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CASE NO.:

Appeal (civil) 1783 of 2007

PETITIONER:

Ace Pipeline Contracts Private Limited

RESPONDENT:

Bharat Petroleum Corporation Limited

DATE OF JUDGMENT: 04/04/2007

BENCH:

A.K. Mathur & Tarun Chatterjee

JUDGMENT:

J U D G M E N T

[ ARISING OUT OF S.L.P.(C) NO.6073 OF 2006]

A.K.MATHUR, J.

Leave granted.

This appeal is directed against the order dated 18.1.2006

passed by learned Single Judge of the High Court of Delhi in

Arbitration Petition No.181 of 2005 whereby learned Single Judge

dismissed the application for appointment of Arbitrator. Hence, the

present appeal against the aforesaid order.

Brief facts which are necessary for disposal of this appeal are

that an application styled under Section 11(5) of the Arbitration and

Conciliation Act, 1996 (hereinafter referred to as 'the Act') was moved

by the Ace Pipeline Contracts Private Limited, the appellant herein,

for appointing a retired Judge of the Supreme Court of India to

adjudicate the claims and disputes between the parties arising out of

the contract between the parties dated 10.06.2002. The said contract

pertained to the laying down of a pipeline and associated facilities for

Section-1 [Manmad in Maharashtra to M.P. Border near (Shirpur)] for

Mumbai-Manmad Pipeline Extension Project of the respondent-

Bharat Petroleum Corporation Limited (hereinafter referred to as

'BPCL'). The main issue was with regard to interpretation of Clause

91 of the contract which pertains to appointment of arbitrator. Clause

91 of the contract reads as under :

"91. ARBITRATION

All disputes or differences whatsoever which shall at

any time arise between the parties hereto touching or

concerning the works or the execution or

maintenance thereof under this Contract or the right

touching or concerning the works or the execution or

the maintenance effect thereof or to the rights or

liabilities of the parties or arising out of or in relation

thereto whether during or after completion of the

contract or whether before or after determination

foreclosure or breach of the Contract (other than

those in respect of which the decision of any person

is by the Contract expressed to be final and binding)

shall after written notice by either party to the

Contract to the other of them and to the Appointing

Authority be referred for adjudication, to a sole

Arbitrator to be appointed as hereinafter provided.

a. Any dispute or difference of any nature

whatsoever any claim, cross-claim, counter-claim or

set off of the Corporation against the Vendor or

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regarding any right, liability, act, omission or account

of any of the parties hereto arising out of or in

relation to this agreement shall be referred to the

Sole Arbitration of the Director (Marketing) of the

Corporation or of some officer of the Corporation who

may be nominated by the Director (Marketing). The

Vendor will not be entitled to raise any objection to

any such Arbitrator on the ground that the Arbitrator

is an Officer of the Corporation or that he has dealt

with the matters to which the contract relates or that

in the course of his duties as an Officer of the

Corporation he had expressed views on all or any

other matters in dispute or difference. In the event of

the Arbitrator to whom the matter is originally referred

being transferred or vacating his office or being

unable to act for any reason, the Director (Marketing)

as aforesaid at the time of such transfer, vacation of

office or inability to act may in the discretion of the

Director (Marketing) designate another person to act

as Arbitrator in accordance with the terms of the

agreement to the end and intent that the original

Arbitrator shall be entitled to continue the arbitration

proceedings notwithstanding his transfer or vacation

of office as an Officer of the Corporation if the

Director (Marketing) does not designate another

person to act as arbitrator on such transfer, vacation

of office or inability of original arbitrator. Such

persons shall be entitled to proceed with the

reference from the point at which it was left by his

predecessor. It is also a term of this contract that no

person other than the Director (Marketing) or a

person nominated by such Director (Marketing) of the

Corporation as aforesaid shall act as an Arbitrator

hereunder. The award of the Arbitrator so appointed

shall be final conclusive and binding on all parties to

the agreement subject to the provisions of the

Conciliation & Arbitration Act, 1996 or any statutory

modification or re-enactment thereof and the rules

made thereunder for the time being in force shall

apply to the arbitration proceedings under this

clause."

