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Thursday, August 14, 2014

Arbitration proceedings -Court can appoint any arbitrator other than the prescribed arbitrator as per the terms of agreement - disputes between contractors and Railways - as per the terms of agreement a railway Officer was to be appointed as arbitrator - decades lapsed no award was passed - High court appointed former Chief Justice of the Sikkim High Court - challenged as invalid and beyond conditions of arbitration agreement - Apex court held thatA period of nearly two decades has elapsed since the contractor had raised his claims for alleged wrongful termination of the two contracts. The situation is distressing and to say the least disturbing. The power of the Court under the Act has to be exercised to effectuate the remedy provided thereunder and to facilitate the mechanism contemplated therein. In a situation where the procedure and process under the Act has been rendered futile, the power of the Court to depart from the agreed terms of appointment of arbitrators must be acknowledged in the light of the several decisions noticed by us. We are, therefore, of the view that no infirmity muchless any illegality or failure of justice can be said to be occasioned by the order passed by the High Court so as to warrant any interference. We, therefore, unhesitatingly dismiss this appeal filed by the appellant-railways. = CIVIL APPEAL NO.6275 OF 2014 (Arising out of SLP (C) No. 20427 OF 2013) NORTH EASTERN RAILWAY & ORS. ... APPELLANT (S) VERSUS TRIPPLE ENGINEERING WORKS ... RESPONDENT (S) = 2014- Aug. Part - http://judis.nic.in/supremecourt/filename=41824

    Arbitration proceedings -Court can appoint any arbitrator other than the prescribed arbitrator as per the terms of agreement -   disputes between contractors and Railways - as per the terms of agreement a railway Officer was to be appointed as arbitrator - decades lapsed no award was passed - High court appointed  former Chief Justice of the  Sikkim  High  Court - challenged as invalid and beyond conditions of arbitration agreement - Apex court held that A period of nearly two decades has elapsed since the contractor had  raised his claims for alleged wrongful  termination  of  the  two  contracts.  The situation is distressing and to say the least  disturbing.  
The  power  of the Court under the Act  has  to  be  exercised  to  effectuate  the  remedy
provided there under and to facilitate the  mechanism  contemplated  therein. In a situation where the procedure  and  process  under  the  Act  has  been rendered futile, the power of the Court to depart from the agreed  terms  of appointment of arbitrators must be acknowledged in the light of the  several decisions noticed by  us.    We  are,  therefore,  of  the  view  that  no infirmity muchless any illegality or failure of justice can be  said  to  be occasioned by the order passed by the  High  Court  so  as  to  warrant  any interference. We, therefore, unhesitatingly dismiss this  appeal  filed  by the appellant-railways.  =
Admittedly, the General Conditions of Contract  of the Railways, which included an arbitration clause,  governed  the  parties.
After  the  termination  of  the  two  contracts  the  respondent-contractor approached the Patna High Court by means of a writ petition challenging  the terminations. =

Though a panel of arbitrators as per Clauses  64(3)(a)(ii)  and  (iii)
of the General Conditions of Contract was appointed as far back  as  in  the
year 1996, till date the award(s) in respect of the disputes arising out  of
either of the  two  contracts  is  yet  to  be  passed.  =

 In the present case Clauses 64(3)(a)(ii)  and  (iii)  of  the  General
Conditions of Contract do not prescribe any specific  qualification  of  the
arbitrators that are to be appointed under the agreement  except  that  they
should be railway officers.
As already noticed,  even  if  the  arbitration
agreement was to specifically provide for  any  particular  qualification(s)
of an arbitrator the same would not denude the power  of  the  Court  acting
under Section 11(6), in an appropriate case to depart therefrom.
 In  Singh
Builders Syndicate (supra) pendency of arbitration proceedings  for  over  a
decade was found by this Court to be a  mockery  of  the  process.=
 In  the
present case, admittedly the award in respect of  disputes  and  differences
arising out of the contract No. CAO/CON/722 is yet  to  be  passed.
Though
the appellant-Railway has in its pleadings made a feeble attempt to  contend
that the process of arbitration arising out of the said  Contract  has  been
finalized, no material, whatsoever,  has  been  laid  before  the  Court  in
support thereof.
The arbitration proceedings to resolve  the  disputes  and
differences arising out of Contract No. CAO/CON/738 has not even  commenced.
 A period of nearly two decades has elapsed since the contractor had  raised
his claims for alleged wrongful  termination  of  the  two  contracts.
The
situation is distressing and to say the least  disturbing.  
The  power  of
the Court under the Act  has  to  be  exercised  to  effectuate  the  remedy
provided thereunder and to facilitate the  mechanism  contemplated  therein.
In a situation where the procedure  and  process  under  the  Act  has  been
rendered futile, the power of the Court to depart from the agreed  terms  of
appointment of arbitrators must be acknowledged in the light of the  several
decisions noticed by  us.    
We  are,  therefore,  of  the  view  that  no
infirmity muchless any illegality or failure of justice can be  said  to  be
occasioned by the order passed by the  High  Court  so  as  to  warrant  any
interference.
We, therefore, unhesitatingly dismiss this  appeal  filed  by
the appellant-railways.
However, in the facts of the case we  do  not  deem
it appropriate to burden the appellant with any costs.
 2014- Aug. Part - http://judis.nic.in/supremecourt/filename=41824
RANJAN GOGOI, M.Y. EQBAL
                           REPORTABLE

