Civil Appeal No. 4168 of 2003 with Civil Appeal No. 4169 of 2003. Case: 1. S.B.P. and Co., 2. B.T. Patil and Sons Belgaum Construction Ltd. Vs 1. Patel Engg. Ltd. and Anr.. Supreme Court (India)
| Case Number | Civil Appeal No. 4168 of 2003 with Civil Appeal No. 4169 of 2003 |
| Counsel | For Appellant: K.K. Venugopal, Sr. Adv., Amit Sharma, Suchit Mohanty, Ankur T. and Anupam Lal Das, Advs and For Respondents: Dushyant Dave, Sr. Adv., Mustafa D., Banoo Kapadia, Surekha Raman and Angely Anid, Advs. for K.J. John and Co. |
| Judges | G.S. Singhvi and B.S. Chauhan, JJ. |
| Issue | Arbitration and Conciliation Act, 1996 (for short, the Act') - Sections 11(6), 11, 15(2), 37, 34 |
| Citation | 2010 (1) AWC 1053 (SC) , 2010 (1) BomCR 382 , JT 2009 (13) SC 315 , 2009 (13) SCALE 335 , 2009 (10) UJ 4811 (SC) |
| Judgement Date | October 21, 2009 |
| Court | Supreme Court (India) |
Judgment:
G.S. Singhvi, J.
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In compliance of the direction given by seven-Judge Bench in S.B.P. and Company v. Patel Engineering Ltd. and another (2005) 8 SCC 618, these appeals have been listed for disposal in the light of the principles laid down in that judgment.
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In the special leave petitions, out of which these appeals arise, the appellants had challenged orders dated 3.2.2003 passed by the Division Bench of the Bombay High Court whereby it held that the writ petitions filed against the orders passed by the learned designated Judge of that Court appointing Shri Justice M.N. Chandurkar (Retired) as the third arbitrator for resolution of the disputes between the appellants and respondent No.1 are not maintainable. For this purpose, the Division Bench relied upon the judgment of this Court in Konkan Railway Corporation Ltd. and others v. Mehul Construction Company (2000) 7 SCC 201, which was subsequently approved by a Constitution Bench in Konkan Railway Corporation Ltd. and another v. Rani Construction Pvt. Ltd. (2002) 2 SCC 388. The ratio of the Constitution Bench judgment was that the power exercised by the Chief Justice or any person or institution designated by him under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short, the Act') is purely administrative and the measures taken under that section are not open to be challenged by the aggrieved party by resorting to intermediary proceedings. The judgment of the Constitution Bench was overruled by the seven-Judge Bench in S.B.P. and Company v. Patel Engineering Ltd. and another (supra) and it was held that the power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is a judicial power and not an administrative power and further that an order passed by the Chief Justice of the High Court or by the designated Judge of that Court can be challenged only under Article 136 of the Constitution.
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After the judgment of the larger Bench, the appellants filed I.A. Nos. 1 and 2 of 2006 for leave to amend the memorandums of appeal so as to enable them to make a prayer for setting aside orders dated 18.11.2002 passed by the learned designated Judge of the High Court in Arbitration Application Nos. 114 of 2002 and 90 of 2002. At the commencement of hearing of the appeals on 6.10.2009, the prayer of the appellants was granted.
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In the light of the above, we shall now consider whether orders dated 18.11.2002 passed by the learned designated Judge of the Bombay High Court under Section 11(6) of the Act appointing Shri Justice M.N. Chandurkar (Retired) as third arbitrator is legally correct.
Background facts
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In March, 1992, the Government of Maharashtra awarded contract to respondent No.1 for execution of works relating to Stage IV of the Koyna Hydroelectric Project. Respondent No.1 sub-contracted a portion of that work i.e., construction of civil works from Lake Intake to Emergency Valve Tunnel - K.H.E.P. Stage IV - I.C.B. No.1 to the appellant and M/s. B.T. Patil and Sons (Construction) Ltd., Belgaum (herein after described as "B.T. Patil and Sons"). For this purpose, the parties entered into two agreements on 15.10.1992 viz., sub-contract agreement and piece work agreement. Both the agreements contained identical clauses for resolution of disputes and differences between the parties by arbitration. For the sake of convenient reference, Clause 19 of the piece work agreement is reproduced below:
"The continuance of this piece work agreement / contract or at any time after the termination thereof, any difference or dispute shall arise between the parties hereto in regard to the interpretation of any of the provisions herein contained or act or thing in relation to this agreement / contract, such difference or dispute shall be forthwith referred to two Arbitrators for Arbitration in Bombay one to be appointed by each party with liberty to the Arbitrators in case of differences or their failure to reach an agreement within one month of the appointment, to appoint an umpire residing in Bombay and the award which shall be made by two Arbitrators or umpire as the case may be shall be final, conclusive and binding on the parties hereto.