Clause 91 provides that any dispute arising between the parties shall

be settled through arbitration and the appointing authority i.e. the

Director (Marketing) himself or he may nominate any other person of

the Corporation to act as an Arbitrator to resolve the disputes and

the vendor will not be entitled to raise any objection to such arbitrator

on the ground that the Arbitrator is an officer of the Corporation or

that he has dealt with the matters to which the contract relates or that

in the course of his duties as an Officer of the Corporation he had

expressed views on all or any other matters in dispute or difference.

Since some differences arose between the parties with regard to the

claim of the appellant, a letter dated 21.7.2005 was written to the

Director (Marketing) invoking clause 91 of the agreement and

requesting him to refer the matter to arbitration for resolving the

differences. It was also requested that the Director (Marketing) may

accede to the request of the appellant for adjudication of the dispute

by a former Judge of the Supreme Court of India so as to remove any

justifiable doubts to the independence or impartiality of the said

Arbitrator. It was further submitted that on receiving the

communication, the appellant would suggest the name of the retired

Judge of the Supreme Court of India for the purpose of appointment

as Arbitrator. It was alleged that no one was appointed as Arbitrator,

therefore, on 22.8.2005 the appellant filed the present application

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before the High Court for appointment of Arbitrator under Section

11(5) & (6) of the Act. It was also pointed out that after presentation

of the application on 22.8.2005, the appellant received a letter of the

Director (Marketing) nominating Shri P.S. Bhargava, Executive

Director (Quality Control Cell) of the respondent- BPCL to act as sole

arbitrator. It was contended that the letter appointing Shri

P.S.Bhargava as sole Arbitrator was received by the appellant

subsequent to the filing of the petition before the High Court on

26.8.2005. It was also pointed out that Shri P.S.Bhargava was

appointed as Arbitrator on 22.8.2005 and the same was

communicated and received by the appellant through courier on

26.8.2005. Therefore, it was submitted before the High Court that

since the appointment of Arbitrator has been made after the filing of

the petition by the appellant before the High Court, the Director

(Marketing) ceased to have any right to appoint any Arbitrator after

expiry of thirty days. Therefore, a request was made that any retired

Judge of the Supreme Court may be appointed as Arbitrator. This

was contested by the respondent by filing a reply. It was pointed out

that the notice dated 21.7.2005 was received by the Director

(Marketing) on 26.7.2005 and a request was made to the appellant to

supply copy of the arbitration agreement and other corresponding

documents as he was not aware of the procedure for appointment of

the Arbitrator. The Director (Marketing) received reply to the

communication dated 12.8.2005 on 16.8.2005 which was received

in the Office on 17.8.2005. After receiving the communication and all

the materials on 17.8.2005, the appointing authority appointed Shri

P.S.Bhargava as Arbitrator on 22.8.2005 and a communication was

sent to the appellant through courier which was received by him on

26.8.2005. It was also pointed out after receipt of the reply to the

communication dated 12.8.2005 on 16.8.2005, 19th, 20th & 21st

August, 2005 Office remained closed on account of Rakshya

Bandhan and weekly holidays. The Director (Marketing) sent reply

on 22.8.2005 appointing Shri P.S.Bhargava as Arbitrator. It was also

pointed out that the whole action was done with urgency and there

was no delay on the part of the Administration.

Learned Single Judge after examining the matter came to the

conclusion that it cannot be said that the appointing authority did not

act with due dispatch. Learned Single Judge also held that as per the

terms of the agreement in question with regard to independence and

objectivity of the arbitrator can be examined in view of the agreement

and it was observed that this question can be raised before the

arbitrator and even if they fail, it can be agitated under Section 34 of

the Act. However, learned Single Judge concluded that the situation

had not arisen to invoke the provisions of Section 11(6) of the Act at

present and consequently, dismissed the petition. Aggrieved against

the impugned order dated 18.1.2006, the present appeal was filed.

