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Monday, July 25, 2016

Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’). = In the aforesaid facts and circumstances it did not lie in the mouth of the respondent contractor that the appellants had committed a default and had forfeited their right to appoint arbitrators as per terms of the agreement. The learned Judge failed to read the relevant clause of the agreement properly and therefore wrongly placed reliance upon judgment in the case of Datar Switchgears (supra). In that case this Court had extracted the relevant terms of agreement in paragraph 9 which showed that there was no stipulation of any time limit like that of 60 days in the present case. The terms of the Agreement bind the parties unless they have chosen to repudiate the same. Relevant terms, if provided, will be material for deciding when the right of a party to appoint the arbitrator will suffer forfeiture and when the other party would be entitled to give notice and on failure, move application under Section 11(6) of the Act. Such terms deserve respect of the parties and attention of the Court. In view of aforesaid discussions we find no option but to set aside the impugned order under appeal. We order accordingly. In case the respondent contractor is still desirous of pursuing its claim through arbitration in terms of the agreement, it is given the option to serve a fresh notice for arbitration within a month and on receipt of the same the appellants/railways shall be at liberty to send a panel of requisite number of names to the respondents within 60 days of receipt of the notice so that Arbitral Tribunal is constituted in terms of the Agreement. It goes without saying that if the Railways default in sending the panel within the stipulated time, the contractor will be at liberty to pursue its further remedies as per provisions of the Act and law. The appeal is allowed in aforesaid terms but without any order as to costs.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO.6179 OF 2016
                 (Arising out of SLP (C) No. 28851 of 2014)


Union of India & Anr.                          …..Appellants

      Versus

Premco-DKSPL (JV) & Ors.                        .....Respondents


                               J U D G M E N T

SHIVA KIRTI SINGH, J.

The appellants have assailed the legality and  correctness  of  final  order
dated 25.02.2014 passed in Arbitration Petition No.14 of 2013 by an  Hon’ble
Judge of Gauhati High Court designated by the Chief Justice  of  that  Court
to decide respondents’ applications under Section 11 of the Arbitration  and
Conciliation Act, 1996 (hereinafter referred  to  as  ‘the  Act’).   By  the
impugned order the designated Judge allowed the  application  under  Section
11 of the Act and appointed a former Judge of that Court as  the  Arbitrator
after holding that the appellants  had  forfeited  their  right  to  appoint
railway officers as arbitrators in  terms  of  clause  64(3)(a)(ii)  of  the
agreement.
According to Ms. Kiran Suri, learned senior counsel for the  appellants  the
impugned order suffers from apparent error of fact on account of  misreading
or non-reading of  the  relevant  clause  of  the  Agreement,  i.e.,  clause
64(3)(a)(ii) which requires the  contractor/respondent  to  make  a  written
demand for arbitration and permits 60 days’ time to the  Railways  from  the
date of receipt of the demand, to send a panel of more than three  names  of
eligible gazetted railway officers so that the  contractor  may  suggest  to
General Manager at least two names out of that panel for appointment of  the
contractor’s nominee.  Such  suggestion  from  the  contractor  should  come
within 30 days from the dispatch of the request by Railways.   According  to
learned senior counsel, the relevant clause though indicated in paragraph  4
of the impugned order has been misread leading to an erroneous inference  in
the following words :