                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                        CIVIL APPEAL  NO.6275 OF 2014
                 (Arising out of SLP (C) No. 20427 OF 2013)


NORTH EASTERN RAILWAY & ORS.            ...    APPELLANT (S)

                                   VERSUS

TRIPPLE ENGINEERING WORKS                  ...  RESPONDENT (S)



                               J U D G M E N T

RANJAN GOGOI, J.

1.    The challenge in this appeal is  to  order  dated  27.06.2012  of  the
Patna High Court by which a former Chief Justice of the  Sikkim  High  Court
had  been  appointed  as  the  arbitrator  to  resolve  the   disputes   and
differences between the parties to the present proceedings  arising  out  of
two contracts bearing  No.  CAO/CON/722  dated  01.11.1993  and  CAO/CON/738
dated 28.04.1994.

2.     Both  the  contracts  awarded  to  the   respondent-contractor   were
terminated on 7.11.1994.  Admittedly, the General Conditions of Contract  of
the Railways, which included an arbitration clause,  governed  the  parties.
After  the  termination  of  the  two  contracts  the  respondent-contractor
approached the Patna High Court by means of a writ petition challenging  the
terminations.   The  writ  petition  was  dismissed,  which  dismissal   was
challenged before this Court in SLP(C) No.  17189/1995.   The  said  special
leave  petition  was  also  dismissed  leaving  parties   to   resolve   the
differences in an appropriate proceeding i.e. a civil suit or  by  reference
to arbitration, as the case may be.

3.    Though a panel of arbitrators as per Clauses  64(3)(a)(ii)  and  (iii)
of the General Conditions of Contract was appointed as far back  as  in  the
year 1996, till date the award(s) in respect of the disputes arising out  of
either of the  two  contracts  is  yet  to  be  passed.   According  to  the
appellant-railways, the proceedings of arbitration  has  been  completed  in
respect of the disputes  arising  out  of  Contract  No.  CAO/CON/722  dated
01.11.1993.  Even if the said statement of the appellant-railways is  to  be
accepted, though no material has been laid in support thereof,  what  cannot
be denied is the fact that  till  date  the  award  is  yet  to  be  passed.
Admittedly, the arbitration in  respect  of  the  contract  No.  CAO/CON/738
dated 28.04.1994 has not even commenced.  This is on  account  of  the  fact
that in the year 2002 the North Eastern Railway, which had entered into  the
contracts with the respondent-contractor, was bifurcated into North  Eastern
Railway and East Central Railway.  As the jurisdiction  in  respect  of  the
aforesaid contract No. CAO/CON/738 was to be exercised by the  East  Central
Railway it appears that the  appellant  has  disclaimed  all  responsibility
with regard to holding of arbitration proceedings in  respect  of  the  said
contract and at the same time the East Central Railway has not responded  in
any positive manner to the several demands for  arbitration  lodged  by  the
contractor.



Insofar as contract  No.  CAO/CON/722  is  concerned,  naturally,  both  the
parties have tried to lay  the  blame  for  the  delay  in  the  process  of
arbitration on each other and the huge number  of  correspondence  exchanged
in this regard and the frequent change of the arbitration panel  on  account
of exigencies of service of the panel members  (retirement,  transfer  etc.)
has made it impossible to pinpoint the responsibility in this regard on  any
one of the contracting parties.  But  what  is  glaring  is  the  fact  that
though the arbitration proceedings in  respect  of  the  said  contract  No.
CAO/CON/722 had commenced as far back as in the year 1996 the award  is  yet
to see the light of the day  notwithstanding  the  assertions  made  by  the
Union that the proceedings have been completed though as already noted,   no
clinching material in this regard has been brought on record; not  to  speak
about the award of the arbitrators though such an award would have been  the
natural consequence of the completion of arbitration proceedings.  It is  in
the totality of these facts that the High Court had  thought  it  proper  to
travel beyond the  framework  of  Clauses  64(3)(a)(ii)  and  (iii)  of  the
General Conditions of Contract and appoint a retired Chief  Justice  as  the
arbitrator.

