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C.A.No.6179/16 @ SLP (C) No. 28851/14  

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.6179 OF 2016 (Arising out of SLP (C) No. 28851 of 2014)

Union of India & Anr.        …..Appellants   

Versus

Premco-DKSPL (JV) & Ors.                 .....Respondents  

J U D G M E N T

SHIVA KIRTI SINGH, J.

1. The appellants have assailed the legality and correctness of

final order dated 25.02.2014 passed in Arbitration Petition No.14 of

2013 by an Hon’ble Judge of Gauhati High Court designated by the

Chief  Justice  of  that  Court  to  decide  respondents’  applications

under  Section  11  of  the  Arbitration  and  Conciliation  Act,  1996

(hereinafter referred to as ‘the Act’).  By the impugned order the

designated Judge allowed the application under Section 11 of the

Act and appointed a former Judge of that Court as the Arbitrator

after holding that the appellants had forfeited their right to appoint

railway officers as arbitrators in terms of clause 64(3)(a)(ii) of the

agreement.  

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2. According to Ms. Kiran Suri, learned senior counsel for the

appellants the impugned order suffers from apparent error of fact

on account of misreading or non-reading of the relevant clause of

the  Agreement,  i.e.,  clause  64(3)(a)(ii)  which  requires  the

contractor/respondent to make a written demand for arbitration

and permits 60 days’ time to the Railways from the date of receipt

of the demand, to send a panel of more than three names of eligible

gazetted  railway  officers  so  that  the  contractor  may  suggest  to

General  Manager  at  least  two  names  out  of  that  panel  for

appointment of the contractor’s nominee.  Such suggestion from

the contractor should come within 30 days from the dispatch of the

request  by  Railways.   According  to  learned  senior  counsel,  the

relevant clause though indicated in paragraph 4 of the impugned

order has been misread leading to an erroneous inference in the

following words :  

“…. This Clause permits the respondents to nominate a railway  officer,  provided  of  course,  the  nomination  is made  within  30 days  of  receipt  of  the  demand letter from the petitioner.   But since there was no reaction from the railways side within the permissible 30 days and  since  in  the  meantime  the  contractor  has approached the High Court under Section 11(6) of the Arbitration Act, having regard to the decision in Datar Switchgears  Ltd.  (supra)  it  is  apparent  that  the respondents  have  forfeited  their  right  to  appoint  a railway officer as the arbitrator.”

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3. It has been further contended on behalf of the appellants that

the law laid down in the case of  Datar Switchgears Ltd. v.  Tata

Finance Ltd. & Anr.1 has not been correctly appreciated by the

learned Judge because in that case failure to meet the demand to

appoint  an arbitrator  was  apparent  on account  of  expiry  of  the

notice period of 30 days indicated in the demand.  Even then the

Court held that since the application was under Section 11(6)(a) of

the Act and since that Section does not prescribe any time limit

rather  gives  an  unfettered  discretion  to  appoint  an  arbitrator

without any time limit, such power will stand forfeited only after

the party making the demand has moved the Court under Section

11 and not on mere expiry of the notice period of 30 days.  It is

appellants’ stand that in view of stipulations in the relevant clause

providing for arbitration, the respondent-contractor admittedly sent

a notice demanding arbitration on 12.06.2013 which was served on

the appellants on 14.06.2013 and hence it had to wait for 60 days

for receipt of a panel of more than three names.  Thereafter the

contractor  had  to  suggest  two  names  for  appointment  of  his

nominee arbitrator within 30 days.  The cause of action for sending

a notice of 30 days or any reasonable period, in view of clear terms

in the Arbitration Agreement which has not been repudiated, can 1 (2000) 8 SCC 151

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arise only after 60 days.  Hence according to learned senior counsel

for  the  appellants,  the  learned  Judge  erred  in  holding  that  the

appellants had forfeited their right to appoint arbitrators.  Instead,

the finding should have been that the application under Section

11(6) of the Act was premature.

4. On  behalf  of  appellants  reliance  has  been  placed  upon

judgment of  this Court  by a three Judges Bench in the case of

Northern Railway Administration, Ministry of Railway v.  Patel

Engineering Company Limited2 in support of the proposition that

in the appointment of arbitrator by court under Section 11(6), the

Chief Justice or the designated person shall have “due regard to the

two conditions in Section 11(8)(a) and (b) relating to qualifications

required  for  the arbitrator  by  the agreement  of  the parties;  and

other  considerations  relevant  to  secure  the  appointment  of  an

independent  and  impartial  arbitrator”.  Hence,  in  any  event

appointment of a non-technical person, a former judge as arbitrator

was unwarranted.

5. On behalf of respondent contractor the relevant facts have not

been disputed and hence on facts it is beyond any doubt that the

learned Judge has misread or omitted to read the relevant clause of

the  agreement  which  allows  60  days’  time  to  the  Railways  to 2 (2008) 10 SCC 240

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respond  to  the  demand  of  the  contractor  by  sending  a  panel

containing more than three names out of which the contractor has

to suggest at least two names to the Railways which has to appoint

one out of them as the contractor’s nominee.  The relevant dates

are  also  not  in  dispute.   Since  the  notice  for  appointment  of

arbitrators  dated  12.06.2013  was  served  on  the  railways  on

14.06.2013,  the  contractor  had  to  respect  the  terms  of  the

agreement which was unrepudiated and to wait for a period of at

least 60 days before Section 11 application could have been filed.

Instead of waiting for 60 days the contractor/respondent preferred

such application prematurely on 23.07.2013. The Railways sent a

panel of 4 names to the respondent on 30.07.2013, well within 60

days limit.

6. In the aforesaid facts and circumstances it did not lie in the

mouth  of  the  respondent  contractor  that  the  appellants  had

committed  a  default  and  had  forfeited  their  right  to  appoint

arbitrators as per terms of the agreement.  The learned Judge failed

to read the relevant clause of the agreement properly and therefore

wrongly  placed  reliance  upon  judgment  in  the  case  of  Datar

Switchgears (supra).   In that  case this Court had extracted the

relevant  terms  of  agreement  in  paragraph 9  which showed  that

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there was no stipulation of any time limit like that of 60 days in the

present case.  The terms of the Agreement bind the parties unless

they  have  chosen  to  repudiate  the  same.  Relevant  terms,  if

provided, will be material for deciding when the right of a party to

appoint  the  arbitrator  will  suffer  forfeiture  and  when  the  other

party  would  be  entitled  to  give  notice  and  on  failure,  move

application  under  Section  11(6)  of  the  Act.  Such  terms  deserve

respect of the parties and attention of the Court.

7. In view of aforesaid discussions we find no option but to set

aside the impugned order under appeal.  We order accordingly.  In

case  the  respondent  contractor  is  still  desirous  of  pursuing  its

claim through arbitration in terms of the agreement, it is given the

option to serve a fresh notice for arbitration within a month and on

receipt of the same the appellants/railways shall be at liberty to

send  a  panel  of  requisite  number  of  names  to  the  respondents

within 60 days of receipt of the notice so that Arbitral Tribunal is

constituted in terms of the Agreement.  It goes without saying that

if the Railways default in sending the panel within the stipulated

time, the contractor will be at liberty to pursue its further remedies

as per provisions of  the Act  and law.  The appeal  is  allowed in

aforesaid terms but without any order as to costs.

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     ………………………………..…….J.       [SHIVA KIRTI SINGH]

      ………………………………….…..J.                  [R. BANUMATHI]

New Delhi. July 25, 2016.

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