“…. This Clause permits the  respondents  to  nominate  a  railway  officer,
provided of course, the nomination is made within 30 days of receipt of  the
demand letter from the petitioner.  But since there  was  no  reaction  from
the railways side within the permissible 30 days and since in  the  meantime
the contractor has approached the High Court  under  Section  11(6)  of  the
Arbitration Act, having regard to the decision  in  Datar  Switchgears  Ltd.
(supra) it is apparent that the respondents have forfeited  their  right  to
appoint a railway officer as the arbitrator.”
It has been further contended on behalf of the appellants that the law  laid
down in the case of Datar Switchgears Ltd. v. Tata Finance  Ltd.  &  Anr.[1]
has not been correctly appreciated by the  learned  Judge  because  in  that
case failure to meet the demand to appoint an  arbitrator  was  apparent  on
account of expiry of the notice period of 30 days indicated in  the  demand.
Even then the Court held  that  since  the  application  was  under  Section
11(6)(a) of the Act and since that  Section  does  not  prescribe  any  time
limit rather  gives  an  unfettered  discretion  to  appoint  an  arbitrator
without any time limit, such power  will  stand  forfeited  only  after  the
party making the demand has moved the Court under  Section  11  and  not  on
mere expiry of the notice period of 30 days.  It is appellants’  stand  that
in view of stipulations in the relevant clause  providing  for  arbitration,
the respondent-contractor admittedly sent a notice demanding arbitration  on
12.06.2013 which was served on the appellants on  14.06.2013  and  hence  it
had to wait for 60 days for receipt of a panel of  more  than  three  names.
Thereafter the contractor had to suggest two names for  appointment  of  his
nominee arbitrator within 30 days.   The  cause  of  action  for  sending  a
notice of 30 days or any reasonable period, in view of clear  terms  in  the
Arbitration Agreement which has not been repudiated, can  arise  only  after
60 days.  Hence according to learned senior counsel for the appellants,  the
learned Judge erred in holding  that  the  appellants  had  forfeited  their
right to appoint arbitrators.  Instead, the finding should  have  been  that
the application under Section 11(6) of the Act was premature.
On behalf of appellants reliance has  been  placed  upon  judgment  of  this
Court  by  a  three  Judges  Bench  in  the   case   of   Northern   Railway
Administration,  Ministry  of  Railway   v.    Patel   Engineering   Company
Limited[2] in  support  of  the  proposition  that  in  the  appointment  of
arbitrator  by  court  under  Section  11(6),  the  Chief  Justice  or   the
designated person shall have “due regard to the two  conditions  in  Section
11(8)(a) and (b) relating to qualifications required for the  arbitrator  by
the agreement of the parties; and other considerations  relevant  to  secure
the appointment of an independent and impartial arbitrator”. Hence,  in  any
event appointment of a non-technical person, a former  judge  as  arbitrator
was unwarranted.
On behalf  of  respondent  contractor  the  relevant  facts  have  not  been
disputed and hence on facts it is beyond any doubt that  the  learned  Judge
has misread or omitted to read the relevant clause of  the  agreement  which
allows 60 days’ time to the  Railways  to  respond  to  the  demand  of  the
contractor by sending a panel containing more than three names out of  which
the contractor has to suggest at least two names to the Railways  which  has
to appoint one out of them as the contractor’s nominee.  The relevant  dates
are also not in dispute.  Since the notice for  appointment  of  arbitrators
dated 12.06.2013 was served on the railways on  14.06.2013,  the  contractor
had to respect the terms of the agreement  which  was  unrepudiated  and  to
wait for a period of at least 60 days before Section  11  application  could
have been filed.  Instead of waiting for 60 days  the  contractor/respondent
preferred such application prematurely on 23.07.2013. The  Railways  sent  a
panel of 4 names to the  respondent  on  30.07.2013,  well  within  60  days
limit.
In the aforesaid facts and circumstances it did not lie in the mouth of  the
respondent contractor that the appellants had committed a  default  and  had
forfeited their right to appoint arbitrators as per terms of the  agreement.
 The learned Judge failed to read  the  relevant  clause  of  the  agreement
properly and therefore wrongly placed reliance upon judgment in the case  of
Datar Switchgears (supra).  In  that  case  this  Court  had  extracted  the
relevant terms of agreement in paragraph 9 which showed that  there  was  no
stipulation of any time limit like that of 60  days  in  the  present  case.
The terms of the Agreement bind the  parties  unless  they  have  chosen  to
repudiate the same. Relevant  terms,  if  provided,  will  be  material  for
deciding when the right of a party to appoint  the  arbitrator  will  suffer
forfeiture and when the other party would be entitled to give notice and  on
failure, move application  under  Section  11(6)  of  the  Act.  Such  terms
deserve respect of the parties and attention of the Court.
In view of aforesaid discussions we find no option  but  to  set  aside  the
impugned order under appeal.  We order accordingly.  In case the  respondent
contractor is still desirous of pursuing its claim  through  arbitration  in
terms of the agreement, it is given the option to serve a fresh  notice  for
arbitration  within   a   month   and   on   receipt   of   the   same   the
appellants/railways shall be at liberty to send a panel of requisite  number
of names to the respondents within 60 days of receipt of the notice so  that
Arbitral Tribunal is  constituted  in  terms  of  the  Agreement.   It  goes
without saying that if the Railways default in sending the panel within  the
stipulated time, the contractor will be at liberty  to  pursue  its  further
remedies as per provisions of the Act and law.  The  appeal  is  allowed  in
aforesaid terms but without any order as to costs.


                       ………………………………..…….J.
                       [SHIVA KIRTI SINGH]



                       ………………………………….…..J.
                             [R. BANUMATHI]
New Delhi.
July 25, 2016.
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[1]    (2000) 8 SCC 151
[2]    (2008) 10 SCC 240

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