1. Dispute under agreement for railway ballast supply — Application under Section 20, Arbitration Act, 1940 for appointment of arbitrator. (Para 1 )
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2004 Supreme(SC) 1661
SUPREME COURT OF INDIA
V.N. KHARE, CJI., S.B. SINHA, S.H. KAPADIA, JJ.
Union of India and another - Appellant
Versus
M.P. Gupta - Respondent
Civil Appeal No. 2053 of 1999
Decided on : 05-02-2004
When a contract explicitly limits the appointment of arbitrators to a specific class of persons, the court must adhere to these restrictive terms and cannot appoint an arbitrator who does not fall within that specified category.
Headnote:(A) Arbitration Act, 1940 - Section 20 - Appointment of Arbitrator - Contractual provision restricting eligibility - Where the agreement explicitly provides that only specific categories of officers shall act as arbitrators and mandates that no person other than such officers should be appointed, the court cannot appoint an arbitrator outside that specified class. (Paras 3 and 4)
Facts of the case:
Parties entered into a written agreement for the supply of materials. The agreement contained a specific clause providing that two Gazetted Railway Officers of equal status be appointed as arbitrators for claims above a certain amount or for complicated issues. The contract further stipulated that no person other than a Gazetted Railway Officer should act as an arbitrator or umpire, and if that were not possible, the matter should not be referred to arbitration at all. Following a dispute, the lower court appointed a sole arbitrator who did not belong to the specified class of officers. This order was upheld by the division bench of the lower court.
Findings of Court:
The court found that since the contract contained an express provision requiring the appointment of two Gazetted Railway Officers as arbitrators, the lower court could not have appointed a sole arbitrator who was not a Gazetted Railway Officer. The appointment was in direct contradiction to the contractual terms.
Issues: Whether the court can appoint a sole arbitrator when the governing agreement specifically mandates the appointment of two Gazetted Railway Officers and prohibits the appointment of any other person.
Ratio Decidendi: Contractual terms that restrict the appointment of arbitrators to a specific class of individuals must be strictly adhered to. The court cannot override the express restrictive provisions of an arbitration agreement to appoint an arbitrator who does not meet the contractually defined eligibility criteria.
Result: Appeal allowed in part; order appointing the sole arbitrator is set aside.
Legal Category Hierarchy
Table of Contents
2. Appellant argued only Gazetted Railway Officers could be appointed as arbitrators per Clause 64 of agreement. (Para 2 )
3. Clause 64 expressly mandates appointment of two Gazetted Railway Officers as arbitrators; High Court's appointment of retired judge invalid. (Para 3 , 4 )
4. Arbitration clause requiring specific persons as arbitrators must be adhered to; court cannot override contractual terms. (Para 4 )
5. Appeal allowed in part — High Court order set aside; appellants directed to appoint two Gazetted Railway Officers as arbitrators within 30 days. (Para 4 , 5 )
6. Can a court appoint a sole arbitrator contrary to a contract requiring appointment of two specific categories of officers?
No. Where the arbitration clause expressly requires appointment of two Gazetted Railway Officers as arbitrators, the court cannot appoint a sole arbitrator in derogation of that term. (Para 2 , 3 , 4 )
JUDGMENT :
The appellants and the respondent herein entered into a written agreement on 17th August, 1994 for execution of work for supplying and staking hand broken (hard stone) ballast conforming to Northern Railway, Chief Engineer's Circular No. 170/P. Way along cess/toe from km 1/0 km 50/0 and in ballast depot at Mandor as per Northern Railway Standard Specifications and Special Tender conditions in connection with JUJSM BG Conversion Project. It appears disputes and differences arose between that parties in relation thereto as a result whereof the respondent herein filed an application under Section 20 of the Arbitration Act, 1940 for appointment of the arbitrator in terms of Clause 64 of the agreement. A learned single Judge of the High Court allowed the said application and appointed Justice P.K. Bahri as the sole arbitrator. It was an ex parte order. Aggrieved, the appellants preferred an appeal before the Division Bench of the High Court, which was dismissed. Against the said judgment and order, the appellants are in appeal before us.
2. Shri N.N. Goswami, learned senior counsel. appearing for the appellants urged that in view of Clause 64 of the agreement which provides that only two Gazetted Railway Officers of equal status are to be appointed as arbitrators, no person other than the two specified persons could be appointed as arbitrator. We find merit in this submission.
3. The relevant part of Clause 64 runs as under
"Clause 64 :- Demand for Arbitration. -
xxx xxx xxx xxx xxx xxx
(3)(a)(ii) Two Arbitrators who shall be Gazetted Railway Officers of equal status to be appointed in the manner laid in Clause 64(3)(b) for all claims of Rs. 5,00,000/- (Rupees five lakhs) and above, and for all claims irrespective of the amount or value of such claims if the issues involved are of a complicated nature. The General Manager shall be the sole Judge to decide whether the issues involved are of a complicated nature or not. In the event of the two Arbitrators being decided in their opinions, the matter under disputes will be referred to an Umpire to be appointed in the manner laid down in Clause 3(b) for his decision.
(3)(a)(iii) It is a term of this contract that no person other than a Gazetted Railway Officer should act as an Arbitrator/Umpire and if for any reason, that is not possible, the matter is not to be referred to arbitration at all."
4. In view of the express provision contained therein that two Gazetted Railway Officers shall be appointed as Arbitrators, Justice P.K. Bahri could not be appointed by the High Court as the sole Arbitrator. On this short ground alone, the judgment and order under challenge to the extent it appoints Justice P.K. Bahri as sole Arbitrator Is Set Aside. Within 30 days from today, the appellants herein shall appoint two Gazetted Railway Officers as Arbitrators. The two newly appointed Arbitrators shall enter into reference within a period of another one month and thereafter the Arbitrators shall make their award within a period of there months.
5. The appeal is allowed in part and to the extent indicated above. There shall be no order as to costs.