If either party to the difference or dispute shall fail to appoint an arbitrator within 30 calendar days after notice in writing having been given by the parties or shall appoint an arbitrator who shall refuse to act then the arbitrator appointed by the other party shall be entitled to proceed with the reference as a Sole Arbitrator and to make final decision on such difference or dispute and the award made as a result of such arbitration shall be a condition precedent to any right of action against any two parties hereto in respect of any such difference and dispute." (emphasis added)
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In October 1996, some disputes and differences arose between the Government of Maharashtra and respondent No.1 with regard to contract dated 10.3.1992. The panel of three arbitrators appointed by the parties passed unanimous awards on 11.2.2000 requiring the State Government to pay Rs.24,09,25,965/- to respondent No.1. The State Government challenged those awards but, later on, withdrew its challenge and paid the amount to respondent No.1.
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On 3.7.2001, the appellants through their power of attorney holder, Balasaheb B. Patil served a notice upon respondent No.1 requiring it to pay the amount allegedly due to them, but the latter did not comply with their demand. After three months, the appellants invoked the arbitration clauses enshrined in the sub-contract agreement and piece work agreement and issued letter dated 3.10.2001 appointing Shri T.G. Radhakrishna (retired Chief Engineer) (respondent No.2 herein) as an arbitrator on their behalf. In its response dated 1.11.2001, respondent No.1 denied the claim of the appellants and, at the same time, appointed Shri S.N. Huddar, Joint Secretary, Irrigation Department, Government of Maharashtra as an arbitrator on its behalf. However, vide letter dated 1.2.2002, Shri Huddar declined to arbitrate in the matter by stating that he had remained associated with Kyona Project as Superintending Engineer and Chief Engineer. Thereafter, respondent No.1 sent letter dated 26.2.2002 to Shri S.L. Jain of S and S Consultants, Bhopal with the request to act as an arbitrator on its behalf. Shri Jain communicated his consent vide letter dated 27.2.2002. On the same day, respondent No.1 informed respondent No.2 that in terms of Section 15(2) of the Act, it was entitled to appoint a substitute in place of Shri S.N. Huddar and had, in fact, appointed Shri S.L. Jain as an arbitrator and the latter had consented to such an appointment. On 7.3.2002, the power of attorney holder of the appellants informed respondent No.1 that appointment of Shri S.L. Jain as replacement arbitrator is contrary to the terms of sub-contract agreement and piece work agreement.
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In the meanwhile, power of attorney holder of the appellants sent letter dated 22.1.2002 to respondent No.2 and Shri S.N. Huddar requesting them to appoint the third arbitrator. On his part, respondent No.2 suo motu sent letter dated 21.2.2002 informing the parties that in view of Shri Huddar's refusal to act as an arbitrator on behalf of respondent No.1, he had become the Sole Arbitrator and asked them to appear at Mumbai for a preliminary meeting.
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After his appointment as an arbitrator on behalf of respondent No.1, Shri S.L. Jain sent letter dated 11.3.2002 to respondent No.2 and suggested the names of three retired Bombay High Court judges for appointment as Presiding Arbitrator. In his reply dated 25.3.2002, respondent No.2 claimed that Section 15(2) of the Act has no application in the case and that in terms of Clause 18 of the sub-contract agreement and Clause 19 of the piece work agreement, he was entitled to act as the Sole Arbitrator.
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At that stage, respondent No.1 filed Arbitration Application Nos.114 of 2002 and 90 of 2002 under Section 11 of the Act for appointment of the third arbitrator by asserting that in view of refusal of Shri S.N. Huddar to act as an arbitrator, it had appointed Shri S.L. Jain as a substitute arbitrator in terms of Section 15(2) of the Act and in that view of the matter respondent No.2 was not entitled to act as the Sole Arbitrator. The designated Judge of the Bombay High Court allowed both the applications and appointed Shri Justice M.N. Chandurkar (Retired) as the third arbitrator. The learned designated Judge noticed the arguments made on behalf of the parties, the provisions of Section 15 of the Act and observed:-
"Section 15 is a new provision. Sub-section (1) and (2) thereof correspond to Article 155 of the UNCITRAL model Law. Sub-section (2) of section 15 provides that where the mandate of arbitrator is terminated, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. Thus the Legislature clearly intended that upon termination of the mandate of an arbitrator, a substitute arbitrator shall be appointed in accordance with the same rules as were applicable to the appointment of the original arbitrator. Therefore the arbitrator appointed by the other party is not entitled to act as the sole arbitrator in view of this clear language of section 15(2). This can be compared to the old provision of section 9 of the 1940 Act providing that unless a different intention is expressed in the agreement the court has power to appoint a new arbitrator. The words used in sub-section (2) of section 15 do not admit of any such exception.
The decisions relied upon by Dr. Tulzapurkar have no application to the facts of the present case. In Datar Switchgears Ltd. v. Tata Finance Ltd. and Anr. while construing section 11(6) of the 1996 Act, the court held that if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment...
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