2006 Supreme(SC) 897

2006(7) Supreme 493
SUPREME COURT OF INDIA
(From Orissa of High Court)
Dr. Ar. Lakshmanan & Tarun Chatterjee, JJ.
National Highways Authority of India & Anr.—Appellants
versus
Bumihiway DDB Ltd. (JV) & Ors.—Respondents
Civil Appeal No. 4251 of 2006
(Arising out of SLP (C) No. 8924/2006)
Decided on 25-9-2006
Counsel for the Parties :
For the Appellants : G.E. Vahanvati, S.G., Chetan Sharma, Sr. Advocate, Tarun Dua, Ms. Madhu Sweta, Hrishikesh Baruah, Chinmoy Sharma, Sidharth Aggarwal and K.C. Dua, Advocates.
For the Respondents : Altaf Ahmad, Sr. Advocate, A.D.N. Rao, Tushar G. Rao and Ms. Promila, Advocates.

IMPORTANT POINTS
1. There does not exist any such provision in law which requires that if one of the arbitrators is a retired Judge, the Presiding Arbitrator also has to be a retired Judge.
2. The parties are required to comply with the procedure of appointment as agreed to and the defaulting party cannot be allowed to take advantage of its own wrong.

Headnote:(i) Arbitration and Conciliation Act, 1996—Sections 11(6) and 15(2)—Appointment of Arbitrator—Jurisdiction of Court u/s 11(6) of the Act only when the person including an institution, fails to perform any function entrusted to it—Invokation of Section 11(6) of the Act is squarely based on default of a party.

       Held : It is pertinent to state that under Section 11(6) of the Act, the Court has jurisdiction to make the appointment only when the person including an institution, fails to perform any function entrusted to it under that procedure. In the present case, the relief claimed by the respondents by invoking Section 11(6) is wholly erroneous as prior to the order dated 1.7.2005, the respondents only sought a clarification from IRC and without making a reference to them, immediately filed the petition under Section 11(6) on the purported ground that the Indian Road Congress had failed to make the appointment within the stipulated time.(Para 29)

       (ii) Arbitration and Conciliation Act, 1996—Sections 11(6) and 15(2)—Appointment of Arbitrator—Appointment procedure—Award of contract for widening of roads—Contract agreement contained a mechanism for resolution of disputes between parties—Arbitration application—Order directing appellant to constitute Dispute Review Board—On recommendations of the Board, dispute was referred to the arbitration—Respondent 1 nominated its arbitrator as respondent 3—Appellants also invoked arbitration clause—Appellants nominated respondent 5 as their arbitrator—Disagreement between the two nominated arbitrators—Respondent 1 filed Arbitration Petition u/s 11(6) of the Act requesting for appointment of Presiding Arbitrator—Whether High Court was justified in making appointment u/s 11(6) of the Act—(No).

       Held : The present appeal involves the issue relating to appointment of the Presiding Arbitrator in accordance with the agreed contractual terms between the parties. As per Clause 67 of the contract agreement, a dispute resolution mechanism has been agreed to wherein the parties agreed that any dispute arising between them shall, in the first instance, be referred to a Dispute Review Board (DRB). (Para 20)

       Clause 67.3 further stipulates that for the purpose of constitution of the Arbitral Tribunal in respect of challenge to the recommendation of DRB, in case of failure of the two arbitrators appointed by the respective parties to arrive at a consensus within a period of 30 days from the appointment of the arbitrator appointed subsequently, the Presiding Arbitrator shall be appointed by the President, Indian Road Congress. (Para 21)

       In the present case, for the purpose of appointment of Presiding Arbitrator, the respondent unilaterally approached the High Court of Orissa at Cuttack under Section 11(6) of the Arbitration and Conciliation Act, 1996, in express violation of the contract agreement without first requesting the Indian Road Congress being the designated authority for appointment of the Presiding Arbitrator.(Para 22)

