TMI Blog2014 (9) TMI 1274X X X X Extracts X X X X X X X X Extracts X X X X ..... owned companies with private parties/contractors, the terms of the agreement are usually drawn by the Government company or public sector undertakings. Government contracts have broadly two kinds of arbitration clauses, first where a named officer is to act as sole arbitrator; and second, where a senior officer like a managing director, nominates a designated officer to act as the sole arbitrator - If the Government has nominated those officers as arbitrators who are not able to devote time to the arbitration proceedings or become incapable of acting as arbitrators because of frequent transfers etc., then the principle of 'default procedure' at least in the cases where Government has assumed the role of appointment of arbitrators to itself, has to be applied in the case of substitute arbitrators as well and the Court will step in to appoint the arbitrator by keeping aside the procedure which is agreed to between the parties. However, it will depend upon the facts of a particular case as to whether such a course of action should be taken or not. What we emphasise is that Court is not powerless in this regard. The Appellant has not questioned the order of the High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement. 3. Disputes arose between the parties with respect to the said contract and on the request of the Respondent an arbitral tribunal of the persons was constituted in the year 2007, in which all the members were Railway authorities. It is a matter of regret that inspite of expiry of four years, the said tribunal did not complete the arbitral proceeding and the matter kept hanging due to transfers/retirement/adjournments etc. 4. The Respondent felt exasperated due to the prolongation of the matter before the arbitral tribunal and chose to file Request Case No. 10/2010. Even at the time of filing of that case, there was a vacancy in the Arbitral Tribunal. When this case was taken up by the High Court on 09.03.2011, by that time, the Appellant had filled up the said vacancy. Taking note thereof, the said petition was disposed of by the High Court vide order dated 09.03.2011 giving the last chance to the Arbitral Tribunal to complete the arbitral proceeding within a period of three months with direction to hold regular sittings at Patna from the date of receipt/production of a copy of the said order. It was also stated in the order dated 09.03.2011 that if arbitration proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made a vehement submission, in this behalf, that no such power is vested in the High Court under the Act. His submission was that as per the scheme of the Act even if the mandate of the Arbitral Tribunal was to be terminated, fresh Tribunal could be constituted only in accordance with the arbitration agreement. It was thus argued that the High Court could have, at the most, directed the Appellant to constitute another Arbitral Tribunal in accordance with Clause 64 of the GCC. 9. Learned Counsel for the Respondent, on the other hand, made an effervasive attempt to justify the decision of the High Court with emphatic plea that when the very purpose of arbitration is frustrated by the members of the Tribunal who, were dragging the proceedings, the Court was not powerless to travel beyond the framework of Clause 64 of the GCC and appoint a retired Chief Justice as the arbitrator. He referred to the specific findings of the High Court in the impugned judgment in this behalf, inter alia, observing as under: 10. The entire facts and circumstances mentioned above depict that the delay caused in the arbitral proceedings was intentional. The members of the arbitral tribunal continued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uest case is allowed and the arbitral tribunal appointed by Respondent-authorities is hereby set aside and a sole Arbitrator is appointed to decide the arbitral proceedings expeditiously without giving any undue adjournment to any of the parties. 10. He further submitted that in the case of North Eastern Railway v. Tripple Engineering Works, decided on 13.08.2014 in Civil Appeal No. 6275 of 2014 (arising out of S.L.P. (C) No. 20427 of 2013), in almost identical circumstances, this Court had approved the similar directions of the Patna High Court. 11. It is not in dispute that as per Clause 64 of the GCC, three arbitrators are to be appointed, in the manner prescribed therein in case of dispute between the parties. The relevant portion of Clause 64 with which we are concerned with the present conditions is extracted below: 64.(1)(i) Demand for Arbitration - In the event of any dispute or difference between the parties as to the construction or operation of this contract, or the respective rights and liabilities of the parties on any matter in question, dispute or difference on any account or as to the withholding by the Railway of any certificate to which the contractor m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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). 