2016 (7) TMI 1056 - SC - Indian Laws

Application under Section 11 of the Arbitration and Conciliation Act, 1996 - HC 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 - Held that - 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 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. 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. Appeal allowed

Summary

Issues:
1. Correct interpretation of clause 64(3)(a)(ii) of the Agreement regarding the appointment of arbitrators.
2. Whether the application under Section 11(6) of the Arbitration and Conciliation Act, 1996 was premature.
3. Appointment of a former judge as an arbitrator.
4. Compliance with the terms of the Agreement in appointing arbitrators.
5. Setting aside the impugned order and providing directions for arbitration proceedings.

Issue 1: Correct interpretation of clause 64(3)(a)(ii) of the Agreement regarding the appointment of arbitrators:
The appellants challenged the final order passed by the designated Judge of Gauhati High Court, arguing that the order misinterpreted clause 64(3)(a)(ii) of the Agreement. The appellants contended that the clause required the contractor to make a written demand for arbitration, allowing 60 days for the Railways to send a panel of eligible railway officers for the contractor to suggest nominees. The appellants claimed that the Judge misread the clause, leading to the erroneous conclusion that the appellants forfeited their right to appoint arbitrators.

Issue 2: Prematurity of the application under Section 11(6) of the Act:
The appellants argued that the application under Section 11(6) of the Act was premature, citing the case of Datar Switchgears Ltd. v. Tata Finance Ltd. The appellants contended that the contractor's notice demanding arbitration was served on the Railways, and as per the Agreement, the contractor had to wait for 60 days before taking further action. Therefore, the appellants claimed that the Judge erred in finding that the appellants forfeited their right to appoint arbitrators.

Issue 3: Appointment of a former judge as an arbitrator:
The appellants relied on the judgment in Northern Railway Administration v. Patel Engineering Company Limited to argue that appointing a former judge as an arbitrator was unwarranted. They emphasized the need for the Chief Justice or designated person to consider the qualifications required for the arbitrator by the parties' agreement and ensure the appointment of an independent and impartial arbitrator.

Issue 4: Compliance with the terms of the Agreement in appointing arbitrators:
The respondent contractor contended that the Judge misread the relevant clause of the Agreement, which allowed 60 days for the Railways to respond to the demand for arbitration. The contractor filed the Section 11 application prematurely, before the expiry of the 60-day period, and the Railways sent a panel of names within the stipulated time. The contractor argued that the appellants did not commit a default and did not forfeit their right to appoint arbitrators as per the Agreement.

Issue 5: Setting aside the impugned order and providing directions for arbitration proceedings:
After analyzing the arguments and facts presented, the Court set aside the impugned order and provided directions for the arbitration proceedings. The respondent contractor was given the option to serve a fresh notice for arbitration within a month. Upon receipt, the Railways were directed to send a panel of names within 60 days for the constitution of the Arbitral Tribunal as per the Agreement. Failure to comply within the stipulated time would allow the contractor to pursue further remedies under the law.

In conclusion, the Supreme Court's judgment addressed the correct interpretation of the Agreement's clause, the prematurity of the Section 11 application, the appointment of an arbitrator, compliance with the Agreement's terms, and provided directions for the arbitration proceedings, ultimately setting aside the impugned order.