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IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.   4483  OF 2017 (Arising out of S.L.P.(C) No. 17838 of 2014)

UNION OF INDIA ...  APPELLANT (S)

VERSUS

BESCO LTD.           ... RESPONDENT  (S)

WITH

SPECIAL LEAVE PETITION (CIVIL) NO. 26614 OF 2014

J U D G M E N T KURIAN, J.:

CIVIL APPEAL NO.  4483  OF 2017 (Arising out of S.L.P.(C) No. 17838 of 2014)

   Leave granted.  

2. The short question arising for consideration in this case

is whether the Chief Justice of a High Court or any person or

institution  designated  by  him,  while  exercising  power  under

Section  11(6)  of  The  Arbitration  and  Conciliation  Act,  1996

(hereinafter referred to as “the Act”) is bound to nominate an

arbitrator  as  specified  in  the  agreement  for  arbitration.  The

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designated  Judge  in  the  High  Court  took  the  view  that  the

appellant has lost the mandate to appoint an arbitrator since it

failed to appoint the arbitrator within the permitted time and

hence nominated an independent arbitrator.

3. Mr. Maninder Singh, learned Additional Solicitor General,

placing  reliance  on  Union  of  India  and  another v.  M.P.

Gupta1 and  Union  of  India  and  others v.  Master

Construction  Company2,  submitted  that  the  designated

Judge, exercising the power under Section 11(6) of the Act, is

bound to nominate a person as stipulated in the agreement for

arbitration.  In  M.P.  Gupta (supra),  the  relevant  clauses  on

arbitration contained a provision that the arbitrators should be

Gazetted  Railway  Officers.  It  may  also  be  relevant  in  this

context  to  note  that  the  arbitration  agreement  contained  a

specific provision that it is a term of 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.  This  Court

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(2004) 10 SCC 504 2 (2011) 12 SCC 349

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hence set aside the order passed by the designated Judge who

had nominated a retired Judge as the sole arbitrator. In Master

Construction Company (supra), the question in issue was, in

fact, left open.

4. Mr. Dushyant Dave, learned Senior Counsel appearing

for the respondent submits that once the right of a party to

nominate  an  arbitrator  is  forfeited,  the  Chief  Justice  or  the

designated  Judge  under  Section  11(6)  of  the  Act  is  free  to

nominate any qualified person as arbitrator and that the Chief

Justice or the designated Judge is not bound to nominate the

arbitrator  as  specified  in  the  agreement.  Our  attention  has

been invited to Northern Railway Administration, Ministry

of  Railway,  New  Delhi v.  Patel  Engineering  Company

Limited3 and North Eastern Railway and others v. Tripple

Engineering Works4.

5. In  Patel  Engineering  Company  Limited (supra),  a

three-Judge Bench of this Court held that the Chief Justice or

the designated Judge, if  required, is free to deviate from the

arbitration  clause and nominate  an  independent  person;  but

while doing so, due regard shall be given to the qualifications

3 (2008) 10 SCC 240 4 (2014) 9 SCC 288

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prescribed  in  the  arbitration  agreement,  as  required  under

Section 11(8) of the Act.

6. In Tripple Engineering Works (supra) also this Court

reiterated the position that the Chief Justice or the designated

Judge  was  free  to  deviate  from  the  terms  of  the  contract.

Paragraphs-6 and 7 read as follows:  

“6. The “classical notion” that the High Court while exercising its power under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter for short “the Act”) must appoint the arbitrator as per  the  contract  between  the  parties  saw  a significant  erosion  in  ACE  Pipeline  Contracts  (P) Ltd. v.  Bharat Petroleum Corpn. Ltd. 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 v. Bharat Battery Mfg. Co. (P) Ltd. wherein following a three-Judge Bench decision in Punj Lloyd Ltd. v. Petronet MHB Ltd. 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.

