clause and as there is arbitral dispute and as the respondents have no objection for getting the matter referred to arbitration, if the applicant serves on the Respondent a copy of the arbitral claims referred to the authority named in Clause 22, is directed within six weeks from receipt of the application as directed to direct the parties to arbitration either of the Director of marketing of the Corporation or some other officer of the Corporation nominated by the Director of Marketing. All issues including whether the claims are barred by limitation or not are left open for considering before the arbitrator so named including the claims of the applicant and the counter claims of the Respondents, if any.
Application disposed of.
