2022 (7) TMI 1238 - SC - Indian Laws

Appointment of arbitrator - Direction to send a fresh panel of four retired officers in terms of clause 64(3)(b) of the General Conditions of Contract (GCC) - constitution of Arbitral Tribunal in terms of clause 64(3)(b) of the GCC - HELD THAT - The appellant and the respondent being signatories to the agreement are bound by the aforesaid arbitration clause/arbitration agreement. As the dispute arose between the parties, the appellant invoked the arbitration clause in terms of the agreement. However, the respondent General Manager/Railway failed to appoint the arbitrator in terms of clause 32 - Once the dispute has arisen between the parties and despite invocation of the arbitration clause in terms of the agreement no arbitrator is appointed, it can be said that the authority has forfeited its right to appoint the arbitrator in terms of the arbitration agreement and thereafter the arbitrator has to be appointed under Section 11(6) of the Act. In the present case also, the respondent failed to appoint an arbitrator as per the agreed procedure and in terms of the agreement. Therefore, the respondent forfeited its right to appoint an arbitrator in terms of the agreement and therefore the appellant was justified in filing the application before the High Court for appointment of a sole arbitrator in exercise of powers under Section 11(6) of the Act. The Chief Justice or his nominee thus was required to appoint the arbitrator under Section 11(6) of the Act. While allowing the application under Section 11(6) of the Act instead of appointing the arbitrator in exercise of powers under Section 11(6) of the Act, the High Court has directed to constitute an Arbitral Tribunal in terms of clause 64(3)(b) of the GCC. It is not in dispute that neither the GCC was signed by the parties nor the GCC was made part of the agreement between the parties. There is no reference to the GCC in the main agreement entered into between the parties. Even as per communication dated 16.07.2020, the GCC, July 2020 shall be applicable to works contract of Indian Railways with prospective effect. Therefore, the parties are not governed by the GCC at all. Therefore, the High Court has committed a serious error in directing to constitute an Arbitral Tribunal in terms of the provisions of the GCC, which are not binding to the parties. The order passed by the High Court to the extent directing to constitute an Arbitral Tribunal in terms of clause 64(3)(b) of the GCC is unsustainable and deserves to be quashed and set aside and is accordingly quashed and set aside - The High Court has failed to appoint the sole arbitrator in exercise of powers under Section 11(6) of the Act. Therefore, as such the matter is required to be remanded to the High Court for appointment of a sole arbitrator. Appeal allowed by way of remand.

Summary

Issues:
Appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996; Application of General Conditions of Contract (GCC) in arbitration agreement.

Analysis:
1. Appointment of Arbitrator under Section 11(6): The appellant challenged the High Court's decision directing the appointment of an arbitrator in terms of clause 64(3)(b) of the GCC instead of under Section 11(6) of the Act. The appellant argued that the respondent's failure to appoint an arbitrator forfeited its right under the agreement, necessitating the High Court to appoint a sole arbitrator. Citing the case of Deep Trading Company vs. Indian Oil Corporation, it was emphasized that once the agreed procedure is not followed, the right to appoint an arbitrator is lost. The Supreme Court agreed, stating that the High Court erred in not appointing a sole arbitrator under Section 11(6) and that the matter should have been remanded for such appointment.

2. Application of General Conditions of Contract (GCC): The High Court's decision to direct the constitution of an Arbitral Tribunal as per clause 64(3)(b) of the GCC was challenged as the parties had not signed the GCC, and it was not part of the original agreement. The respondent failed to justify the applicability of the GCC to the agreement, leading the Court to quash the High Court's decision. The Supreme Court clarified that the parties were not bound by the GCC and that the High Court's direction based on the GCC was erroneous. To expedite the process, the Court appointed a former Judge as the sole arbitrator to resolve the dispute between the parties.

In conclusion, the Supreme Court allowed the appeal, set aside the High Court's decision, and appointed a sole arbitrator under Section 11(6) of the Act to adjudicate the dispute. The Court emphasized that the parties were not governed by the GCC and that the High Court's direction based on the GCC was unsustainable. The appointment of a former Judge as the arbitrator was made to avoid further delays in the arbitration process, with no costs imposed on the parties.