7. The apparent  dichotomy in  ACE Pipeline and Bharat Battery Mfg. Co. (P) Ltd. was reconciled by a three-Judge Bench of this Court in  Northern Railway Admn. v. Patel Engg. Co. Ltd. wherein the jurisdiction of the High Court under Section 11(6) of the Act was sought to be emphasised by taking into account the expression “to take the necessary

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measure” appearing in sub-section (6) of Section 11  and  by  further  laying  down  that  the  said expression  has  to  be  read  along  with  the requirement of sub-section (8) of Section 11 of the Act. The position was further clarified in Indian Oil Corpn. Ltd. v. Raja Transport (P) Ltd. Para 48 of the Report wherein the scope of Section 11 of the Act was summarised may be quoted by reproducing sub-paras  (vi)  and  (vii)  hereinbelow:  (Indian  Oil case, SCC p. 537)

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

(emphasis in original)”

7. In  Indian  Oil  Corporation  and  others v.  Raja

Transport  Private  Limited5,  this  Court  has  elaborately

discussed the scope of Section 11 of the Act and held that if the

circumstances so warrant, the Chief Justice or the designated

Judge can ignore the specified arbitrator as stipulated in the

agreement. Paragraphs-45 and 48, to the extent relevant, read

as follows:  

5 (2009) 8 SCC 520

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“45. If the arbitration agreement provides for arbitration  by  a  named  arbitrator,  the  courts should normally give effect to the provisions of the arbitration agreement. But as clarified by Northern Railway Admn., where there is material to create a reasonable  apprehension  that  the  person mentioned  in  the  arbitration  agreement  as  the arbitrator  is  not  likely  to  act  independently  or impartially, or if the named person is not available, then the Chief Justice or his designate may, after recording  reasons  for  not  following  the  agreed procedure of  referring the dispute to the named arbitrator,  appoint  an  independent  arbitrator  in accordance with Section 11(8) of the Act. In other words,  referring  the  disputes  to  the  named arbitrator shall be the rule. The Chief Justice or his designate  will  have  to  merely  reiterate  the arbitration agreement by referring the parties to the named arbitrator  or  named Arbitral  Tribunal. Ignoring the named arbitrator/Arbitral Tribunal and nominating an independent arbitrator shall be the exception  to  the  rule,  to  be  resorted  for  valid reasons. xxxx           xxxx xxxx  xxxx xxxx

48. In the light of the above discussion, the scope  of  Section  11  of  the  Act  containing  the scheme  of  appointment  of  arbitrators  may  be summarised thus:

(i)  Where  the  agreement  provides  for arbitration with three arbitrators (each party to appoint  one arbitrator  and the  two appointed arbitrators to appoint a third arbitrator), in the event of a party failing to appoint an arbitrator within  30  days  from the  receipt  of  a  request from  the  other  party  (or  the  two  nominated arbitrators  failing  to  agree  on  the  third arbitrator within 30 days from the date of the appointment), the Chief Justice or his designate will  exercise  power  under  sub-section  (4)  of Section 11 of the Act.

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(ii)  Where  the  agreement  provides  for arbitration by a sole arbitrator and the parties have  not  agreed  upon  any  appointment procedure, the Chief Justice or his designate will exercise power under sub-section (5) of Section 11, if the parties fail to agree on the arbitration within thirty days from the receipt of a request by a party from the other party.

(iii)  Where  the  arbitration  agreement specifies  the  appointment  procedure,  then irrespective of  whether  the arbitration is  by a sole arbitrator or  by a three-member Tribunal, the Chief Justice or his designate will  exercise power under sub-section (6) of Section 11, if a party fails to act as required under the agreed procedure (or the parties or the two appointed arbitrators fail to reach an agreement expected of  them  under  the  agreed  procedure  or  any person/institution fails to perform any function entrusted to him/it under that procedure).

(iv) While failure of the other party to act within 30 days will furnish a cause of action to the  party  seeking  arbitration  to  approach  the Chief  Justice  or  his  designate  in  cases  falling under  sub-sections  (4)  and  (5),  such  a time-bound  requirement  is  not  found  in sub-section (6) of Section 11. The failure to act as  per  the  agreed  procedure  within  the time-limit  prescribed  by  the  arbitration agreement, or in the absence of any prescribed time-limit, within a reasonable time, will enable the  aggrieved  party  to  file  a  petition  under Section 11(6) of the Act.