       It is evident from the record that after the appointment of the Presiding Arbitrator on 1st July 2005, the arbitrator appointed by the appellants Mr. D.P. Gupta resigned on 11th July 2005. The new arbitrator nominated by the appellants did not accept the appointment on 20th July, 2005. Thereafter, Mr. Justice Y. Bhaskar Rao resigned on 26th July, 2005. On the vacancy created by the resignation of Mr. Justice Y. Bhaskara Rao, the process of appointment of the Presiding Arbitrator started afresh in accordance with the agreed terms of the Contract. The appellant appointed its arbitrator Mr. Surjeet Singh on 28th July, 2005. Hence, the process of discussion between the two nominated arbitrators was reinitiated as per the agreed contractual terms and in accordance with Section 15(2) of the Arbitration & Conciliation Act, 1996. The two arbitrators failed to arrive at a consensus and, therefore, after 30 days, the appellants referred the issue of appointment of Presiding Arbitrator to IRC on 30th August, 2005. (Para 23)

       It is seen from the aforesaid facts that the situation which existed prior to the resignation of Mr. Justice Y. Bhaskara Rao and those which came about subsequent thereto only affirm that the vacancy created by the resignation of Mr. Justice Y. Bhaskara Rao was accepted by the parties to be filled up in accordance with the original rules of appointment, which is wholly in consonance with Section 15(2) of the Arbitration & Conciliation Act, 1996. (Para 24)

       Before proceeding further, we may also consider the salient features of the arbitration procedure as agreed to by the parties under Clause 67.3 of the Conditions of Particular Application (COPA) which reads as under:-

       a.The dispute between the Contractor and Employer is required to be settled under the Arbitration and Conciliation Act, 1996 or any amendment thereof.

       b.The Arbitral Tribunal shall consist of Three Arbitrators.

       c.Out of the three Arbitrators to be appointed, one each is to be appointed by the Employer and the Contractor;

       d.If one of the parties fails to appoint its arbitrator within 30 days after receipt of the notice of the appointment of its arbitrator by the other party, then the President of Indian Road Congress shall appoint the arbitrator. A certified copy of the order of the President of Indian Road Congress making such an appointment shall be furnished to each of the parties.

       e.The third Arbitrator shall be chosen by the two Arbitrators so appointed by the Parties and shall act as Presiding Arbitrator which is to be appointed by consensus of the two arbitrators within a period of 30 days from the appointment of the arbitrator appointed subsequently.

       f.In case of failure of the two arbitrators, appointed by the parties to reach upon a consensus within a period of 30 days from the appointment of the arbitrator appointed subsequently, the Presiding Arbitrator shall be appointed by the President, Indian Roads Congress. (Para 42)

       The High Court failed to appreciate that in accordance with Section 15(2) of the Act on the termination of the mandate of the Presiding Arbitrator, the two nominated arbitrators were first required to reach a consensus and on their failure to arrive at a consensus only respondent No.2 was authorized to make the appointment. Unless respondent No.2 failed to exercise its jurisdiction, the High Court could not assume jurisdiction under Section 11(6) of the Act. Respondent No.1 has wrongly invoked the jurisdiction of this Court without first following the procedure agreed to between the parties. Thus no cause of action had arisen in the facts of the case to seek the appointment from the High Court under Section 11(6) of the Act and thus the said petition was premature. The High Court also is not correct in relying on the contention of the respondent No.1 that in case one of the arbitrators is retired Chief Justice, the Presiding Arbitrator should be at least a retired Chief Justice or a retired Judge of a High Court with considerable experience.(Para 43)

       Even otherwise, there does not exist any such provision in law which requires that if one of the arbitrators is a retired Judge the Presiding Arbitrator also has to be a retired Judge. The parties have entered into a contract after fully understanding the import of the terms so agreed to from which there cannot be any deviation. The Courts have held that the parties are required to comply with the procedure of appointment as agreed to and the defaulting party cannot be allowed to take advantage of its own wrong. (Para 43)

       In view of the order now passed setting aside the appointment of the Presiding Arbitrator by the High Court, the appointment of the Presiding Arbitrator as per the procedure contemplated under the contract agreement has to be followed and IRC (Ministry of Shipping, Road Transport and Highways, R.K. Puram, New Delhi should be approached. The parties are at liberty to approach the Arbitrators for any further interim directions.(Para 45)