IMPORTANT POINT
If the parties have agreed on a procedure for appointing the arbitrator or arbitrators as contemplated but sub-section (2) of Section 11 of the Arbitration and Conciliation Act, 1996, then the dispute between the parties has to be decided in accordance with the said procedure and recourse to the Chief Justice or his designate cannot be taken straight away.

Headnote:Arbitration and Conciliation Act, 1996 — Section 11 — Appointment of Arbitrator — Stage for invoking sub-section (6) of Section 11 of the Act — Agreement executed between parties containing an arbitration clause — There being an agreed procedure for resolution of disputes by arbitration in accordance with the Rules of Arbitration of Indian Council of Arbitration — Sub-sections (3), (4) and (5) of Section 11 can have no application — Respondent did not make any effort to have the dispute settled by arbitration — Respondent filed an application u/s 11 of the Act before the designated court — Whether such an application filed by respondent was maintainable — (No).
       Held : Sub-section (2) of Section 11 of the Act provides that subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator. The opening part of sub-sections (3) and (5) of Section 11 of the Act use the expression “failing any agreement referred to in sub-section (2)”. Therefore, sub-sections (3) and (5) will come into play only when there is no agreement between the parties as is referred to in sub-section (2) of Section 11 of the Act, viz., that the parties have not agreed on a procedure for appointing the arbitrator or arbitrators. If the parties have agreed on a procedure for appointing arbitrator or arbitrators, sub-sections (3) and (5) of Section 11 of the Act can have no application. Similarly, under sub-section (6) of Section 11 request to the Chief Justice or to an institution designated by him to take the necessary measures, can be made if the conditions enumerated in clauses (a) or (b) or (c) of this sub-section are satisfied. Therefore, recourse to sub-section (6) can be had only where the parties have agreed on a procedure for appointment of an arbitrator but (a) a party fails to act as required under that procedure; or (b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure. Therefore, a combined reading of the various sub-sections of Section 11 of the Act would show that the request to the Chief Justice for appointment of an arbitrator can be made under sub-sections (4) and (5) of Section 11 where parties have not agreed on a procedure for appointing the arbitrator as contemplated by sub-section (2) of Section 11. A request to the Chief Justice for appointment of an arbitrator can also be made under sub-section (6) where parties have agreed on a procedure for appointment of an arbitrator as contemplated in sub-section (2) but certain consequential measures which are required to be taken as enumerated in clauses (a) or (b) or (c) of sub-section (6) are not taken or performed. (Para 6)
       In the present case the agreement executed between the parties contains an arbitration clause and clause 13.1 clearly provides that all disputes and differences whatsoever arising between the parties out of or relating to the construction, meaning and operation or effect of the contract or the breach thereof shall be settled by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration and the award made in pursuance thereof shall be binding on the parties. This clause is in accordance with sub-section (2) of Section 11 of the Act. There being an agreed procedure for resolution of disputes by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration sub-sections (3), (4) and (5) of Section 11 can have no application. The stage for invoking sub-section (6) of Section 11 had also not arrived. In these circumstances, the application moved by the respondent before the City Civil Court, Hyderabad, which was a designated authority in accordance with the scheme framed by the Chief Justice of the Andhra Pradesh High Court, was not maintainable at all and the City Civil Court had no jurisdiction or authority to appoint an arbitrator. Thus the order dated 31.03.2004 passed by the Chief Judge, City Civil Courts, Hyderabad, appointing a retired juridical officer as arbitrator is clearly without jurisdiction and has to be set aside. (Para 7)
       The legislative scheme of Section 11 is very clear. If the parties have agreed on a procedure for appointing the arbitrator or arbitrators as contemplated by sub-section (2) thereof, then the dispute between the parties has to be decided in accordance with the said procedure and recourse to the Chief Justice or his designate cannot be taken straightaway. A party can approach the Chief Justice or his designate only if the parties have not agreed on a procedure for appointing the arbitrator as contemplated by sub-section (2) of Section 11 of the Act or the various contingencies provided for in sub-section (6) have arisen. Since the parties here had agreed on a procedure for appointing an arbitrator for settling the dispute by arbitration as contemplated by sub-section (2) and there is no allegation that anyone of the contingencies enumerated in clauses (a) or (b) or (c) of sub-section (6) had arisen, the application moved by the respondent herein to the City Civil Court, Hyderabad, was clearly not maintainable and the said court had no jurisdiction to entertain such an application and pass any order. The order dated 27.12.2004, therefore, is not sustainable. (Para 8)
       In the matter of settlement of dispute by arbitration, the agreement executed by the parties has to be given great importance and an agreed procedure for appointing the arbitrators has been placed on high pedestal and has to be given preference to any other mode for securing appointment of an arbitrator. It is for this reason that in clause (a) of sub-section (8) of Section 11 of the Act it is specifically provided that the Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to any qualifications required of the arbitrator by the agreement of the parties. (Para 9)
       This being the settled position of law we are clearly of the opinion that the respondent should have initiated proceedings for settlement of disputes by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration as provided in clause 13.1 of the agreement and the application moved by it to the City Civil Court, Hyderabad, for appointment of an arbitrator was not maintainable. Consequently, the order passed by the City Civil Court, Hyderabad dated 27.12.2004 is wholly illegal and without jurisdiction and is liable to be set aside. (Para 11)

