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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL  NO.6275 OF 2014

(Arising out of SLP (C) No. 20427 OF 2013)

NORTH EASTERN RAILWAY & ORS.        ...    APPELLANT (S)

VERSUS

TRIPPLE ENGINEERING WORKS              ...  RESPONDENT (S)

J U D G M E N T

RANJAN GOGOI, J.

1. The  challenge  in  this  appeal  is  to  order  dated  

27.06.2012 of the Patna High Court by which a former Chief  

Justice of the Sikkim High Court had been appointed as the  

arbitrator to resolve the disputes and differences between  

the  parties  to  the  present  proceedings  arising  out  of  two  

contracts bearing No. CAO/CON/722 dated 01.11.1993 and  

CAO/CON/738 dated 28.04.1994.

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2. Both  the  contracts  awarded  to  the  respondent-

contractor were terminated on 7.11.1994.  Admittedly, the  

General  Conditions  of  Contract  of  the  Railways,  which  

included an arbitration clause, governed the parties.  After  

the  termination  of  the  two  contracts  the  respondent-

contractor approached the Patna High Court by means of a  

writ petition challenging the terminations.  The writ petition  

was dismissed, which dismissal was challenged before this  

Court  in  SLP(C)  No.  17189/1995.   The  said  special  leave  

petition  was  also  dismissed leaving  parties  to  resolve  the  

differences in an appropriate proceeding i.e. a civil suit or by  

reference to arbitration, as the case may be.

3. Though a panel of arbitrators as per Clauses 64(3)(a)(ii)  

and (iii) of the General Conditions of Contract was appointed  

as far  back as in  the year  1996,  till  date the award(s)  in  

respect  of  the  disputes  arising  out  of  either  of  the  two  

contracts is yet to be passed.  According to the appellant-

railways, the proceedings of arbitration has been completed  

in  respect  of  the  disputes  arising  out  of  Contract  No.  

CAO/CON/722 dated 01.11.1993.  Even if the said statement  

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of  the  appellant-railways  is  to  be  accepted,  though  no  

material has been laid in support thereof, what cannot be  

denied is the fact that till date the award is yet to be passed.  

Admittedly,  the  arbitration  in  respect  of  the  contract  No.  

CAO/CON/738 dated 28.04.1994 has not even commenced.  

This is on account of the fact that in the year 2002 the North  

Eastern Railway, which had entered into the contracts with  

the respondent-contractor, was bifurcated into North Eastern  

Railway  and  East  Central  Railway.   As  the  jurisdiction  in  

respect of the aforesaid contract No. CAO/CON/738 was to  

be exercised by the East Central Railway it appears that the  

appellant  has  disclaimed  all  responsibility  with  regard  to  

holding  of  arbitration  proceedings  in  respect  of  the  said  

contract and at the same time the East Central Railway has  

not  responded  in  any  positive  manner  to  the  several  

demands for arbitration lodged by the contractor.   

Insofar  as  contract  No.  CAO/CON/722  is  concerned,  

naturally, both the parties have tried to lay the blame for the  

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delay in  the process of  arbitration on each other  and the  

huge number of correspondence exchanged in this regard  

and the frequent change of the arbitration panel on account  

of exigencies of service of the panel members (retirement,  

transfer  etc.)  has  made  it  impossible  to  pinpoint  the  

responsibility in this regard on any one of the contracting  

parties.   But  what  is  glaring  is  the  fact  that  though  the  

arbitration proceedings in respect of the said contract No.  

CAO/CON/722 had commenced as far  back as in the year  

1996  the  award  is  yet  to  see  the  light  of  the  day  

notwithstanding the assertions made by the Union that the  

proceedings have been completed though as already noted,  

no  clinching  material  in  this  regard  has  been  brought  on  

record;  not  to  speak  about  the  award  of  the  arbitrators  

though  such  an  award  would  have  been  the  natural  

consequence of the completion of arbitration proceedings.  It  

is  in  the  totality  of  these  facts  that  the  High  Court  had  

thought it proper to travel beyond the framework of Clauses  

64(3)(a)(ii) and (iii) of the General Conditions of Contract and  

appoint a retired Chief Justice as the arbitrator.     

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4. The correctness of the said decision necessarily has to  

be  judged  in  the  light  of  the  facts  and  circumstances  

enumerated  above.   The  necessary  legal  discourse  that  

would be required to be gone into to answer the question as  

posed  above  could  begin  by  extracting  the  provisions  of  

Clauses  64(3)(a)(ii)  and  (iii)  of  the  General  Conditions  of  

Contract.