We have heard Shri Soli J. Sorabjee, learned Senior counsel

for the appellant, and Shri Sudhir Chandra, learned senior counsel for

the respondent, and perused the records. Though the application

moved by the appellant under Section 11 of the Act was of course

very confusing as it also mentioned Section 11(5) as well as Section

11(6) of the Act, in fact the application under Section 11(5) of the Act

was not maintainable. Be that as it may, learned Single Judge

proceeded on the basis of treating this application under Section

11(6) of the Act. This may be bona fide error. Mr. Sorabjee, learned

Senior Counsel for the appellant, strenuously urged that after expiry

of period of thirty days, the respondent has lost the right to appoint

Arbitrator under Clause 91 of the agreement and in support thereof,

invited our attention to the following decisions of this Court.

i) (2000) 8 SCC 151

[Datar Switchgears Ltd. v. Tata Finance Ltd & Anr.]

ii) (2006) 2 SCC 638

[Punj Lloyd Ltd. v. Petronet MHB Ltd.]

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iii) (2006) 8 SCC 279

[BSNL & Ors. v. Subash Chandra Kanchan & Anr.]

iv) (2006) 2 SCC 628

[Shin Satellite Public Co.Ltd. v. Jain Studios Ltd.]

v) 2006 (12) SCALE 144

[Union of India & Anr. v. M/s.V.S.Engineering (P) Ltd.]

Our attention was also invited to a Full Bench decision of the Delhi

High Court in J.V. v. Union of India & Ors. decided on 31.8.2006 and

a decision of the Calcutta High Court in Great Eastern Shipping Co.

Ltd. v. Board of Trustees for the Port of Calcutta [2005 (1) Arb. LR

389].

Before we deal with each case cited above, it may be relevant

to deal with scope of Section 11 of the Act. A person of any

nationality may be appointed as Arbitrator, unless otherwise agreed

between the parties. Sub-section (2) of Section 11 says that subject

to sub-section (6), the parties are free to agree on a procedure for

appointing the arbitrator or arbitrators. Sub-section (3) provides that

failing any agreement referred to in sub-section (2), one arbitrator can

be appointed by each party and the two arbitrators so appointed shall

appoint the third arbitrator who shall act as the presiding arbitrator.

Sub-section (4) says that in case a party fails to make appointment

within thirty days from the date of receipt of the request to do so from

the other party, or that the two appointed arbitrators fail to nominate

the third arbitrator within thirty days from the date of their

appointment, the appointment shall be made by the Chief Justice or

by any person or institution designated by him. Sub-section (5) says

failing any agreement referred to in sub-section (2), in an arbitration

with a sole arbitrator, if the parties fail to agree on the arbitrator within

thirty days from receipt of a request by one party from the other party

to so agree the appointment shall be made, upon request of a party,

by the Chief Justice or any person or institution designated by him.

Therefore, the concept of thirty days is there in Sub-sections (4) &

(5). This is in the event of the parties did not come to appoint

arbitrator or the two nominated arbitrators fail to agree within thirty

days for appointment of third arbitrator, application can be moved

under Section 11(5) of the Act to the Chief Justice for appointment of

arbitrator. But in sub-section (6), where, the procedure has already

been agreed upon by the parties, as in the present case, and in that

event, if a party fails to act as required under that procedure or the

parties, or the two appointed arbitrators, fail to reach an agreement

expected of them under that procedure or a person, including an

institution, fails to perform any function entrusted to him or it under

that procedure, a party may in that event, request the Chief Justice

or a person or an institution designated by him to make necessary

measures, unless the agreement on the appointment procedure

provides other means for appointment of arbitrator. Therefore, so far

as the period of thirty days is concerned, it is not mentioned in Sub-

section (6). The period of limitation is only provided under sub-

sections (4) & (5) of Section 11. As such, as per the statute, the

period of limitation of thirty days cannot be invoked under sub-section

(6) of Section 11 of the Act. In this context, their Lordships in Datar

Switchgears Ltd. (supra) did not permit to count 30 days as such in

sub-section (6). We cannot do any better than to reproduce

paragraphs 19, 20 & 21 of the judgment in that case.

