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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.