4.    The correctness of the said decision necessarily has to be  judged  in
the light of the facts and circumstances enumerated  above.   The  necessary
legal discourse that would be  required  to  be  gone  into  to  answer  the
question as posed above could begin by extracting the provisions of  Clauses
64(3)(a)(ii) and (iii) of the General Conditions of Contract.

“64(3)(a)(ii) In cases not  covered  by  clause  64(3)(a)(i),  the  Arbitral
Tribunal shall consist of a panel of three Gazette Rly. Officers  not  below
JA grade, as the arbitrators.  For this purpose, the  Railway  will  send  a
panel of more than 3  names  of  Gazetted  Rly.  Officers  of  one  or  more
departments, of the Rly. to the contractor who will be asked to  suggest  to
General Manager up to 2 names out of panel for appointment  as  contractor’s
nominee.  The General Manager shall appoint at least one out of them as  the
contractor’s nominee and  will,  also  simultaneously  appoint  the  balance
number of arbitrators either from the panel or from outside the panel,  duly
indicating the ‘presiding arbitrator  from  amongst  the  3  arbitrators  so
appointed.  While nominating the arbitrators it will be necessary to  ensure
that one of them is from the Accounts department.  An officer  of  Selection
Grade of the Accounts department shall be considered of equal status to  the
officers in SA grade of departments of  the  Railways  for  the  purpose  of
appointment of arbitrators.

64(3)(a)(iii) – If one  or  more  of  the  arbitrators  appointed  as  above
refuses to act as arbitrator, withdraws from his office  as  arbitrator,  or
vacates his/their office/offices or is/are unable or  unwilling  to  perform
his functions as arbitrator for any reason whatsoever  or  dies  or  in  the
opinion of the General  Manager  fails  to  act  without  undue  delay,  the
General  Manager  shall  appoint  new  arbitrator/arbitrators  to   act   in
his/their   place   in   the   same   manner   in    which    the    earlier
arbitrator/arbitrators had been  appointed.   Such  re-constituted  Tribunal
may, at its discretion, proceed with the reference from the stage  at  which
it was left by the previous arbitrator(s)”.



      From the provisions of the General Conditions of Contract it is  clear
that the panel of arbitrators as  per  the  agreement  between  the  parties
necessarily has to be Gazetted Railway Officers; any vacancy  in  the  panel
of arbitrators has to be filled up in the same manner in which  the  initial
panel is required to be constituted.

 5.   The “classical notion” that the High Court while exercising its  power
under Section 11 of the Arbitration & Conciliation  Act,  1996  (hereinafter
for short ‘the Act’)  must  appoint  the  arbitrator  as  per  the  contract
between the parties saw a significant erosion in Ace Pipeline Contracts  (P)
Ltd. Vs. Bharat Petroleum Corporation Ltd.[1] wherein this Court  had  taken
the view that though the contract between the parties must  be  adhered  to,
deviations therefrom in exceptional circumstances would be  permissible.   A
more significant development had come  in  a  decision  that  followed  soon
thereafter in Union of  India  Vs.  Bharat  Battery  Manufacturing  Co.  (P)
Ltd.[2] wherein following a three Judges Bench decision in Punj  Lloyd  Ltd.
Vs. Petronet MHB Ltd.[3] it was held that once an aggrieved party  files  an
application under Section 11(6) of the Act to the High Court,  the  opposite
party would lose its right of appointment of the arbitrator(s)  as  per  the
terms of the contract.    The implication that the Court would  be  free  to
deviate from the terms of the contract is obvious.  The  apparent  dichotomy
in ACE Pipeline (supra)  and  Bharat  Battery  Manufacturing  Co.  (P)  Ltd.
(supra)  was reconciled by a three Judges Bench of this  Court  in  Northern
Railway  Administration,  Ministry  of  Railway,   New   Delhi   Vs.   Patel
Engineering Company Limited[4] where the  jurisdiction  of  the  High  Court
under Section 11(6) of the Act was sought to be emphasized  by  taking  into
account the expression “to take the necessary  measure”  appearing  in  sub-
section (6) of  Section  11  and  by  further  laying  down  that  the  said
expression has to be read alongwith the requirement of  sub-section  (8)  of
Section 11 of the Act.  The position was further  clarified  in  Indian  Oil
Corporation Limited  and  Others  Vs.  Raja  Transport  Private  Limited[5].
Paragraph 48 of the report wherein the scope of Section 11 of  the  Act  was
summarized may be  quoted  by  reproducing  sub-paragraphs  (vi)  and  (vii)
herein below.
“(vi) The Chief Justice or his designate while exercising power  under  sub-
section (6) of Section 11 shall endeavour to give effect to the  appointment
procedure prescribed in the arbitration clause

(vii)  If circumstances exist, giving rise to justifiable doubts as  to  the
independence  and  impartiality  of  the  person  nominated,  or  if   other
circumstances warrant appointment of an independent arbitrator  by  ignoring
the procedure prescribed, the  Chief  Justice  or  his  designate  may,  for
reasons to be recorded ignore the designated arbitrator and appoint  someone
else.”