(v) Where the appointment procedure has been agreed between the parties, but the cause of  action  for  invoking  the  jurisdiction  of  the Chief Justice or his designate under clauses (a), (b) or (c) of sub-section (6) has not arisen, then the question of the Chief Justice or his designate exercising power under sub-section (6) does not arise. The condition precedent for approaching

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the  Chief  Justice  or  his  designate  for  taking necessary  measures  under  sub-section  (6)  is that

(i)  a  party  failing  to  act  as  required under the agreed appointment procedure; or

(ii)  the  parties  (or  the  two  appointed arbitrators)  failing  to  reach  an  agreement expected  of  them  under  the  agreed appointment procedure; or

(iii)  a  person/institution  who  has  been entrusted with any function under the agreed appointment  procedure,  failing  to  perform such function.

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

8. Thus,  the  issue  is  no  more  res  integra.  Though  an

arbitrator  is  specified  in  the  agreement  for  arbitration,  if

circumstances so warrant, the Chief Justice or the designated

Judge is free to appoint an independent arbitrator, having due

regard to the qualification, if any, and other aspects as required

under Section 11(8) of the Act.

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9. On the facts of the present case, one wonders whether

the issue actually arose or not. Clause 2900 of the Standard

Conditions  of  Contract  no  doubt  provides  that  the  sole

arbitrator shall be a Gazetted Railway Officer but in Clause 19.0

of  the  agreement  dated  16.01.2012  executed  between  the

parties,  it  is  clearly  stipulated  that  the  contract  shall  be

governed by the General Conditions and Special Conditions of

Contract. Clause 19.0 specifically provides that ... “the contract

shall  be  governed  by  the  general  conditions  and  special

conditions of contract. ...”.   

10. Paragraph-18.0 of the General  Conditions and Special

Conditions of Contract, reads as follows:

“18.0 ARBITRATION:

(a) In the event of any question, dispute or difference arising under these conditions or any special condition of contract, or in connection with this contract (except as to any matters the decision of which is specially provided for by these or the special  conditions)  the  same  shall  be referred  to  the  sole  Arbitration  of  a person  appointed  to  be  arbitrator,  by the  General  Manager  in  the  case

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contracts  entered  into  by  the  Zonal Railways  and  Production  Units  by  the member  of  the  Railway  Board concerned,  in  the  case  of  contracts entered into by the Railway Board and by  the  head  of  the  organizations  in respect of the contracts entered into by the  other  organizations  under  the Ministry of  Railways.   There will  be no objection  if  the  arbitrator  is  a Government Servant that he had to deal with  matters  to  which  the  contract relates or that in the course of his duties as  a  Government  Servant,  he  has expressed  views  on  all  or  any  of  the matters  in  disputes  or  difference.  The award of the Arbitrator shall be final and binding on the parties to this contract.”  

11. Thus,  it  is  clear  that  there  is  no  stipulation  for

appointment of  a  Railway Officer.  It  can be any person.  The

designated  Judge  of  the  High  Court  has  only  exercised  his

powers  in  terms  of  the  agreement  by  nominating  an

independent arbitrator.

12. Thus, we find no merit in this appeal and the same is

accordingly dismissed.  There shall be no order as to costs.  

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SPECIAL LEAVE PETITION (CIVIL) NO. 26614 OF 2014

 13. In view of the Judgment of this Court in Civil Appeal No.

4483  of  2017  @ Special  Leave  Petition  (Civil)  No.  17838  of

2014,  we  find  no  merit  in  this  petition  and  the  same  is

accordingly dismissed. There shall be no order as to costs.

.......................J.         (KURIAN JOSEPH)

.……………………J.                  (R. BANUMATHI)

New Delhi; MARCH 27, 2017.   

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