12. At this stage, we may take note of the scheme of the Act as well, by noticing those provisions which would be attracted to deal with such a situation. Relevant provisions are extracted below for ready reference: 14. Failure or impossibility to act. - (1) The mandate of an arbitrator shall terminate if- (a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and (b) he withdraws from his office or the parties agree to the termination of his mandate. (2) If a controversy remains concerning any of the grounds referred to in Clause (a) of Sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate. (3) If, under this section or Sub-section (3) of Section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to perform its function, and rightly so. It is a clear case of inability on the part of the members of the Tribunal to proceed in the matter as the matter lingered on for almost four years, without any rhyme or justifiable reasons. The members did not mend their ways even when another life was given by granting three months to them. Virtually a pre-emptory order was passed by the High Court, but the Arbitral Tribunal remained unaffected and took the directions of the High Court in a cavalier manner. Therefore, the order of the High Court terminating the mandate of the arbitral tribunal is flawless. This aspect of the impugned order is not even questioned by the Appellant at the time of hearing of the present appeal. 14. However, the contention of the Appellant is that even if it was so, as per the provisions of Section 15 of the Act, substitute arbitrators should have been appointed according to the rules that were applicable to the appointment of the arbitrator being replaced . On this basis, it was the submission of Mr. Mehta, learned ASG, that High Court should have resorted to provision contained in Clause 64 of the GCC. 15. No doubt, ordinarily that would be the posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 along with the requirement of Sub-section (8) of Section 11 of the Act. The position was further clarified in Indian Oil Corporation Limited and Ors. v. Raja Transport Private Limited (2009) 8 SCC 520. 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 referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned, it contains three general principles on which the entire edifice of the said Act is structured. These principles are mentioned by an English Court in its judgment in the case of Department of Economics Policy and Development of the City of Moscow v. Bankers Trust Co. (2004) EWCA Civ 314. In that case, Mance, L.J. succinctly summed up the objective of this Act in the following words: 'Parliament has set out, in the Arbitration Act, 1996, to encourage and facilitate a reformed and more independent, as well as private and confidential, system of consensual dispute resolution, with only limited possibilities of court involvement where necessary in the interests of the public and of basic fairness'. Section 1 of the Act sets forth the three main principles of arbitration law viz.- (I) speedy, inexpensive and fair trial by an impartial tribunal; (ii) party autonomy; and (iii) minimum court intervention. This provision has to be applied purposively. In case of doubt as to the meaning of any provision of this Act, regard should be had to these principles. 17. In the book O.P. Malhotra on the Law and Practice of Arbitration and Conciliation (Third Edition revised by Ms. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to act as sole arbitrator; and second, where a senior officer like a managing director, nominates a designated officer to act as the sole arbitrator. No doubt, such clauses which give the Government a dominant position to constitute the Arbitral Tribunal are held to be valid. At the same time, it also casts an onerous and responsible duty upon the persona designata to appoint such persons/officers as the arbitrators who are not only able to function independently and impartially, but are in a position to devote adequate time in conducting the arbitration. If the Government has nominated those officers as arbitrators who are not able to devote time to the arbitration proceedings or become incapable of acting as arbitrators because of frequent transfers etc., then the principle of 'default procedure' at least in the cases where Government has assumed the role of appointment of arbitrators to itself, has to be applied in the case of substitute arbitrators as well and the Court will step in to appoint the arbitrator by keeping aside the procedure which is agreed to between the parties. However, it will depend upon the facts of a particular case as to whether such a course of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The delays and frequent changes in the Arbitral Tribunal make a mockery of the process of arbitration. Having regard to this factual background, we are of the view that the appointment of a retired Judge of the Delhi High Court as sole arbitrator does not call for interference in exercise of jurisdiction Under Article 136 of the Constitution of India. 21. The appointment of arbitrator by the Court, of its own choice, departing from the arbitration clause, is therefore not unknown and has become an acceptable proposition of law which can be termed as a legal principle which has come to be established by a series of judgments of this Court. Reasons for debating such a course of action are not far to seek and already taken note of above. 22. In the present case, we find the fact situation almost same as in Tripple Engineering Works (supra) and Singh Builders Syndicate (supra). If the contention of the Appellant is allowed, it would amount to giving premium to the Appellant for the fault of the Arbitral Tribunal's members who were appointed by none else but by Appellant itself. As pointed above, the Appellant has not questioned the order of the High Court in so far as it has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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