2002 Supreme(SC) 152

2002(1) Supreme 419
SUPREME COURT OF INDIA
(From Bombay High Court)
S.P. Bharucha, CJI., Syed Shah Mohammed Quadri, Umesh C. Banerjee, S.N. Variava and Shivaraj V. Patil, JJ.
M/s. Konkan Railway Corporation Ltd. & Anr. -Appellants
versus
M/s. Rani Construction Pvt. Ltd. -Respondent.
Civil Appeal Nos. 5880-5889 of 1997
Decided on 30-1-2002
Counsel for the Parties :
For the Appearing Parties : Soli J. Sorabjee, Attorney General, S. Ganesh, P.P. Malhotra, S.K. Dholakia, Dushyant Dave, Senior Advocates, Atul Y. Chitale, Sanjiv Sen, Mrs. Suchitra Atul Chitale, B.K. Satija, S. Muralidhar, V.B. Saharya, Advocate for M/s. Saharya & Co., Advocates, Dhruv Mehta, Prateek Jalan, Mrs. Anil Katiyar, V. K. Verma, P. Nagesh, K.V. Mohan, S. Guru Krishna Kumar, L.C. Tolat, S.R. Setia, B.K. Satija, S. Venugopal, Narendra M. Sharma, R.K. Sanghi, Rajesh Prasad Singh, Hari Shankar, K., Advocates.

VERY IMPORTANT POINT
The decision of the three Judge Bench in Konkan Railway Corporation Ltd. & Ors. v. Mehul Construction Co. 2000(7) SCC 201 that the order of Chief Justice or his designate in exercise of the power under Section 11 of Arbitration and Conciliation Act, 1996 was an administrative order and that such order was not amenable to the Jurisdiction of Supreme Court under Article 136 of the Constitution is affirmed by the Constitution Bench.

Headnote:Arbitration and Conciliation Act, 1996-Section 11-Appointment of Arbitrator-Constitution of India-Art. 136-Order of the Chief Justice or his designate in exercise of the power under Section 11 of the Arbitration and Conciliation Act-Whether such an order is a judicial order or an administrative order? (Administrative order) whether such order is amenable to the jurisdiction of Supreme Court under Article 136? (No)-Result-View of three Judges in Konkan Railway Corporation Ltd. & Anr. v. Rani Construction Pvt. Ltd. 2000(7) SCC 201 affirmed-Appeals dismissed.

       Held : To put it concisely, for an order properly to be the subject of a petition for special leave to appeal under Article 136 it must be an adjudicatory order, an order that adjudicates upon the rival contentions of parties, and it must be passed by an authority constituted by the State by law for the purpose in discharge of the State s obligation to secure justice to its people. Section 11 of the Act deals with the appointment of arbitrators. It provides that the parties are free to agree on a procedure for appointing an arbitrator or arbitrators. In the event of there being no agreement in regard to such procedure, in an arbitration by three arbitrators each party is required to appoint one arbitrator and the two arbitrators so appointed must appoint the third arbitrator. If a party fails to appoint an arbitrator within thirty days from the request to do so by the other party or the two arbitrators appointed by the parties fail to agree on a third arbitrator within thirty days of their appointment, a party may request the Chief Justice to nominate an arbitrator and the nomination shall be made by the Chief Justice or any person or institution designated by him. If the parties have not agreed on a procedure for appointing an arbitrator in an arbitration with a sole arbitrator and the parties fail to agree on an arbitrator within thirty days from receipt of a request to one party by the other party, the nomination shall be made on the request of a party by the Chief Justice or his designate. 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 him or it under that procedure, a party may request the Chief Justice or his 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. In nominating an arbitrator the Chief Justice or his designate must have regard to the qualifications required of the arbitrator in the agreement between the parties and to other considerations that will secure the nomination of an independent and impartial arbitrator. 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. That the Chief Justice or his designate has to take into account the qualifications required of the arbitrator by the agreement between the parties (which, ordinarily, would also be annexed to the request) and other considerations likely to secure the nomination of an independent and impartial arbitrator also cannot lead to the conclusion that the Chief Justice or his designate is required to perform an adjudicatory function. That the word decision is used in the matter of the request by a party to nominate an arbitrator does not of itself mean that an adjudicatory decision is contemplated. As we see it, the only function of the Chief Justice or his designate under Section 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 or his designate, who would take due care to see that a competent, independent and impartial arbitrator is nominated. It might be that though the Chief Justice or his designate might have taken all due care to nominate an independent and impartial arbitrator, a party in a given case may have justifiable doubts about that arbitrator s independence or impartiality. In that event it would be open to that party to challenge the arbitrator under Section 12, adopting the procedure under Section 13. There is no reason whatever to conclude that the grounds for challenge under Section 13 are not available only because the arbitrator has been nominated by the Chief Justice or his designate under Section 11. It might also be that in a given case the Chief Justice or his designate may have nominated an arbitrator although the period of thirty days had not expired. If so, the arbitral tribunal would have been improperly constituted and be without jurisdiction. It would then be open to the aggrieved party to require the arbitral tribunal to rule on its jurisdiction. Section 16 provides for this. It states that the arbitral tribunal may rule on its own jurisdiction. That the arbitral tribunal may rule "on any objections with respect to the existence or validity of the arbitration agreement" shows that the arbitral tribunal s authority under Section 16 is not confined to the width of its jurisdiction, as was submitted by learned counsel for the appellants, but goes to the very root of its jurisdiction. There would, therefore, be no impediment in contending before the arbitral tribunal that it had been wrongly constituted by reason of the fact that the Chief Justice or his designate had nominated an arbitrator although the period of thirty days had not expired and that, therefore, it had no jurisdiction. The schemes made by the Chief Justices under Section 11 cannot govern the interpretation of Section 11. If the schemes, as drawn, go beyond the terms of Section 11 they are bad and have to be amended. To the extent that The Appointment of Arbitrators by the Chief Justice of India Scheme, 1996, goes beyond Section 11 by requiring in clause 7, the service of a notice upon the other party to the arbitration agreement to show cause why the nomination of an arbitrator, as requested, should not be made, it is bad and must be amended. The other party needs to be given notice of the request only so that it may know of it and it may, if it so chooses, assist the Chief Justice or his designate in the nomination of an arbitrator. (Paras 22 to 28)

       Held finally : In conclusion, we hold that the order of the Chief Justice or his designate under Section 11 nominating an arbitrator is not an adjudicatory order and the Chief Justice or his designate is not a tribunal. Such an order cannot properly be made the subject of a petition for special leave to appeal under Article 136. The decision of the three Judge Bench in Konkan Railway Corporation Ltd. & Ors. vs. MehuI Construction Co. is affirmed. (Para 29)

       In the result, the appeals are dismissed. No order as to costs. (Para 31)