IMPORTANT POINT
Adherence to the terms of agreement between the parties is necessary. ‘Rules’ in section 15(2) also includes the terms of agreement entered into between the parties. Section 15(2) is not applicable in case where the nominated arbitrator declines to accept the appointment or refuses to act as such.

Headnote:(a) Arbitration and Conciliation Act, 1996 – Section 11(2) – The earlier law laid down by the Supreme Court by (2002) 2 SCC 388 that appointment of arbitrator is an administrative order not amenable to writ jurisdiction – However in subsequent decision overruling the earlier one it was held that such order is judicial one and can be challenged u/Art. 136. (Paras 2 and 12)
       (2005) 8 SCC 618 – Followed (2000) 7 SCC 201; (2002) 2 SCC 388 – Referred
        (b) Arbitration and Conciliation Act, 1996 – Section 11 – Adherence to the terms of agreement between the parties is necessary in matters of appointment of arbitrator(s). (Para 16)
       (2000) 8 SCC 151; 2008 (11) SCALE 500; (2007) 5 SCC 304; (2007) 7 SCC 684; 2009(4) SCALE 491; (2007) 7 SCC 684 – Relied upon
        (c) Arbitration and Conciliation Act, 1996 – Section 15(2) – The term ‘rules’ used in this sub-section is not confined to statutory rules or the rules framed by the competent authority in exercise of the power of delegated legislation – It also includes the terms of agreement entered into between the parties. (Para 16)
       (2006) 6 SCC 204; (2005) 8 SCC 618 – Relied upon
        (d) Arbitration and Conciliation Act, 1996 – Section 15(2) – Nothing in clause 19 of the agreement providing for appointment of substitute arbitrator on refusal of the arbitrator to take up office – Respondent no.1 could not therefore appoint a substitute arbitrator. (Para 20)
        (e) Arbitration and Conciliation Act, 1996 – Section 15(2) – The provision applicable only in case of termination of mandate of an already appointed arbitrator where he withdraws from the office – It is not applicable in case where the nominated arbitrator declines to accept the appointment or refuses to act as such. (Para 21)
        (f) Words and Phrases – Refuse and decline – While the word ‘refuse’ denotes a situation before acceptance of an invitation, offer, office, position, privilege and the like, the word ‘withdraw’ means to retract, retire or retreat from a place, position or situation after acceptance thereof. (Para 23)
       (2006) 6 SCC 204 – Distinguished
       Facts of the case:
        The designate of the Chief Justice of the Bombay High Court appointed the third arbitrator. The challenge to this order was dismissed by Division Bench.
       Finding of the Court:
        Respondent no.1 could not substitute the arbitrator nominated by it on his refusal to accept the appointment.

JUDGMENT

G.S. Singhvi, J.—

1. In compliance of the direction given by seven-Judge Bench in S.B.P. & Company v. Patel Engineering Ltd. and another,1 (2005) 8 SCC 618, these appeals have been listed for disposal in the light of the principles laid down in that judgment.

2. In the special leave petitions, out of which these appeals arise, the appellants had challenged orders dated 3.2.2003 passed by the Division Bench of the Bombay High Court whereby it held that the writ petitions filed against the orders passed by the learned designated Judge of that Court appointing Shri Justice M.N. Chandurkar (Retired) as the third arbitrator for resolution of the disputes between the appellants and respondent No.1 are not maintainable. For this purpose, the Division Bench relied upon the judgment of this Court in Konkan Railway Corporation Ltd. and others v. Mehul Construction Company,2 (2000) 7 SCC 201, which was subsequently approved by a Constitution Bench in Konkan Railway Corporation Ltd. and another v. Rani Construction Pvt. Ltd.3 (2002) 2 SCC 388. The ratio of the Constitution Bench judgment was that the power exercised by the Chief Justice or any person or institution designated by him under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short, ‘the Act’) is purely administrative and the measures taken under that section are not open to be challenged by the aggrieved party by resorting to intermediary proceedings. The judgment of the Constitution Bench was overruled by the seven-Judge Bench in S.B.P. & Company v. Patel Engineering Ltd. and another (supra) and it was held that the power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is a judicial power and not an administrative power and further that an order passed by the Chief Justice of the High Court or by the designated Judge of that Court can be challenged only under Article 136 of the Constitution.

3. After the judgment of the larger Bench, the appellants filed I.A. Nos. 1 and 2 of 2006 for leave to amend the memorandums of appeal so as to enable them to make a prayer for setting aside orders dated 18.11.2002 passed by the learned designated Judge of the High Court in Arbitration Application Nos. 114 of 2002 and 90 of 2002. At the commencement of hearing of the appeals on 6.10.2009, the prayer of the appellants was granted.

4. In the light of the above, we shall now consider whether orders dated 18.11.2002 passed by the learned designated Judge of the Bombay High Court under Section 11(6) of the Act appointing Shri Justice M.N. Chandurkar (Retired) as third arbitrator is legally correct. Background facts

5. In March, 1992, the Government of Maharashtra awarded contract to respondent No.1 for execution of works relating to Stage IV of the Koyna Hydroelectric Project. Respondent No.1 sub-contracted a portion of that work i.e., construction of civil works from Lake Intake to Emergency Valve Tunnel - K.H.E.P. Stage IV - I.C.B. No.1 to the appellant and M/s. B.T. Patil & Sons (Construction) Ltd., Belgaum (herein after described as “B.T. Patil & Sons”). For this purpose, the parties entered into two agreements on 15.10.1992 viz., sub-contract agreement and piece work agreement. Both the agreements contained identical clauses for resolution of disputes and differences between the parties by arbitration. For the sake of convenient reference, Clause 19 of the piece work agreement is reproduced below:

“The continuance of this piece work agreement / contract or at any time after the termination thereof, any difference or dispute shall arise between the parties hereto in regard to the interpretation of any of the provisions herein contained or act or thing in relation to this agreement / contract, such difference or dispute shall be forthwith referred to two Arbitrators for Arbitration in Bombay one to be appointed by each party with liberty to the Arbitrators in case of differences or their failure to reach

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2009 Supreme(SC) 1663

Cases Referred (9)