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2007 Supreme(SC) 507
SUPREME COURT OF INDIA
TARUN CHATTERJEE & P.K. BALASUBRAMANYAN
Municipal Corporation, Jabalpur & Ors-PETITIONER
VERSUS
M/s Rajesh Construction Co-RESPONDENT
Appeal (civil) 1945 of 2007
[ Arising out of S.L.P. (C) Nos.19332-33 of 2005 ]
DECIDED ON : 13/04/2007
Under Section 11(6)(c) of the Arbitration and Conciliation Act, 1996, courts must respect the agreed appointment procedure. If a contract mandates a specific tribunal composition and a condition precedent (like a security deposit), the court cannot appoint an arbitrator inconsistent with these terms.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 11(6)(c) - Appointment of arbitrators - Where an arbitration agreement provides a specific procedure for the appointment of arbitrators and stipulates the composition of the tribunal, the court must adhere to such agreed procedure - If the agreement mandates a condition precedent, such as the furnishing of a security deposit by the contractor, the obligation of the employer to constitute the arbitral tribunal arises only upon the fulfillment of such condition - It is the duty of the court to construe the arbitration agreement in a manner that upholds the same and avoids appointments inconsistent with the agreed terms.
Facts of the case:
A contract for road construction contained an arbitration clause detailing a multi-stage dispute resolution process, including an initial reference to a city engineer and a subsequent appeal process. The final stage involved the constitution of an Arbitration Board by the employer. The clause specifically provided that no reference for arbitration would be maintainable unless the contractor furnished a security deposit as determined by the employer. The contractor sought the appointment of an arbitrator under Section 11(6)(c) of the Act. The High Court appointed a retired Chief Justice as sole arbitrator, ignoring the requirement for a security deposit and the stipulated board composition.
Findings of Court:
The court found that the contractor had not furnished the required security deposit. Accordingly, the employer's obligation to constitute the Arbitration Board had not arisen. The High Court's decision to appoint a sole arbitrator was contrary to the specific terms of the arbitration agreement.
Issues: Whether the High Court was justified in appointing a sole arbitrator in contradiction to the agreed appointment procedure and the condition precedent requiring the contractor to furnish a security deposit.
Ratio Decidendi: The court ruled that under Section 11(6)(c) of the Act, if the agreement on the appointment procedure provides other means for securing the appointment, those means must be followed. When a contract specifies a particular tribunal composition and a condition precedent for the maintainability of arbitration, the court cannot substitute its own appointment method. The court must interpret the arbitration agreement to uphold the intentions of the parties.
Result: Appeal allowed; order dated 29th July 2004 appointing the sole arbitrator set aside; directions issued to constitute the Arbitration Board upon the furnishing of security by the respondent.
Legal Category Hierarchy
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practice and procedure
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arbitration
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appointment of arbitrator
- compliance with arbitration clause
- security deposit condition
- jurisdiction of court under section 11(6)(c)
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appointment of arbitrator
-
arbitration
JUDGMENT
TARUN CHATTERJEE,J.
Delay Condoned.
Leave granted.
This appeal is directed against the judgments and final orders dated 29th July 2004 and 8th April, 2005 passed by a learned Judge of the High Court of Madhya Pradesh at Jabalpur in M.C.C. No. 3295 of 2003 and M.C.C. No. 1579 of 2004. By the order dated 29th July 2004, learned Judge of the High Court appointed Mr. Justice B.C. Verma, a retired Chief Justice of the Punjab and Haryana High Court, as sole arbitrator to adjudicate upon disputes between the appellants and the respondent herein. The order dated 8th April, 2005 passed in MCC No. 1579 of 2004 is under challenge as the application for review and/or recall of the order dated 29th July 2004 at the instance of the appellants was also rejected.
Notice was issued on the application for condonation of delay and also on the special leave petitions by this court on 12th September 2005. After exchange of affidavits an order was passed by this court on 5th January 2007 in which one of us was a party. The said order of this court may be relevant for our decision which is as follows:-
"Having regard to the facts of the case, we suggested to the parties that the Municipal Corporation may be directed by this Court to constitute a Board of Arbitrators under Clause 29 of the Agreement without any preconditions. Such an appointment should be made within three weeks from this Courts order and the Board of Arbitrators will take up the matter from the stage at which it has reached before the Arbitrator appointed by the High court. The Board of Arbitrators shall thereafter conclude the proceedings within six months."
However, this suggestion of this court made on 5th January 2007 was not accepted by the respondent and for that reason, we heard the appeal on merits.
The appellants floated a notice inviting tender for construction of a road. Finally, half of the job was awarded to the respondent by entering into a contract on the same terms and conditions as contained in the tender. The tender contained various clauses; one amongst the same being Clause 29 which pertained to arbitration in case any dispute arose between the parties and reads thus:-
"Except as otherwise provided in this contract all questions and disputes relating to the meaning of the specifications, drawing and instructions herein before mentioned and as to thing whatsoever, in any way arising out or relating to the contract, designs, drawings, specifications, estimates concerning the works or the execution or failure to execute the same, whether arising during the progress of the work or after the completion or abandonment there of shall be referred to the City Engineer in writing for his decision, within a period of 30 days of such occurrence. Thereupon the City Engineer shall give his written instructions and/or decisions within a period of 60 days of such request. This period can be extended by mutual consent of the parties.
Upon receipt of written instructions of decisions, the parties shall promptly proceed without delay to comply such instructions or decisions. If the City Engineer fails to give his instructions or decisions in writing within a period of 60 days or mutually agreed time after being requested if the parties are aggrieved against the decision o f the C. E., the parties may within 30 days prefer an appeal of the M.P.L., Com. who shall afford an opportunity to the parties of being heard and to offer evidence in support of his appeal. The M.P.L. Com will, give his decision within 90 days. If any party is not satisfied with the decision of the M.P.L. Com, he can refer such disputes for arbitration by an Arbitration Board to be constituted by the Corporation which, shall consist of three members of whom one shall be chosen from among the officers belonging to be Urban Administration and Development Department not below the rank of B.E. one Retired Chief Engineer of any Technical Department and City Engineer Nagar Nigam Jabalpur,
The following are also the