JUDGMENT

G.P. Mathur, J. — Leave granted.

2. This appeal, by special leave, has been filed against the judgment and order dated 9.9.2005 of a Division Bench of Andhra Pradesh High Court by which the writ petition filed by the appellant herein The Indian Iron and Steel Co. Ltd. was dismissed. The writ petition was filed assailing the order dated 27.12.2004 of Chief Judge, City Civil Courts, Hyderabad (designated authority) by which the petition filed by the respondent M/s. Tiwari Road Lines was allowed and a retired judicial officer was appointed as sole arbitrator to decide the dispute between the parties.

3. The appellant The Indian Iron and Steel Co. Ltd., having its registered office at Kolkata, invited tenders on 17.2.2003 for transportation of pig iron and steel material from Burnpur/Kolkata stockyard to different customer locations in various parts of the country. The tender submitted by the respondent M/s. Tiwari Road Lines was accepted and a letter was issued on 14.5.2003 awarding the contract to the respondent to transport the material with effect from 17.5.2003 for a period of two years. The tender was submitted by the respondent at the Head Office of the company at Kolkata and the agreement was also signed between the parties at Kolkata. In terms of the agreement the respondent furnished a bank guarantee for Rs.5,00,000/-. According to the appellant there was failure on the part of the respondent to comply with the terms of the agreement and accordingly the appellant invoked the bank guarantee on 16.9.2003. Feeling aggrieved by the encashment of the bank guarantee, the respondent filed an application before the Chief Judge, City Civil Courts, Hyderabad, who was the designated authority under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’) under the scheme framed by the Andhra Pradesh High Court, for appointment of an arbitrator to decide the dispute between the parties. The appellant contested the application on two grounds, viz., that the City Civil Court at Hyderabad had no territorial jurisdiction to entertain the application and, secondly, under the terms of the agreement between the parties the dispute had to be resolved in accordance with the Rules of Arbitration of the Indian Council of Arbitration and the application filed under Section 11 of the Act was not maintainable. The Chief Judge, City Civil Courts, Hyderabad allowed the application by order dated 31.3.2004 and appointed a retired judicial officer as arbitrator to decide the dispute. The said order was challenged by the appellant by filing a civil revision petition before the Andhra Pradesh High Court. The revision petition was allowed and the matter was remanded to the City Civil Court, Hyderabad to consider the question of jurisdiction. The City Civil Court again allowed the application filed by the respondent by order dated 27.12.2004 and appointed a retired judicial officer as arbitrator to decide the dispute between the parties. This order was challenged by the appellant by filing a writ petition in the High Court on the ground, inter alia, that the application under Section 11 of the Act was not maintainable as the agreement between the parties contained a clause that any dispute between the parties shall be decided in accordance with the Rules of Arbitration of the Indian Council of Arbitration and the respondent had not taken recourse to the said Rules. The other plea taken in the writ petition was that the City Civil Court, Hyderabad, had no territorial jurisdiction to entertain the application under Section 11 of the Act. The High Court negatived the contention raised by the appellant and dismissed the writ petition and it is these orders which are subject-matter of challenge in the present appeal.

4. We have heard learned counsel for the parties and have perused the records.

5. After the tender of the respondent M/s. Tiwari Road Lines had been accepted, an agreement was executed between

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2007 Supreme(SC) 671

Cases Referred (4)