"19. So far as cases falling under Section 11(6)

are concerned- such as the one before us \026 no time

limit has been prescribed under the Act, whereas a

period of 30 days has been prescribed under Section

11(4) and Section 11(5) of the Act. In our view,

therefore, so far as Section 11(6) is concerned, if one

party demands the opposite party to appoint an

arbitrator and the opposite party does not make an

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appointment within 30 days of the demand, the right

to appointment does not get automatically forfeited

after expiry of 30 days. If the opposite party makes

an appointment even after 30 days of the demand,

but before the first party has moved the court under

Section 11, that would be sufficient. In other words,

in cases arising under Section 11(6), if the opposite

party has not made an appointment within 30 days of

demand, the right to make appointment is not

forfeited but continues, but an appointment has to be

made before the former files application under

Section 11 seeking appointment of an arbitrator. Only

then the right of the opposite party ceases. We do

not, therefore, agree with the observation in the

above judgments that if the appointment is not made

within 30 days of demand, the right to appoint an

arbitrator under Section 11(6) is forfeited.

20. In the present case the respondent made the

appointment before the appellant filed the application

under Section 11(6) though it was beyond 30 days

from the date of demand. In our view, the

appointment of the arbitrator by the respondent is

valid and it cannot be said that the right was forfeited

after expiry of 30 days from the date of demand.

21. We need not decide whether for purposes of sub-

sections (4) and (5) of Section, which expressly

prescribe 30 days, the period of 30 days is

mandatory or not."

The observations made by their Lordships are very clear and

Their Lordships negatived the contention that 30 days should not be

read in sub-section (6) of Section 11 of the Act if the opposite party

has not made an appointment within 30 days of demand, the right to

make appointment is not forfeited but continues. Their Lordships in

paragraph 20 have also very categorically held that in the present

case the respondent made the appointment before the appellant filed

the app1lication under section 11(6), though it was beyond 30 days

from the date of demand, the appointment of the arbitrator by the

respondent was valid and it cannot be said that the right was forfeited

after expiry of 30 days from the date of demand. Their Lordships

were also very clear in their mind in paragraph 21 and observed, "we

need not decide whether for purpose of sub-sections (4) and (5) of

Section 11, which expressly prescribe 30 days, the period of 30 days

is mandatory or not. " We are only concerned with reading of 30 days

within sub-section (6) of Section 11. So far as the period of 30 days

with regard to Section 11(6) is concerned, there is no manner of

doubt that their Lordships had not invoked 30 days as mandatory

period under Section 11(6) and beyond that it cannot be invoked by

the appointing authority. Therefore, it is totally misnomer to read 30

days in Section 11(6) of the Act, though Shri Sorabjee, learned senior

counsel appearing for the appellant tried to emphasize that the

decision in Datar has been affirmed by a three Judge Bench and

therefore, 30 days should be read in Section 11(6) of the Act is also

not correct.