“64(3)(a)(ii)  In  cases not  covered by clause  64(3)(a)(i), the Arbitral Tribunal shall consist  of a panel of three Gazette Rly. Officers not  below JA grade, as the arbitrators.  For this  purpose,  the  Railway  will  send  a  panel  of  more than 3 names of Gazetted Rly. Officers  of  one or  more departments,  of  the Rly.  to  the contractor who will be asked to suggest  to  General  Manager  up  to  2  names  out  of  panel  for  appointment  as  contractor’s  nominee.  The General Manager shall appoint  at least one out of them as the contractor’s  nominee  and  will,  also  simultaneously  appoint  the  balance  number  of  arbitrators  either  from  the  panel  or  from  outside  the  panel, duly indicating the ‘presiding arbitrator  from amongst the 3 arbitrators so appointed.  While  nominating  the  arbitrators  it  will  be  necessary to ensure that one of them is from  the  Accounts  department.   An  officer  of  Selection Grade of the Accounts department  shall  be  considered  of  equal  status  to  the  officers  in  SA  grade  of  departments  of  the  Railways for  the purpose of appointment of  arbitrators.

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64(3)(a)(iii) – If one or more of the arbitrators  appointed  as  above  refuses  to  act  as  arbitrator,  withdraws  from  his  office  as  arbitrator, or vacates his/their office/offices or  is/are  unable  or  unwilling  to  perform  his  functions  as  arbitrator  for  any  reason  whatsoever or dies or in the opinion of the  General  Manager fails  to act without undue  delay, the General Manager shall appoint new  arbitrator/arbitrators to act in his/their place  in  the  same  manner  in  which  the  earlier  arbitrator/arbitrators  had  been  appointed.  Such  re-constituted  Tribunal  may,  at  its  discretion,  proceed with  the  reference from  the stage at which it was left by the previous  arbitrator(s)”.

From  the  provisions  of  the  General  Conditions  of  

Contract it is clear that the panel of arbitrators as per the  

agreement  between  the  parties  necessarily  has  to  be  

Gazetted  Railway  Officers;  any  vacancy  in  the  panel  of  

arbitrators has to be filled up in the same manner in which  

the initial panel is required to be constituted.

5. The  “classical  notion”  that  the  High  Court  while  

exercising its power under Section 11 of the Arbitration &  

Conciliation Act, 1996 (hereinafter for short ‘the Act’) must  

appoint  the  arbitrator  as  per  the  contract  between  the  

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parties saw a significant erosion in Ace Pipeline Contracts  

(P) Ltd. Vs. Bharat Petroleum Corporation Ltd.1 wherein  

this  Court  had  taken  the  view  that  though  the  contract  

between  the  parties  must  be  adhered  to,  deviations  

therefrom  in  exceptional  circumstances  would  be  

permissible.  A more significant development had come in a  

decision that followed soon thereafter in Union of India Vs.  

Bharat  Battery  Manufacturing  Co.  (P)  Ltd.2 wherein  

following a three Judges Bench decision in Punj Lloyd Ltd.  

Vs. Petronet MHB Ltd.3 it was held that once an aggrieved  

party files an application under Section 11(6) of the Act to  

the High Court,  the opposite  party  would  lose  its  right  of  

appointment  of  the  arbitrator(s)  as  per  the  terms  of  the  

contract.    The implication that the Court would be free to  

deviate  from  the  terms  of  the  contract  is  obvious.   The  

apparent  dichotomy in  ACE Pipeline (supra)  and  Bharat  

Battery  Manufacturing  Co.  (P)  Ltd. (supra)   was  

reconciled  by  a  three  Judges  Bench  of  this  Court  in  

Northern Railway Administration, Ministry of Railway,   1 (2007) 5 SCC 304  2  (2007) 7 SCC 684 3 (2006) 2 SCC 638

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New  Delhi  Vs.  Patel  Engineering  Company  Limited4  

where the jurisdiction of the High Court under Section 11(6)  

of  the  Act  was  sought  to  be  emphasized  by  taking  into  

account  the  expression  “to  take  the  necessary  measure”  

appearing in  sub-section (6)  of  Section 11 and by further  

laying  down  that  the  said  expression  has  to  be  read  

alongwith the requirement of sub-section (8) of Section 11 of  

the  Act.   The position  was  further  clarified  in  Indian Oil  

Corporation  Limited  and  Others  Vs.  Raja  Transport  

Private Limited5.  Paragraph 48 of the report wherein the  

scope  of  Section  11  of  the  Act  was  summarized  may  be  

quoted by reproducing sub-paragraphs (vi) and (vii) herein  

below.

