High Court Of Madhya Pradesh
R. J. Bhave, J.
UNION OF INDIA - Appellant
Versus
S.V.KRISHNA RAO - Respondents
Civil Revn. 314 Of 1967
Decided On : 09/06/1967
ARBITRATION - APPOINTMENT OF ARBITRATOR - PROCEDURE PRESCRIBED IN ARBITRATION AGREEMENT - COURT'S POWER TO APPOINT ARBITRATOR - INTERPRETATION OF SECTION 20 OF THE ARBITRATION ACT, 1940.
Fact of the Case:
The contractor entered into a contract with the Railway Administration for carrying out certain work. Disputes arose during the working of the contract, which the Railway Administration failed to decide. The contractor served a notice under Section 80 of the Code of Civil Procedure calling upon the Railway Administration to initiate arbitration proceedings. The Railway Administration failed to take any action within two months. The contractor filed an application under Section 20 of the Arbitration Act for getting the arbitration agreement filed and securing a reference through the Court. The Railway Administration submitted a panel of five persons for the contractor to make his choice in terms of Clause (3) of Condition No. 63 of the General Conditions of the contract. The contractor submitted a list of two other persons, one of whom was Shri N. S. Tayabji. The lower Court overruled the objection of the Railway Administration and appointed Shri Tayabji as the arbitrator.
Finding of the Court:
The Court held that the lower Court was in error in appointing Shri Tayabji as the arbitrator in derogation of the procedure prescribed under Condition No. 63 for appointment of arbitrators. The Court observed that the purpose of Section 20 of the Arbitration Act is to enforce the agreement for referring the dispute to arbitration through the Court, and that includes enforcing the other part of the agreement, namely, the arbitration by the named persons or the persons to be selected by following the previously agreed procedure. The Court further held that the power of the Court to appoint an arbitrator of its choice can come into operation only when no arbitrators have been appointed under the agreement or no procedure has been prescribed and the parties cannot agree upon any arbitrator.
Issues: 1. Whether the Court has the power to appoint an arbitrator in derogation of the procedure prescribed in the arbitration agreement? 2. Whether the Court can appoint an arbitrator of its choice without following the procedure prescribed in the arbitration agreement?
Ratio Decidendi: 1. The Court has the power to appoint an arbitrator only when no arbitrators have been appointed under the agreement or no procedure has been prescribed and the parties cannot agree upon any arbitrator. 2. The Court cannot appoint an arbitrator of its choice without following the procedure prescribed in the arbitration agreement.
Final Decision: The revision petition was allowed, the order of the lower Court was set aside and the Court was directed to refer the dispute to the arbitrators selected after following the procedure prescribed under Condition No. 63.
( 1 ) THIS revision Is by the Union of India through the General Manager, South-Eastern Railway, Calcutta (hereinafter referred to as the 'railway Administration')against the order of the lower Court, dated 20-1-1967, passed under Section 20 of the Arbitration Act appointing Shri N. S. Tayabji, Chief Engineer (Construction), eastern Railway, Calcutta, as the arbitrator.
( 2 ) THE facts of the case are that the non-applicant S. V. Krishna Rao (herein-after referred to as 'the contractor') had entered into a contract dated 2-12-1963 with the Railway Administration for carrying out certain work at Manendra-garh Station. The contractor was also required to undertake certain additional work, the details of which are given in the application filed by the contractor under Section 20 of the arbitration Act. It is the case of both the parties that the General Conditions of contract framed by the Railway Administration formed part of the contract dated 2-12-1963. Condition No. 62 of the General Conditions provides that all disputes or differences of any kind arising out of or in connection with the contract, whether during the progress of the works or after their completion and whether before or after the determination of the contract, shall be referred by the Contractor to the railway and the Railway shall within a reasonable time after their presentation make and notify decision thereon in writing. This condition further provides that the decision and the directions issued by the Railway Administration shall be final. Condition No. 63 then provides for arbitration. That condition is in the following terms: "63- (1) If the Contractor be dissatisfied with the decision of the Railway, on any matter in question, dispute or difference, on any account or as to the withholding by the Railway of any certificate to which the contractor may claim to be entitled to or if the Railway fails to make a decision within a reasonable time, then and in any such case but except in any of the Excepted Matters referred to in Clause 63 of those conditions the contractor may within 10 days of the receipt of the communication of such decision or after the expiry of the reasonable time as the case may be, demand in writing that such matter in question, dispute or difference be referred to arbitration. Such demand for arbitration shall be delivered to the Railway by the Contractor and shall specify the matters which are in question, dispute or difference and only such dispute or difference of which the demand has been made and no other shall be referred to arbitration. (2) Work under the contract shall, unless otherwise directed by the engineer, continue during the arbitration proceedings, and no payment due or payable by the Railway shall be withheld on account of such proceedings provided however it shall be open for the arbitrator or arbitrators to consider and decide whether or not such work should continue during arbitration proceedings. (3) (a) Matters in question, dispute or difference to be arbitrated upon shall be referred for decision to: (i) A sole Arbitrator who shall be the General Manager or a person nominated by him in that behalf in cases where the claim in question is below Rs. 50,000/-and in cases where the issues involved are not of a complicated nature. The General manager shall be the sole judge to decide whether or not the issues involved are of a complicated nature, (ii) Two Arbitrators, who shall be Gazetted Railway Officers of equal status to be appointed in the manner laid down in Clause 3 (b) for all claims of Rs. 50,000/-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 are of a complicated nature or not. In the event of the two Arbitrators being divided in their opinions the matter under dispute will be referred to an Umpire to be appointed in the manner laid down
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