In the case of Punj Lloyd Ltd. (Supra), Their Lordships only

quoted paragraph 19 in part and not in full. Full paragraph 19 of the

judgment in Datar (supra) has been reproduced above. In fact

subsequent observation of their Lordships, "We do not, therefore,

agree with the observation in the above judgments that if the

appointment is not made within 30 days of demand, the right to

appoint an arbitrator under Section 11(6) is forfeited", this portion of

order was not reproduced. Therefore, it is not a case that the

decision given by two Judge Bench in Datar (supra) has been

reaffirmed and this is binding on us. We regret to say this is not

correct. In the case of Punj Llyod Ltd. Their Lordships only set aside

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the order and remitted the matter back to the High Court for

appointment of arbitrator by the Chief Justice. But the ratio laid down

in Datar (supra) holds good and it is not negatived, the period of 30

days cannot be read in Section 11(6) of the Act. The relevant portion

of Punj Lloyd's case (supra) reads as under:-

"Having heard the learned counsel for the parties, we

are satisfied that the appeal deserves to be allowed.

The learned counsel for the appellant has placed

reliance on the law laid down by this Court in the

case of Datar Switchgears Ltd. v. Tata Finance Ltd.

(SCC p.158, para 19) wherein this Court has held as

under :

"So far as Section 11(6) is concerned, if

one party demands the opposite party to appoint

an arbitrator and the opposite party does not

make an appointment within 30 days of the

demand, the right to appointment does not get

automatically forfeited after expiry of 30 days. If

the opposite party makes an appointment even

after 30 days of the demand, but before the first

party has moved the court under Section 11,

that would be sufficient. In other words, in cases

arising under Section 11(6), if the opposite party

has not made an appointment within 30 days of

demand, the right to make appointment is not

forfeited but continues, but an appointment has

to be made before the former files application

under Section 11 seeking appointment of an

arbitrator. Only then the right of the opposite

party ceases."

The /aforesaid quotation would clearly reveal that the crucial

words in paragraph 5 were not quoted in the aforesaid case which

has been reproduced above.

Our attention was also invited to a decision of this Court in the

case of Union of India v. Popular Construction Co. [(2001) 8 SCC

470]. This was in relation to Section 34(3) of the Act. This is with

regard to the period of limitation for moving the Court under Section

34 of the Act for setting aside the award i.e. the period of limitation

was prescribed in Section 34 itself. Therefore, Section 5 of the

Limitation Act was not made applicable. This is not the case before

us in the present controversy.

Our attention was also invited to a decision of this Court in the

case of The State of Uttar Pradesh & Ors. v. Babu Ram Upadhya

[(1961) 2 SCR 679]. In that case, their Lordships have dealt with the

interpretation of the statute and they have referred to "Statute Law"

by Craies and "The Interpretation of Statutes" by Maxwell. Their

Lordships have quoted a passage from Maxwell which reads as

under:

"On the other hand, where the prescriptions of a

statute relate to the performance of a public duty and

where the invalidation of acts done in neglect of them

would work serious general inconvenience or

injustice to persons who have no control over those

entrusted with the duty without promoting the

essential aims of the legislature, such prescriptions

seem to be generally understood as mere

instructions for the guidance and government of

those on whom the duty is imposed, or, in other

words, as directory only. The neglect of them may be

penal, indeed, but it does not affect the validity of the

act done in disregard of them."

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This observation, so far as this case is concerned, has no relevance

as we have already mentioned above that the period of 30 days

cannot be read in Sub-section (6) of Section 11 of the Act as the

statute does not permit it. Therefore, this case does not help the case

of the appellant in any manner.

Our attention was invited to a Full Bench decision of the High

Court of Delhi [J.V. v. Union of India & Ors. decided on 31.8.2006]

and a decision of the Calcutta High Court in Great Eastern Shipping

Co.Ltd. (supra). Both these decisions are in total ignorance of the

law laid down by this Court in Datar (supra). Therefore, they cannot

hold good. We again reemphasize that in paragraphs 19, 20 & 21

Their Lordships have clearly negatived the submission that period of

30 days cannot be read in sub-section (6) of Section 11 of the Act.

Our attention was also invited to a decision of this Court in Shin

Satellite Public Co.Ltd. v. Jain Studios Ltd. [(2006) 2 SCC 628]. This

decision was given by Hon'ble C.K. Thakker, J. in chambers. There

also, no such view has been taken by learned Judge that the period

of 30 days should be read in sub-section (6) of Section 11 of the Act.