“(vi) The  Chief  Justice  or  his  designate  while  exercising  power  under  sub-section  (6)  of  Section 11  shall endeavour to give effect to   the appointment procedure prescribed in the   arbitration clause

(vii)   If  circumstances  exist,  giving  rise  to  justifiable doubts as to the independence and  impartiality  of  the  person  nominated,  or  if  other circumstances warrant appointment of  an  independent  arbitrator  by  ignoring  the  

4 (2008) 10 SCC 240 5 (2009) 8 SCC 520

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procedure prescribed, the Chief Justice or his  designate  may,  for  reasons  to  be  recorded  ignore the designated arbitrator and appoint  someone else.”

6. The  above  discussion  will  not  be  complete  without  

reference to the view of this Court expressed in  Union of  

India  Vs.  Singh  Builders  Syndicate6 wherein  the  

appointment of a retired Judge contrary to the agreement  

requiring appointment of specified officers was held to be  

valid on the ground that the arbitration proceedings had not  

concluded  for  over  a  decade  making  a  mockery  of  the  

process.   In  fact,  in  paragraph 25 of  the report  in  Singh  

Builders Syndicate (supra) this Court had suggested that  

the  government,  statutory  authorities  and  government  

companies should consider phasing out arbitration clauses  

providing for appointment of serving officers and encourage  

professionalism in arbitration.  

7. A pronouncement of late in  Deep Trading Company  

Vs. Indian Oil Corporation and Others7  followed the legal  

6 (2009) 4 SCC 523 7 (2013) 4 SCC 35

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position laid down in Punj Lloyd Ltd. (supra) which in turn  

had  followed  a  two  Judges  Bench  decision  in  Datar  

Switchgears Ltd.  Vs.  Tata Finance Ltd.8.  The theory of  

forfeiture of the rights of a party under the agreement to  

appoint  its  arbitrator  once  the  proceedings  under  Section  

11(6)  of  the  Act  had commenced came to  be even more  

formally  embedded  in  Deep  Trading  Company (supra)  

subject, of course, to the provisions of Section 11(8), which  

provision in any event, had been held in Northern Railway  

Administration  (supra)  not  to  be  mandatory,  but  only  

embodying a requirement of keeping the same in view at the  

time of exercise of  jurisdiction under Section 11(6)  of  the  

Act.   

8. In the present case Clauses 64(3)(a)(ii) and (iii) of the  

General Conditions of Contract do not prescribe any specific  

qualification of the arbitrators that are to be appointed under  

the agreement except that they should be railway officers.  

As already noticed, even if the arbitration agreement was to  

specifically provide for  any particular  qualification(s)  of an  

8 (2000) 8 SCC 151

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arbitrator the same would not denude the power of the Court  

acting under Section 11(6), in an appropriate case to depart  

therefrom.  In Singh Builders Syndicate (supra) pendency  

of arbitration proceedings for over a decade was found by  

this Court to be a mockery of the process.  In the present  

case,  admittedly  the  award  in  respect  of  disputes  and  

differences arising out of the contract No. CAO/CON/722 is  

yet to be passed.  Though the appellant-Railway has in its  

pleadings  made  a  feeble  attempt  to  contend  that  the  

process of  arbitration arising out  of  the said Contract has  

been finalized, no material, whatsoever, has been laid before  

the Court in support thereof.  The arbitration proceedings to  

resolve the disputes and differences arising out of Contract  

No.  CAO/CON/738 has not even commenced.  A period of  

nearly  two decades  has  elapsed since  the  contractor  had  

raised his claims for alleged wrongful termination of the two  

contracts.  The situation is distressing and to say the least  

disturbing.   The power of the Court under the Act has to be  

exercised to effectuate the remedy provided thereunder and  

to  facilitate  the  mechanism  contemplated  therein.   In  a  

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situation where the procedure and process under the Act has  

been rendered futile, the power of the Court to depart from  

the  agreed  terms  of  appointment  of  arbitrators  must  be  

acknowledged in the light of the several decisions noticed by  

us. We  are,  therefore,  of  the  view  that  no  infirmity  

muchless any illegality or failure of justice can be said to be  

occasioned by the order passed by the High Court so as to  

warrant  any  interference.   We,  therefore,  unhesitatingly  

dismiss this appeal filed by the appellant-railways.  However,  

in the facts of the case we do not deem it appropriate to  

burden the appellant with any costs.    

       …....…………………………J.                              [RANJAN GOGOI]

    .…....…………………………J.                                [M. Y. EQBAL]

NEW DELHI, AUGUST 13, 2014.

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