6.    The above discussion will not be complete  without  reference  to  the
view  of  this  Court  expressed  in  Union  of  India  Vs.  Singh  Builders
Syndicate[6] wherein the appointment of a  retired  Judge  contrary  to  the
agreement requiring appointment of specified officers was held to  be  valid
on the ground that the arbitration proceedings had not concluded for over  a
decade making a mockery of the process.  In fact, in  paragraph  25  of  the
report in Singh Builders Syndicate (supra) this  Court  had  suggested  that
the  government,  statutory  authorities  and  government  companies  should
consider phasing  out  arbitration  clauses  providing  for  appointment  of
serving officers and encourage professionalism in arbitration.

7.    A pronouncement of  late  in  Deep  Trading  Company  Vs.  Indian  Oil
Corporation and Others[7]  followed the legal position  laid  down  in  Punj
Lloyd Ltd. (supra) which in turn had followed a two  Judges  Bench  decision
in  Datar  Switchgears  Ltd.  Vs.  Tata  Finance  Ltd.[8].   The  theory  of
forfeiture of the rights of a party  under  the  agreement  to  appoint  its
arbitrator  once  the  proceedings  under  Section  11(6)  of  the  Act  had
commenced came to be even more formally embedded  in  Deep  Trading  Company
(supra) subject, of course,  to  the  provisions  of  Section  11(8),  which
provision in any event, had been held  in  Northern  Railway  Administration
(supra) not to be mandatory, but only embodying  a  requirement  of  keeping
the same in view at the time  of  exercise  of  jurisdiction  under  Section
11(6) of the Act.

8.    In the present case Clauses 64(3)(a)(ii)  and  (iii)  of  the  General
Conditions of Contract do not prescribe any specific  qualification  of  the
arbitrators that are to be appointed under the agreement  except  that  they
should be railway officers.  As already noticed,  even  if  the  arbitration
agreement was to specifically provide for  any  particular  qualification(s)
of an arbitrator the same would not denude the power  of  the  Court  acting
under Section 11(6), in an appropriate case to depart therefrom.   In  Singh
Builders Syndicate (supra) pendency of arbitration proceedings  for  over  a
decade was found by this Court to be a  mockery  of  the  process.   In  the
present case, admittedly the award in respect of  disputes  and  differences
arising out of the contract No. CAO/CON/722 is yet  to  be  passed.   Though
the appellant-Railway has in its pleadings made a feeble attempt to  contend
that the process of arbitration arising out of the said  Contract  has  been
finalized, no material, whatsoever,  has  been  laid  before  the  Court  in
support thereof.  The arbitration proceedings to resolve  the  disputes  and
differences arising out of Contract No. CAO/CON/738 has not even  commenced.
 A period of nearly two decades has elapsed since the contractor had  raised
his claims for alleged wrongful  termination  of  the  two  contracts.   The
situation is distressing and to say the least  disturbing.    The  power  of
the Court under the Act  has  to  be  exercised  to  effectuate  the  remedy
provided thereunder and to facilitate the  mechanism  contemplated  therein.
In a situation where the procedure  and  process  under  the  Act  has  been
rendered futile, the power of the Court to depart from the agreed  terms  of
appointment of arbitrators must be acknowledged in the light of the  several
decisions noticed by  us.      We  are,  therefore,  of  the  view  that  no
infirmity muchless any illegality or failure of justice can be  said  to  be
occasioned by the order passed by the  High  Court  so  as  to  warrant  any
interference.  We, therefore, unhesitatingly dismiss this  appeal  filed  by
the appellant-railways.  However, in the facts of the case we  do  not  deem
it appropriate to burden the appellant with any costs.


                         …....…………………………J.
                                                    [RANJAN GOGOI]




                                                          .…....…………………………J.
                                                      [M. Y. EQBAL]


NEW DELHI,
AUGUST 13, 2014.

-----------------------
[1]    (2007) 5 SCC 304
[2]     (2007) 7 SCC 684
[3]    (2006) 2 SCC 638
[4]    (2008) 10 SCC 240
[5]    (2009) 8 SCC 520
[6]    (2009) 4 SCC 523
[7]    (2013) 4 SCC 35
[8]    (2000) 8 SCC 151

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