Our attention was also invited to a decision of this Court in BSNL &

Ors. v. Subash Chandra Kanchan & Anr. [(2006) 8 SCC 279]. There

also, the question was whether the appellant was consenting party to

appointment of arbitrator or not. Appointment of arbitrator was made

by the High Court with the consent of parties which was subsequently

sought to be revoked on the ground that no instruction in that behalf

was given. But that contention was negatived by the Court and there

also, the question of appointment of arbitrator within the period of 30

days was not decided. In this connection a reference may also be

made to a decision of this Court in the case of Union of India & Anr. v.

M.P.Gupta [(2004) 10 SCC 504]. In that case, arbitrator was

appointed by the High Court directly a Judge of the High Court

because no arbitrator was appointed by the Railway Authorities as

per Clause 64 of their agreement. Their Lordships after considering

the matter observed that the appointment of arbitrator by the High

Court under Section 20 of the Arbitration Act, 1940 cannot be upheld

in view of Clause 64 of the agreement because as per Clause 64 of

the agreement, two arbitrators have to be appointed who should be

gazetted railway officers. Therefore, as per the terms of the

agreement their Lordships held that the appointment of arbitrator by

the High Court was not correct and set aside the order and directed

the Railways to appoint arbitrators within 30 days. Similar issue

came up before this Court in Union of India & Anr. v. M/s. V.S.

Engineering Pvt. Ltd. [2006 (12) SCALE 144]. This Court after

considering the decision in Union of India & Anr. v. M.P.Gupta

[(2004) 10 SCC 504] and Datar Switchgears Ltd. (supra) directed that

as per Clauses 63 & 64 of the General Clauses of the Contract, only

two gazetted officers of the railways have to be appointed as

arbitrators. However, it was observed that failure on the part of the

Department to take a decision for appointment of arbitrators would

not defeat the right of the party to approach the High Court for

appointment of arbitrator. Direction was given to the Department for

appointment of arbitrators within 30 days.

It may also not be out of place to mention that we are aware of

the Departmental lethargy in making appointment of arbitrators in

terms of the arbitration clause. Therefore, mandamus can be issued

by the Courts in exercise of powers under Section 11(6) of the Act but

the demand should be in the even t of failure by the authorities to

appoint arbitrators within the reasonable time. Courts are not

powerless to issue mandamus to the authorities to appoint arbitrators

as far as possible as per the arbitration clause. But in large number

of cases if it is found that it would not be conducive in the interest of

parties or for any other reasons to be recorded in writing, choice can

go beyond the designated persons or institutions in appropriate

cases. But it should normally be adhered to the terms of arbitration

clause & appoint the arbitrator/arbitrators named therein except in

exceptional cases for reasons to be recorded or where both parties

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agree for common name.

In the present case, in fact the appellant's demand was to get

some retired Judge of the Supreme Court to be appointed as

arbitrator on the ground that if any person nominated in the arbitration

clause is appointed, then it may suffer from bias or the arbitrator may

not be impartial or independent in taking decision. Once a party has

entered into an agreement with eyes wide open it cannot wriggle out

of the situation that if any person of the respondent-BPCL is

appointed as arbitrator he will not be impartial or objective.

However, if the appellant feels that the arbitrator has not acted

independently or impartially, or he has suffered from any bias, it will

always be open to the party to make an application under Section 34

of the Act to set aside the award on the ground that arbitrator acted

with bias or malice in law or fact.

In view of our above discussion, we find no reason to interfere

with the order passed by the learned Single Judge of the High Court

of Delhi in Arbitration Petition No.181 of 2005. The arbitrator has

already been appointed. He should proceed in the matter and decide

the dispute expeditiously. Consequently, the appeal is dismissed

with no order as to costs.